The investment logic of biotech and medical stocks: key to seizing industry opportunities

The biotech and healthcare industry is becoming a hot spot for global investors. As the world’s population ages rapidly, new drug development continues to emerge, and telemedicine applications expand, this industry demonstrates strong growth momentum. Unlike traditional industries that fluctuate with economic cycles, healthcare demand has a rigid characteristic—people need medical treatment regardless of the economy—making biotech and healthcare stocks a relatively counter-cyclical investment choice.

However, not all pharmaceutical markets worldwide are worth attention. Currently, the global development focus of the pharmaceutical industry remains on the U.S. market, which boasts the most comprehensive regulatory system, abundant R&D capital, and top industry talent. This determines that investors should focus on U.S. biotech and healthcare stocks.

Core Advantages of the U.S. Biotech and Healthcare Market

The U.S. biopharmaceutical market is the largest in the world, with data projecting it will reach $445 billion by 2027, with a CAGR of 8.5%. This vast and active market gathers nearly one million professionals across R&D, manufacturing, and sales.

Capital-driven market mechanisms are a unique advantage of the U.S. pharmaceutical market. Unlike Taiwan, where health insurance systems suppress drug prices, discouraging many new drug companies from introducing the latest medications, the U.S. market allows pharmaceutical companies to operate with market-based pricing, with insurance reimbursement covering patient costs. This mechanism stimulates continuous innovation.

At the same time, the U.S. has a sound biopharmaceutical ecosystem. Top research institutions cultivate excellent talent, venture capital is willing to invest in innovative projects, and listed companies enjoy ample financing opportunities. This virtuous cycle attracts the world’s top scientific talent, making the U.S. a global hub for pharmaceutical innovation.

Unique Logic in Valuing Biotech and Healthcare Stocks

Traditional financial metrics often fail when evaluating biotech and healthcare stocks. Most pharmaceutical companies, especially biotech firms, are in R&D stages, lacking stable cash flow and profitability; their main assets are drugs in development pipelines.

Future expectations are the key to stock prices. Once a drug passes clinical trials and gains FDA approval, its stock price often surges significantly. In 2022, Taiwanese biotech company PharmaDrug doubled its stock price against the market downturn, mainly because its drug received orphan drug designation in the U.S. Although the company’s EPS was negative 2.93 yuan, investors focused on its promising future profitability—these potential gains are unaffected by economic cycles.

Institutions generally evaluate new drug companies using PSR (Price-to-Sales Ratio) rather than traditional P/E ratios. This is because revenue better reflects a biotech company’s actual business scale and growth potential than profit.

FDA approval is the global passport. The U.S. FDA has the strictest drug monitoring standards worldwide. Once a drug is approved by the FDA, approval in other countries is often expedited. Therefore, whether investing in Taiwanese or American pharmaceutical companies, FDA approval remains the most critical milestone.

Risks and Characteristics of Biotech and Healthcare Stocks

Much higher volatility than traditional industries. Clinical trial results, competitor movements, policy and regulatory changes, patent disputes, and other factors can cause dramatic stock price swings. During the COVID-19 pandemic in 2020, many vaccine developers’ stocks soared, but most later proved to have limited technical or commercial capabilities. Subsequently, as the Federal Reserve reduced its balance sheet and the economic outlook changed, many unprofitable biotech stocks declined sharply.

Deep policy and insurance system intervention is another key feature. Biotechnology and healthcare are highly regulated industries. Developed countries often have public insurance systems, such as Taiwan’s National Health Insurance, which impose strict controls on drug prices and medical services. Investors need to understand these systemic risks.

Successful large pharmaceutical companies maintain moderate operating profit margins because they continuously invest 50-60% of revenue into R&D and acquisitions of promising small firms. Although this short-term strategy may lower EPS, major investment institutions tend to upgrade these companies’ ratings and target prices—because they recognize that a steady pipeline of innovative products ensures long-term growth.

Investment Targets in U.S. Biotech and Healthcare Stocks

The U.S. healthcare market is divided into four major sectors: pharmaceuticals, biotechnology, medical devices, and healthcare services, each with leading companies worth watching.

Lilly (LLY), as the largest pharmaceutical company by market cap globally, reached $842.05 billion in 2024, ranking 10th worldwide. It has a clear advantage in the weight-loss drug market, which is expected to continue growing in the coming years. North American sales account for about 60% of its drug revenue, making it a key biotech and healthcare stock to monitor closely.

Pfizer (PFE) and Johnson & Johnson (JNJ) are traditional giants. Pfizer’s oral COVID-19 treatment and J&J’s stable growth and generous dividends make them attractive. During U.S. stock market corrections, they often present ideal entry points for long-term investors.

Johnson & Johnson (JNJ) exhibits relatively low volatility, with a clear long-term upward trend. With stable cash flow and attractive dividend policies, it is considered a “blue-chip” in biotech stocks, suitable for dollar-cost averaging or long-term holding strategies.

AbbVie (ABBV)'s core product Humira is a first-line treatment for rheumatoid arthritis, approved by the FDA since 2002, with new indications continuously added. Although patent expiration is approaching, the company holds hundreds of other patents forming a protective barrier. Additionally, through licensing agreements with major firms like Pfizer and Amgen, AbbVie can earn royalties after patent expiry and continues R&D to find the next blockbuster drug.

Merck (MRK)'s flagship product Keytruda is one of the world’s best-selling anti-cancer drugs. The company’s stock price has steadily risen and offers high dividend yields, making it suitable for market dips.

UnitedHealth (UNH), representing healthcare services, benefits from the aging U.S. population and increasing medical needs. Its revenue and profits continue to grow, with long-term stock appreciation and stable dividends.

Taiwan Biotech and Healthcare Stocks as References

Suntar Chemical & Pharmaceutical (1720) is a diversified Taiwanese pharmaceutical company involved in Western medicine, health supplements, and medical devices. Its fundamentals have remained stable in recent years, with steady dividend policies, making it popular among dividend investors.

Hecare Biotech (1783) engages in biopharmaceutical products and medical device manufacturing and sales, covering consumer goods and biomedical sectors. Its healthy asset-liability ratio and stable long-term debt levels are worth noting.

Investment Outlook: The Absolute Advantage of the U.S. Market

Although Taiwan also has excellent biotech companies, the overall capital market is still dominated by electronics stocks, making it difficult for biotech and healthcare stocks to replicate the multi-fold gains seen in the U.S. market.

The reason U.S. biotech and healthcare stocks remain the global top choice lies in their industry scale, innovation capacity, and competitiveness, which far surpass other markets. The pharmaceutical markets in Asia are still developing and improving; even with outstanding companies, their overall performance does not match U.S. biotech and healthcare stocks. This difference stems from capital market disparities, as well as gaps in technological strength and investor professionalism.

For investors interested in biotech and healthcare stocks, it is recommended to focus on U.S. market developments. From a global perspective, U.S. biotech and healthcare stocks are indeed the most valuable investment options today. Investing in this field requires a thorough understanding of the industry to seize opportunities amid volatility.