Why Have Medical Stocks Become the New Favorite? An Analysis of the Global Pharmaceutical and Biotechnology Investment Outlook

The healthcare industry is one of the fastest-growing sectors worldwide today. With the acceleration of population aging, continuous emergence of new drugs, and increased penetration of telemedicine, pharmaceutical and biotech stocks are attracting more and more investors’ attention. Unlike the volatile economic cycles of the technology industry, the healthcare industry has a natural anti-recession characteristic—regardless of economic fluctuations, the demand for medical services always exists. This is why healthcare stocks are gradually becoming a common choice for both institutional investors and retail investors.

Why is the pharmaceutical and biotech industry worth paying attention to?

Global market size continues to expand

The US biopharmaceutical market leads the world, expected to reach $445 billion by 2027, with a compound annual growth rate (CAGR) of 8.5%. This figure reflects the continuous growth in medical demand and industry innovation acceleration.

Industry resilience to economic cycles

Unlike industries highly affected by economic cycles such as electronics and real estate, the healthcare industry demonstrates greater resilience. Diseases do not disappear during recessions, and medical demand does not decrease when the stock market declines. This characteristic makes healthcare stocks especially valuable during periods of economic uncertainty.

Unique event-driven stock price increases

Pharmaceutical and biotech stocks are driven by unique events. Breakthroughs in clinical trials, FDA approvals, new drug launches, and other events often cause significant stock price fluctuations. For example, if a drug receives orphan drug designation or completes a critical clinical trial, its stock price may double directly. This event-driven nature creates opportunities for short-term and medium-term investors.

Core logic of valuation for healthcare stocks

Future expectations are the key to value

Traditional financial indicators (such as P/E ratios, net profit) are often not suitable for evaluating pharma and biotech companies. Most of these companies are in R&D stages, with unstable or even negative cash flows. The true value comes from pipeline candidate drugs. Once a drug is approved by the FDA and gains market approval, the company’s revenue potential is rapidly unlocked, and the stock price will soar accordingly.

The power of blockbuster drugs

In the pharmaceutical industry, there is a key concept called “blockbusters,” referring to drugs with annual sales exceeding $1 billion. The emergence of such drugs can change a company’s fate. Successful large pharmaceutical companies, even with existing best-selling drugs, are willing to invest 50% to 60% of their annual revenue in R&D to sustain innovation. This persistent R&D investment is viewed as a positive signal by large investment institutions, which will raise their target stock prices for these companies.

Application of PSR valuation method

Since many pharmaceutical companies are not yet profitable, investment institutions often use PSR (Price-to-Sales Ratio) instead of traditional P/E ratios to evaluate their value. This method is more suitable for growth-stage pharma companies.

Decisive role of FDA approval

Whether in Taiwan or the US, FDA approval is a critical milestone. The FDA sets the strictest drug approval standards globally, and any drug approved by the FDA can almost be quickly approved in other countries.

Main risks faced by healthcare stocks

High volatility and uncertainty

Failures in clinical trials, competitor movements, policy and regulatory changes, patent disputes, and other factors can cause sharp impacts on stock prices. Investing in healthcare stocks requires strong psychological resilience and risk tolerance.

Impact of government regulation and insurance systems

The healthcare industry is one of the most heavily regulated sectors. National healthcare policies and insurance systems directly influence drug pricing and sales. Taiwan’s National Health Insurance system controls drug prices, limiting profit margins for Taiwanese pharmaceutical companies.

The unique advantages of the US pharmaceutical market

The US has become the cradle of the world’s top pharmaceutical companies for several reasons. First, the US healthcare market allows more flexible drug pricing, with insurance companies covering most medical costs. This mechanism provides ample profit space for innovative companies.

Second, the US has nearly one million biotech and pharmaceutical professionals across R&D, manufacturing, and sales, forming a complete industry chain. Top scientific talent congregates here, creating a unique talent ecosystem.

Furthermore, US capital markets have a strong willingness to invest in the healthcare industry, creating a virtuous cycle—excellent companies can quickly obtain financing, successful innovators can achieve high returns, and new talent and capital continue to flow in. This cycle has established the US’s leading position in the global pharmaceutical field.

Notable healthcare stocks to watch

First tier: pharmaceutical and biotech giants

Lilly (LLY) has achieved breakthrough sales with its weight-loss drug and became the world’s most valuable pharmaceutical company in 2024, with a market cap of $842.05 billion. The weight-loss drug market is expected to continue growing, making it one of the must-watch healthcare stocks.

Pfizer (PFE), represented by its COVID-19 oral medication, shows steady stock price growth. Every time the US stock market pulls back, it’s an excellent entry point for long-term investors.

Johnson & Johnson (JNJ) has relatively low volatility and provides stable dividend income. This company is especially suitable for dollar-cost averaging or long-term holding, making it a “blue-chip” in biotech stocks.

AbbVie (ABBV)'s main product Humira is a first-line drug for rheumatoid arthritis. Although facing patent expiration challenges, the company holds hundreds of patents and continues investing in R&D for new products. It’s a good entry opportunity during dips.

Merck (MRK) is globally known for Keytruda (cancer treatment drug), one of the best-selling drugs. The company’s stock price steadily rises, and its dividends are attractive.

UnitedHealth (UNH), as a leading healthcare service provider, benefits from the aging US population and increasing medical demand, with continuous growth in revenue and profit.

Selected Taiwanese healthcare stocks

Sino Biopharmaceutical (1720) is a diversified pharmaceutical company involved in Western medicine, health supplements, and medical devices. Although its fundamentals are not outstanding, it is favored by dividend investors for stable payouts.

Kangchen Biotech (1783) has a presence in biomedical products and consumer goods. The company’s fundamentals have been stable in recent years, with healthy debt levels, making it worth attention.

Why are US healthcare stocks more worth investing in?

Compared to Taiwan and other Asian markets, US healthcare stocks have clear advantages. Although Taiwan has excellent pharmaceutical companies, the overall capital market is still dominated by electronics stocks, making it difficult for healthcare stocks to attract sufficient attention and capital inflow. This results in even high-quality biotech companies’ stock price increases being far less than their US counterparts.

The US healthcare stock market is large, with a complete industry chain and strong innovation capability. These advantages make it a globally recognized top investment target. While the Asian pharmaceutical market is growing, there is still a gap in technological accumulation, capital depth, and investor professionalism.

Therefore, for investors interested in healthcare stocks and seeking long-term growth, the US market undoubtedly offers the most opportunities and the most stable return prospects.

Summary

Healthcare stocks, due to their anti-cyclical nature and innovation-driven value model, are becoming an increasingly important part of global investment portfolios. The US, as the main hub of healthcare innovation, concentrates the best companies and the largest market opportunities. For investors aiming to grasp the growth opportunities in the healthcare industry, starting with US healthcare stocks is the best choice.