Biotech and Medical Stock Investment Guide: The Three Core Strategies for Mining Opportunities in Global Markets

The healthcare industry is a massive global market. The U.S. biopharmaceutical market is projected to reach $445 billion by 2027, with an annual compound growth rate of 8.5%. This not only represents huge business opportunities but also means investors face unprecedented choices when looking for biotech and healthcare stock recommendations. As aging populations emerge, new drugs are continuously developed, and telemedicine flourishes, this industry has become a favorite in the capital markets.

People often ask, “How can anyone avoid getting sick when eating grains?” Because disease is a normal part of human society, healthcare demand is non-cyclical. Compared to the electronics industry, biotech and healthcare stocks have stronger resilience during economic downturns. However, not all biotech and healthcare stocks are worth investing in. Understanding industry logic, mastering valuation methods, and identifying investment opportunities are key to success.

Profit Drivers of Biotech and Healthcare Stocks: Why They Are Unfazed by Economic Downturns

The biotech and pharmaceutical industry has unique business logic, which is why investors pay close attention to stock recommendations in this sector.

First, the value of biotech companies is difficult to evaluate using traditional financial metrics. Most biotech firms are in R&D stages, lacking stable cash flow and profits. But once a new drug passes clinical trials and gains FDA approval, the stock price often surges dramatically. For example, Taiwan’s PharmaDrug in 2022 saw its stock double despite a market crash, mainly because its flagship drug received orphan drug designation in the U.S. Although EPS was still negative 2.93 NT dollars at the time, investors were crazy about its future potential. By May 2024, PharmaDrug’s stock had risen to a high of 388 NT dollars.

Second, new developments often trigger stock price rallies. During the COVID-19 pandemic in 2020, companies developing vaccines saw their stock prices soar; later, with the Fed’s quantitative easing, tech stocks also rose. But when economic storms hit, many companies with record-high revenues saw their stocks cut in half, while unprofitable biotech firms continued to soar—showing that the market is looking at the future, not just the present.

Third, biotech and healthcare stocks tend to be more volatile. Clinical trial results, competitor moves, policy and regulatory changes, patent disputes—all can significantly impact future revenue and profits. Therefore, investors need patience and risk tolerance.

Finally, this industry is heavily influenced by government and insurance policies. Many countries have strict regulations on medical procurement and advertising. Developed nations’ insurance systems (like Taiwan’s National Health Insurance) regulate drug prices, making the healthcare market more complex.

Different Valuation Logic: Key Indicators Beyond Traditional Financial Statements

For ordinary investors, understanding the valuation logic behind biotech and healthcare stock recommendations is crucial.

In the pharmaceutical industry, there’s a term called “blockbusters,” referring to drugs with annual sales exceeding $1 billion. Successful large pharmaceutical companies still invest 50-60% of revenue into R&D annually to ensure continuous innovation. Because of this, major investment institutions tend to raise P/E ratios and target prices when profits decline—they focus on future innovation pipelines rather than current profits.

Many American biotech giants adopt this strategy, maintaining certain operating margins while using the rest of the capital for R&D or acquiring promising small firms. This is similar to TSMC’s higher P/E compared to UMC—UMC announced it would stop investing in advanced processes, temporarily boosting margins, but this means it’s relying on old technology, which has an end.

Since many R&D-stage drugs are not profitable, institutions often use PSR (Price-to-Sales Ratio) instead of P/E to evaluate new drug companies, because revenue is harder to manipulate and better reflects the company’s true scale.

FDA approval is critical. The FDA has the world’s strictest standards. Once a drug is approved by the FDA, approval in other countries is usually swift. Therefore, whether it’s Taiwanese or American companies, investors pay close attention to FDA developments.

U.S. Pharma Companies Lead the Way: The Perfect Storm of Capital Markets, Talent, and Policy

Why do U.S. companies often dominate biotech and healthcare stock recommendations? Several factors contribute.

The U.S. is the world’s largest pharmaceutical market. Unlike Taiwan, where high drug prices are suppressed by national health insurance, the U.S. market is highly capitalist, with higher drug prices covered mostly by insurance. Although this results in a large share of income spent on healthcare by Americans, it also attracts the world’s top pharmaceutical innovation companies.

The U.S. has nearly one million biotech and pharma professionals across R&D, manufacturing, and sales. Graduates in related fields enjoy excellent employment opportunities, continuously attracting top talent. Meanwhile, the U.S. capital markets are very willing to invest in this industry, creating a virtuous cycle of R&D → financing → innovation → listing → re-financing. This has fostered a unique biotech ecosystem, recognized globally as the most favorable environment for pharmaceutical development.

Six Major U.S. Stock Leaders: Covering Pharmaceuticals to Medical Services

The U.S. healthcare market is divided into four main sectors: pharmaceuticals, biotech, medical devices, and healthcare services. Here are leading stocks in each sector.

1. Eli Lilly (LLY.US)

Eli Lilly is a top global pharmaceutical company. As of 2024, its market cap in the U.S. is $842.05 billion, ranking 10th worldwide and the largest pharmaceutical company globally. Currently, about 60% of Lilly’s revenue comes from North America, especially the weight-loss drug market, which is expected to grow further in the coming years. Lilly is a must-watch biotech and healthcare stock.

2. Pfizer (PFE.US)

Pfizer is a well-known global pharma giant. Its COVID-19 oral antiviral became a major revenue source. Pfizer’s stock has steady growth and generous dividends, making it an excellent long-term investment during market corrections.

3. Johnson & Johnson (JNJ.US)

J&J is considered the “King of Stocks” among biotech and healthcare stocks. Similar to Pfizer, its stock is stable with less volatility and offers substantial dividends. Its long-term upward trend and stability make it suitable for dollar-cost averaging or long-term buy-and-hold strategies.

4. AbbVie (ABBV.US)

AbbVie focuses on immunology, oncology, and virology. Its main profit driver is Humira, approved by the FDA in 2002, used to treat rheumatoid arthritis, and continuously expanded for other indications. When Humira’s patent expires soon, many feared a flood of biosimilars. However, AbbVie holds hundreds of patents, making it difficult for competitors to break through. In 2018, AbbVie licensed other major firms like Pfizer and Amgen to sell biosimilars in the U.S. after 2023, collecting licensing fees. It continues R&D to find the next blockbuster drug, making it a good buy during downturns.

5. Merck (MRK.US)

Merck is a historic global pharma company. Its key product, Keytruda, is one of the world’s best-selling cancer drugs. The company’s stock is steady, with high dividends, making it an ideal buy during U.S. market corrections.

6. UnitedHealth (UNH.US)

UnitedHealth leads the healthcare services sector. Benefiting from aging populations and rising medical needs in the U.S., its revenue and profits grow steadily. Its long-term stock appreciation and attractive dividends make it a defensive choice.

These six companies are top players in the U.S. healthcare market, with strong competitiveness, innovation, solid financials, cash flow, and dividends.

Selected Taiwanese Biotech and Healthcare Stocks: Another Local Investment Path

Besides U.S. stocks, Taiwan also has noteworthy biotech and healthcare stocks.

1. SynCore Pharmaceutical (1720)

SynCore is a diversified pharmaceutical company producing Western medicines, health supplements, medical devices, cosmetics, and milk powder. Its revenue and net income have grown slowly, with stable assets and manageable debt. Although growth is modest, its steady dividends make it popular among dividend investors.

2. Hopax Biotechnology (1783)

Hopax produces biopharmaceuticals, medical devices, skincare, and chemical materials. Its main business includes consumer products (cleansers, skincare, aesthetic medicine) and biomedical products (bone repair materials, injections, ophthalmic drugs). Turning profitable in 2017, its fundamentals are stable, with healthy assets and debt ratios. It’s worth watching.

Final Thoughts on Biotech and Healthcare Stock Recommendations: Why U.S. Stocks Remain the First Choice

Overall, while biotech and healthcare stocks are attractive, Taiwan’s capital market still mainly focuses on electronics. Even excellent biotech companies rarely see the multi-fold gains typical of U.S. stocks.

As COVID-19 coexists with government policies, Taiwanese investors may increasingly pay attention to biotech stocks. But currently, the U.S. remains the best market for pharmaceuticals. U.S. biotech and healthcare companies are larger, more innovative, and more competitive, making it easier to find quality investment targets.

The Asian pharmaceutical market is still developing. Even outstanding companies there often underperform compared to their U.S. counterparts, due to differences in capital markets, technological development, and investor professionalism.

Compared to other sectors, investing in biotech and healthcare requires industry expertise and understanding. If you’re interested, keep a close eye on U.S. pharmaceutical developments. Globally, U.S. biotech and healthcare stocks remain the most promising investment targets and the top recommendation in this sector.