Biotech and Medical Investment Hotspots: Grasp the Future Growth Drivers of Pharmaceutical Stocks

As the global population ages rapidly, new drug pipelines continue to expand, and telemedicine flourishes, the biotech and healthcare industry is becoming a new favorite in the capital markets. Unlike traditional electronics industries that are easily affected by economic cycles, the essential nature of medical needs determines that this industry has a natural resilience to economic downturns—people require medical services regardless of the state of the economy.

So, in this industry full of imagination and prone to nurturing soaring stocks, how should investors seize opportunities? This article will analyze the investment logic of the biotech and healthcare industry in depth and introduce high-quality targets worldwide that deserve attention.

Core Investment Logic of the Biotech and Healthcare Industry

Looking at the value of healthcare stocks from future expectations

Traditional financial indicators have limited reference significance for biotech and healthcare companies because most are in the R&D stage, lacking stable cash flow and profitability. The true assets of such companies are potential new drugs in their pipelines, not traditional net worth.

However, once a new drug passes clinical trials and gains FDA approval, the stock price often surges significantly. This means that investing in biotech and healthcare stocks is essentially investing in future earnings that have not yet been realized—hence, assessing a reasonable stock price over the coming years is crucial.

Take Taiwan-listed PharmaDrug as an example. Despite the 2022 stock market crash, the company’s stock price doubled, mainly driven by its drug passing the US orphan drug designation. Even though EPS was still negative at the time, investors’ enthusiasm reflected their optimistic outlook on the company’s future profitability. By Q1 2024, PharmaDrug’s stock price had risen to a new high of NT$388, and what investors valued was precisely these earnings expectations that are unaffected by economic cycles.

Event-driven factors determine short-term biotech stock movements

Biotech and healthcare stocks are highly sensitive to external events. For example, during the COVID-19 pandemic in 2020, the stock prices of vaccine developers experienced explosive growth. Although many companies turned out to be overhyped afterward, the entire tech sector was driven higher by the Fed’s QE measures. Conversely, when economic storms hit, many companies with record-high revenues saw their stock prices cut in half, while biotech companies without profit foundations soared.

This seemingly paradoxical phenomenon indicates that biotech and healthcare stocks’ volatility often does not follow traditional fundamental logic but is driven by multiple uncertainties such as clinical trial results, regulatory progress, competitive dynamics, and patent disputes.

High risk and high volatility are prominent features

Changes in policies and regulations, clinical trial failures, breakthroughs by competitors, patent disputes, and other factors can cause significant impacts on stock prices. This means investors need sufficient patience and risk tolerance to achieve long-term returns in this field.

At the same time, the biotech and healthcare industry is heavily regulated by governments and constrained by insurance systems. Many countries have strict medical policy frameworks controlling procurement and pricing of medical supplies. For example, Taiwan’s National Health Insurance system exerts continuous downward pressure on drug prices, which is why many new drug companies prefer to enter the US market first.

Valuation Methods for Biotech and Healthcare Stocks

Blockbuster drugs are profit engines

The industry refers to drugs with annual sales exceeding USD 1 billion as “blockbusters.” Successful pharmaceutical companies typically continue to invest 50-60% of their annual revenue into R&D after blockbuster drugs are launched, even if this lowers short-term EPS.

This approach is favored by large institutional investors because they understand that these companies’ innovative products will keep coming. Major biotech giants in the US often adopt this strategy—maintaining reasonable operating margins while using the remaining funds for R&D or acquiring small biotech firms on the verge of clinical success.

This also explains why TSMC’s P/E ratio can be much higher than UMC’s: TSMC’s continuous investment in advanced processes signifies an ongoing future growth engine, whereas UMC’s announcement to abandon advanced process investments suggests limited growth potential.

PSR becomes a valuation tool for emerging companies

Since many biotech and healthcare companies are in the R&D stage and not profitable, large investment institutions often use the “Price-to-Sales Ratio (PSR)” for valuation instead of the traditional P/E ratio.

FDA approval is the global passport

Whether a Taiwanese pharmaceutical company or a US-based firm, FDA approval is a critical milestone. Because the FDA sets the strictest standards for drug monitoring worldwide, once a drug passes FDA review, approval in other countries often proceeds rapidly.

Why the US Dominates the Global Biotech and Healthcare Industry

The US has the most mature and active pharmaceutical market globally. According to forecasts, the US biopharmaceutical market is expected to reach USD 445 billion by 2027, with a CAGR of 8.5%.

Unlike Taiwan, where the National Health Insurance system keeps drug prices low, making new drug introduction difficult, the US market operates under a highly capitalist model. Pharmaceutical companies can set their own prices, with insurance covering costs, which results in higher healthcare expenditure as a share of income but also provides ample profit margins to support R&D investments.

The US biotech and pharmaceutical workforce approaches one million, covering R&D, manufacturing, sales, and other segments of the industry chain. Top graduates have broad employment opportunities, attracting top talent worldwide. Coupled with strong support from the US capital markets, this creates a unique biotech ecosystem. As a result, the US is widely recognized by global investors as the most favorable environment for biotech and healthcare development.

US Biotech and Healthcare Investment Map

The US healthcare market is divided into four main sectors: Pharmaceuticals, Biotechnology, Medical Devices, and Healthcare Services. Each sector includes multinational corporations, small and medium-sized enterprises, and innovative startups. Here are the leading stocks in each sector:

1. Eli Lilly & Co. (LLY.US)

According to global market cap rankings, Eli Lilly’s market cap in 2024 reached USD 842.05 billion, ranking 10th worldwide and becoming the largest pharmaceutical company globally. Its drug market is mainly concentrated in North America (about 60%), and its weight-loss drugs are expected to maintain high growth in the coming years, making it a key biotech investment target.

2. Pfizer (PFE.US)

Pfizer’s performance was boosted by sales of its COVID oral antiviral drugs, which became a significant revenue source. The company’s stock price has shown steady growth, and during US market corrections, it is an ideal entry point for long-term investors.

3. Johnson & Johnson (JNJ.US)

Similar to Pfizer, J&J features stable stock prices and generous dividends, with relatively low volatility. It is very suitable for dollar-cost averaging or long-term holding strategies, often regarded as the king of biotech stocks. Given its long-term upward trend and moderate fluctuations, leverage trading to amplify returns can also be considered.

4. AbbVie (ABBV.US)

AbbVie mainly develops immunology, oncology, and virology drugs. Its core profit comes from Humira, approved by the FDA in 2002, which is a first-line treatment for rheumatoid arthritis and has repeatedly received FDA approval to expand its indications.

Although there are concerns about patent expiration and competition from biosimilars, AbbVie has a protective web of hundreds of patents, enough to defend against competitive threats. In 2018, the company reached agreements with giants like Pfizer and Amgen to license biosimilar sales after 2023, generating new revenue streams. Meanwhile, AbbVie continues R&D to find the next blockbuster drug, making it a good target for buying on dips.

5. Merck & Co. (MRK.US)

Merck’s history dates back to Mr. Jacob Merck purchasing a pharmacy in Darmstadt, Germany. After centuries of development, it has become a global healthcare solutions provider. Its flagship product, Keytruda, treats cancer and is one of the world’s best-selling drugs.

The company’s stock price has steadily risen, with relatively high dividends, making it suitable for long-term investors to buy during market corrections.

6. UnitedHealth Group (UNH.US)

As a representative of the healthcare services sector, UnitedHealth benefits from structural growth driven by the aging US population and increasing healthcare needs. The company’s revenue and profits continue to expand, with long-term stock appreciation and attractive dividend yields.

All of these companies are leaders in the US healthcare market, with strong competitiveness, excellent innovation capabilities, solid financial performance, good cash flow, and substantial investment returns.

Opportunities in Taiwanese Biotech and Healthcare Stocks

1. SynCore Pharmaceutical (1720)

SynCore is a diversified pharmaceutical company involved in Western medicine, health supplements, medical devices, cosmetics, and milk powder sales. In recent years, its total revenue and net profit have shown slow growth, with assets steadily increasing and a healthy long-term debt structure.

The company’s fundamentals are stable, but its consistent dividend payout has made it popular among Taiwanese dividend and stock accumulation investors.

2. HopKang Biotech (1783)

HopKang Biotech engages in the production and sales of biopharmaceuticals, medical devices, skincare products, and precision chemical materials instruments. Its business is divided into two main segments: consumer products (facial cleansers, skincare, medical aesthetics) and biomedical products (bone repair materials, medical injection products, ophthalmic drugs, etc.).

Since turning profitable in 2017, its fundamentals have been stable and improving, with healthy asset-liability ratios and low debt levels, making it a stock worth continuous attention from investors.

Using Trading Tools to Capture Biotech and Healthcare Opportunities

In Taiwan, investors can participate in the global biotech and healthcare industry through specific trading platforms that allow trading US stocks with low barriers and high flexibility. This trading method enables quick long or short positions on US stocks without directly holding individual shares, by tracking US stock price movements. Whether the market rises or falls, profit opportunities can be sought, especially suitable for short-term trading strategies.

Trading process overview:

Step 1: Open an account quickly (choose between demo or real account, apply via mobile app online)

Step 2: Search for target trading markets, click “Contract” to view product details

Step 3: Establish long or short positions (flexibly respond to market movements)

Step 4: Set order parameters, including trading volume, stop-loss/take-profit, limit orders, etc.

Step 5: Submit orders to execute trades

Asset prices fluctuate constantly; investors should regularly check the trading platform for the latest quotes and trading details.

Summary of Investing in Biotech and Healthcare

Biotech and healthcare stocks attract attention due to their vast imagination space, but Taiwan’s capital market remains dominated by electronics stocks. Even outstanding biotech companies find it difficult to replicate the multi-fold gains seen in the US.

As pandemic control policies become a government consensus, Taiwanese investors’ focus on biotech and healthcare stocks may gradually increase. However, from the current situation, the US remains the best market for biotech and healthcare industries, nurturing many excellent biopharmaceutical companies with scale advantages, innovation vitality, and competitiveness, making it easier to identify high-quality targets suitable for long-term investment.

The Asian pharmaceutical market is still in a developing and improving stage. Even when good companies emerge, their stock performance and overall returns tend to lag behind US biotech stocks. This is influenced by differences in capital markets, as well as the level of medical technology and investor professionalism.

Compared to other investment fields, investing in biotech and healthcare stocks requires investors to have a deep understanding and professional insight into the entire industry. If interested in this field, it is recommended to closely follow developments in US biotech and healthcare. From a global perspective, US biotech and healthcare stocks have become the preferred investment direction for contemporary investors.