Medical Stock Investment Guide: Unlocking the Profit Secrets of Biotech Stocks

As the global population ages, new drugs continue to iterate, and telemedicine flourishes, medical stocks are entering a long-term growth phase. Unlike the electronics industry, which is closely tied to economic cycles, medical demand is rigid—people will get sick regardless of circumstances—making the biotech and pharmaceutical industry a relatively counter-cyclical investment option. So, how can investors identify the true winners among numerous medical stocks?

U.S. Healthcare Market: The World’s Largest Wealth Generator

The U.S. biopharmaceutical market is the largest in the world, projected to reach $445 billion by 2027 with a CAGR of 8.5%. Behind this figure lies a key question that investors care about most: why do the same pharmaceutical companies earn huge profits in the U.S. but struggle in Taiwan?

The key difference lies in market mechanisms. Taiwan’s healthcare system suppresses drug prices annually through national health insurance, discouraging many companies from introducing the latest drugs. In contrast, the U.S. adopts a capital market-driven pricing model—selling at high prices with insurance companies bearing the costs. This mechanism not only incentivizes pharmaceutical R&D but also attracts top medical talent from around the globe.

Why Are Biotech Stocks High-Risk, High-Reward?

The true value of biotech stocks comes from future expectations, not current performance.

Traditional valuation methods often fail for biotech firms. Most are still in R&D stages, with negative cash flows and unassessable profitability. However, once a new drug passes clinical trials and gains FDA approval, the stock price often experiences explosive growth.

Take Taiwan’s leading biotech company, TTY Biopharm, as an example. During the 2022 stock market crash, its stock doubled against the trend, mainly because its drug received FDA orphan drug designation. At that time, the company reported an EPS loss of NT$2.93, yet it attracted intense investor enthusiasm. By May 2024, the stock soared to a high of NT$388. Investors value the company’s ongoing revenue streams, which are largely unaffected by economic cycles.

This also explains why FDA approval acts as a strong investment signal. The FDA has the strictest drug monitoring standards globally, and drugs approved by the FDA tend to receive expedited approval in other countries.

How to Properly Evaluate Biotech Stocks

Using traditional P/E ratios(P/E) to evaluate biotech stocks can be problematic. The industry commonly uses PSR(Price-to-Sales Ratio) to assess the value of R&D-stage companies.

More importantly, focus on the company’s R&D investment intensity. Successful large pharmaceutical companies are willing to allocate 50-60% of their revenue annually to R&D, even when selling blockbuster drugs, to develop the next generation of products. While this may lower current EPS, major investment institutions tend to raise their target prices for these companies—because they understand that continuous innovation is the true moat.

This is similar to TSMC’s P/E advantage over UMC: sustained investment in advanced process technology versus conservative strategies relying on old technology, resulting in clear long-term competitiveness.

The Era of Blockbuster Drugs: Understanding “Billion-Dollar Drugs”

In the pharmaceutical industry, a key concept is blockbusters(—drugs with annual sales exceeding $1 billion. Many top U.S. biotech giants aim to maintain high profit margins on their blockbuster drugs, channeling all other funds into R&D or acquiring promising small firms. This business model may seem aggressive but reflects a deep commitment to long-term growth.

Leading U.S. Healthcare Stocks

The U.S. healthcare market is divided into four main sectors: Pharmaceuticals, Biotechnology, Medical Devices, and Healthcare Services. Here are the benchmark companies in each sector:

) Big Pharma: Eli Lilly###LLY.US( and Pfizer)PFE.US(

Eli Lilly became the largest pharmaceutical company globally in 2024, with a market cap of $842.05 billion, ranking 10th worldwide. Its weight-loss drug market is expected to grow steadily over the coming years, with North America contributing about 60% of revenue. This is a key healthcare stock to watch now.

Pfizer gained fame with its COVID oral antiviral drug, with stable stock growth. During market downturns, it offers an excellent entry point for long-term investors and provides steady dividends.

) Defensive Picks: Johnson & Johnson###JNJ.US( and AbbVie)ABBV.US(

Johnson & Johnson is known for its stability and generous dividends, making it a “defensive” player among biotech stocks. Suitable for dollar-cost averaging or long-term buy-and-hold strategies, it is considered the king of biotech stocks. Its upward trend is clear, with low volatility, also fitting for margin trading.

AbbVie primarily earns revenue from its blockbuster rheumatoid arthritis drug Humira), approved by FDA in 2002(. Although patent expiration raised concerns, the company holds over a hundred patents creating a strong moat and has licensing agreements with giants like Pfizer and Amgen. It continues R&D efforts to find the next blockbuster, making it suitable for buying on dips.

) Growth and Income: Merck###MRK.US( and UnitedHealth)UNH.US(

Merck’s best-selling drug Keytruda is one of the world’s top-selling cancer treatments. The company’s stock is steadily rising, with generous dividends, making it a good entry during market corrections.

UnitedHealth benefits from the aging U.S. population and increasing healthcare needs, with both revenue and profit growing. Its stock has long-term appreciation potential and attractive dividend yield, making it a top pick in healthcare services.

All these companies possess strong competitiveness, innovation capacity, solid financials, and healthy cash flows, making them the top choices for medical stock investments today.

Taiwan Medical Stocks: Opportunities and Limitations

While Taiwan’s biotech industry has bright spots, the overall capital market remains dominated by electronics stocks, making it difficult to generate the multi-fold gains seen in the U.S.

Sino Biopharmaceutical)1176( is a diversified pharmaceutical company covering Western medicine, health supplements, and medical devices. Although its fundamentals are average, it offers stable dividends and is favored by Taiwan’s dividend-investor community.

Kangchen Biotech)1783( engages in biomedicine, medical devices, and skincare products. Its business structure is healthy, turning profitable again in 2017, with stable fundamentals, an ideal debt-to-asset ratio, and worth attention.

However, due to the limited scale of the capital market and policy environment, these companies’ stock performance and growth potential are still inferior to similar U.S. firms.

Why U.S. Healthcare Stocks Remain the First Choice

Even as Asia’s healthcare markets develop rapidly, U.S. healthcare stocks lead due to several advantages:

• Market Size: The largest global healthcare consumer market with abundant capital liquidity
• Talent Concentration: Nearly one million professionals across R&D, manufacturing, and sales, forming a complete industry ecosystem
• Capital Support: Venture capital and institutional investors heavily invest in the industry, creating a virtuous cycle
• Regulatory Credibility: FDA approval is recognized worldwide as a mark of quality

In contrast, Asia’s pharmaceutical markets are still developing, with technological gaps and differences in investor professionalism limiting valuation potential for local biotech stocks.

Essential Skills for Investing in Medical Stocks

Investing in biotech is not a simple stock-picking game; it requires professional understanding of the medical stock industry:

• Tracking clinical trial progress of different drugs
• Monitoring FDA approval processes and decisions
• Analyzing competitive threats from rival products
• Assessing patent protection periods and renewal potential

Investors interested in this field should systematically follow developments in U.S. pharmaceuticals. In the global investment landscape, U.S. healthcare stocks remain the top long-term asset allocation choice.

As Taiwan’s healthcare policies evolve, local investors’ focus on biotech stocks may increase. But for now, the U.S. healthcare stock market—in terms of scale, innovation, and investment opportunities—far surpasses Asian peers and is the best way to tap into the industry’s investment dividends.