Biotech and Medical Stock Investment Strategy: From Evaluation Methods to Global Industry Leaders Analysis

Why Biotechnology and Healthcare Stocks Are Worth Watching

The healthcare industry is one of the most resilient investment sectors globally. Unlike traditional industries that are subject to economic cycle fluctuations, biotech and healthcare stocks possess inherent defensive characteristics—human demand for medical services and pharmaceuticals does not diminish with economic conditions. As the global population ages rapidly, new drug pipelines emerge continuously, and telemedicine applications become increasingly mature, biotech and healthcare stocks are becoming key focus areas in capital markets, often giving rise to high-growth breakout stocks.

The US biopharmaceutical market ranks first worldwide, expected to reach $445 billion by 2027, with a compound annual growth rate (CAGR) of 8.5%. This figure reflects the long-term growth momentum of biotech and healthcare stocks.

The Core Value of Biotech and Healthcare Stocks Comes from Future Expectations

Unlike traditional industries that evaluate company value based on cash flow and profitability, the valuation logic for biotech and healthcare stocks is entirely different. Most R&D-stage biotech companies lack stable cash flow; their assets mainly consist of candidate drugs in their development pipelines.

The key turning point is clinical success and regulatory approval. Once a new drug passes clinical trials and receives FDA approval, its stock price often surges dramatically. This explains why unprofitable companies can attract institutional investment—investors are looking at the promising future revenue potential.

Taiwanese biotech company TTY Biopharm is a typical example. During the market downturn in 2022, its stock price doubled against the trend, mainly due to the approval of its orphan drug designation. Despite a loss of NT$2.93 per share at that time, investors flocked to it, valuing its future earnings prospects. As of May 2024, TTY Biopharm’s stock price has reached NT$388, driven by progress in its global Phase 3 clinical trial for primary immune thrombocytopenia.

How to Assess the True Value of Biotech and Healthcare Stocks

Valuation methods for biotech and healthcare stocks need to break through traditional financial metrics.

First, focus on the market potential of blockbuster drugs. In the pharmaceutical industry, a single drug with annual sales exceeding $1 billion is called a “blockbuster.” Successful large pharmaceutical companies are willing to invest 50-60% of their revenue annually into R&D, even when sales hit new highs. Although this may lower short-term profit margins and EPS, major investment institutions tend to assign higher P/E multiples and target prices to such companies—because they understand that a continuous pipeline of innovative products is the long-term driver of value.

This also explains why TSMC’s P/E ratio can be higher than UMC’s—TSMC continually invests in advanced manufacturing processes, while UMC announced halting such investments, meaning it can only rely on its existing assets. The same logic applies to pharmaceutical giants: most US biotech companies maintain moderate operating margins, with the rest of their funds allocated to R&D or acquisitions of small firms launching new drugs.

Second, use PSR (Price-to-Sales Ratio) instead of traditional P/E for valuation. Since many pipeline drugs are not yet profitable, institutional investors commonly evaluate new drug companies using PSR, which better reflects growth potential rather than current profitability.

Third, FDA approval is the global passport. The FDA has the strictest drug monitoring standards worldwide, so drugs approved by the US FDA are often approved quickly in other countries. Whether a Taiwanese pharmaceutical company or a US-based firm, FDA approval is the most critical indicator of market acceptance.

Risks and Challenges of Biotech and Healthcare Stocks

Investing in this sector is not without risks. Stock prices can be highly volatile due to multiple uncertainties: clinical trial results, competitor moves, regulatory changes, patent disputes, and more. Investors need sufficient patience and risk tolerance.

Additionally, government regulation and insurance systems make the market more complex. The biotech and healthcare industries are heavily regulated by governments, with policies governing procurement and advertising. Developed countries generally have insurance systems (such as Taiwan’s National Health Insurance) that strictly regulate drug prices and medical services, directly impacting pharmaceutical companies’ revenue expectations.

Why the US Is the Best Breeding Ground for Biotech and Healthcare Stocks

The US pharmaceutical market benefits from a unique business ecosystem. Its market size is the largest, and its pricing mechanism is more market-driven—drugs can be priced higher, with insurance companies covering the costs, significantly expanding profit margins for drug manufacturers. In contrast, Taiwan’s National Health Insurance system has kept drug prices low for years, discouraging many companies from introducing the latest drugs.

The US biotech and pharmaceutical industry employs over a million people across R&D, manufacturing, sales, and other segments. Top-tier talent congregates here, creating a favorable employment environment and attracting skilled professionals. Meanwhile, US capital markets have a strong investment appetite for this industry, forming a distinctive biotech ecosystem that is recognized globally as the most favorable environment for pharmaceutical development.

Top Six Leading US Biotech and Healthcare Stocks

The US healthcare market is mainly divided into four sectors: pharmaceuticals, biotechnology, medical devices, and healthcare services. Here are leading stocks in each area:

Eli Lilly (NYSE: LLY)

According to CompaniesMarketCap, in 2024 Eli Lilly’s market cap is $842.05 billion, ranking 10th globally and the largest pharmaceutical company worldwide. Its drug market is mainly concentrated in North America, accounting for about 60%. The explosive growth in the weight-loss drug market in recent years has been a key driver of its stock price increase. The sector is expected to continue growing in the coming years, making Lilly a biotech and healthcare stock to watch closely.

Pfizer (NYSE: PFE)

Pfizer gained attention during the pandemic for its oral COVID-19 drug used to treat mild cases. The company’s stock has shown steady growth, and during US market corrections, it often becomes an attractive long-term investment entry point.

Johnson & Johnson (NYSE: JNJ)

J&J’s stock performance is stable, with moderate fluctuations, and it offers generous dividends, making it a solid choice among biotech and healthcare stocks. Its low volatility makes it particularly suitable for dollar-cost averaging or long-term buy-and-hold strategies, representing stability in the industry.

AbbVie (NYSE: ABBV)

AbbVie mainly develops immunology, oncology, and virology drugs. Its primary profit comes from Humira, approved by the FDA in 2002, which is a first-line treatment for rheumatoid arthritis. The company has continuously gained FDA approvals to expand Humira’s indications.

As Humira’s patent expiration approaches, market concerns about biosimilar competition arose. However, AbbVie holds over a hundred patents, making it difficult for competitors to break through its protection barrier. In 2018, the company reached licensing agreements with major firms like Pfizer and Amgen to sell biosimilars in the US after 2023 and collect licensing fees. Meanwhile, AbbVie continues R&D efforts to find the next blockbuster drug, presenting good investment opportunities during dips.

Merck (NYSE: MRK)

Merck’s flagship product is Keytruda, one of the world’s best-selling cancer treatments. The stock has steadily risen and offers high dividends, making it a good investment during US market corrections.

UnitedHealth (NYSE: UNH)

UnitedHealth, as a representative of healthcare service providers, benefits directly from the aging US population and increasing medical demand, with continuous growth in revenue and profit. Its stock price has a clear long-term upward trend, and dividend performance is also strong.

Current Situation and Opportunities in Taiwanese Biotech and Healthcare Stocks

Taiwan’s overall capital market remains dominated by electronics stocks. Even with excellent biotech and healthcare companies, their stock price growth rarely reaches the multi-fold increases seen in US stocks.

Suntar Chemical & Pharmaceutical (TWSE: 1720) is a diversified pharmaceutical company involved in Western medicine, health supplements, medical devices, cosmetics, and milk powder. Its revenue and net profit have grown steadily in recent years, with assets gradually increasing and stable dividends, attracting dividend investors.

Hekang Biotech (TWSE: 1783) focuses on biopharmaceuticals, medical devices, skincare, and fine chemicals. Its main businesses include consumer products (facial cleansers, skincare, medical aesthetics) and biomedical products (bone repair materials, medical injectables, ophthalmic drugs). Since 2017, it has turned profitable, with stable fundamentals and healthy debt structure.

Differences Between US and Asian Pharmaceutical Markets

The global pharmaceutical market shows a clear tiered differentiation. The US, with its most advanced capital market system, top talent, and flexible pricing mechanisms, remains the preferred investment destination for biotech and healthcare stocks. Asian markets are still developing, and even outstanding companies there do not match the stock performance and overall competitiveness of their US counterparts.

This disparity stems from differences in capital market mechanisms, technological levels, and investor professionalism.

Key Insights for Investing in Biotech and Healthcare Stocks

Investing in biotech and healthcare stocks requires professional industry knowledge and understanding. Compared to other sectors, the knowledge threshold for this investment is higher.

Interested investors should continuously monitor developments in US pharmaceuticals. Globally, US biotech and healthcare stocks remain the most attractive and growth-potential investment targets. Whether seeking long-term value appreciation or high-volatility opportunities, US biotech and healthcare stocks offer a systematic investment framework and ample choices.