US biotech stock investment insights: growth opportunities and stock selection strategies in the global pharmaceutical market

Why is the healthcare industry worth关注？

The healthcare industry is in an era of accelerated growth. Factors such as global aging populations, continuous approval of new drugs, and expansion of telemedicine applications are driving the booming development of the biopharmaceutical sector. Unlike traditional electronics, which are easily affected by economic cycles, healthcare demand is relatively counter-cyclical—the basic need for disease treatment due to aging populations remains stable—making healthcare stocks a defensive asset in many investment portfolios.

The US biopharmaceutical market leads the world in size. According to market data, the US pharmaceutical market is projected to reach $445 billion by 2027, with a CAGR of 8.5%. In the global healthcare landscape, the US remains the most fertile ground for pharmaceutical companies to grow and is also the most dazzling stage for US biotech stocks.

Core Investment Logic of US biotech stocks

Stock prices are based on future expectations, not current profits

Traditional valuation logic for biotech companies does not apply. Most biotech startups are still in R&D stages, lacking stable cash flow or profitability. However, once a new drug passes clinical trials and gains FDA approval, the stock price often rises significantly. This means investing in biotech stocks is essentially investing in the future potential of their drug pipelines.

Take Taiwan’s PharmaDrug as an example. In 2022, amid a sharp decline in the stock market, the company’s stock price doubled mainly because its drug received orphan drug designation in the US. Although EPS was negative 2.93 NT dollars at the time, investors saw the huge market opportunity for treating primary thrombocythemia. By Q1 2024, its stock price even peaked at 388 NT dollars.

New events often trigger stock price fluctuations

Policy approvals, clinical trial progress, new drug launches, and other events can serve as triggers for stock price increases. During the COVID-19 pandemic in 2020, companies developing vaccines gained market attention. However, these event-driven rises often come with high risks—many companies ultimately fail to meet market expectations, leading to a decline in stock prices.

Risks and volatility are unavoidable

Biotech stock prices are affected by various uncertainties: clinical trial results, competitor movements, regulatory policy changes, patent disputes, and more. These factors can significantly impact future revenue and profits, causing sharp stock price fluctuations. Long-term holding of biotech stocks requires patience and risk tolerance.

Government and insurance deeply involved

The healthcare industry is highly regulated by governments. Many countries have established healthcare policies that strictly regulate procurement of medical supplies and drug advertising. Developed nations often have insurance systems (such as Taiwan’s National Health Insurance) that regulate drug prices and medical services, making the market environment more complex.

How to evaluate the investment value of US biotech stocks?

Blockbusters are key evaluation factors

In the pharmaceutical industry, “blockbusters” refer to drugs with annual sales exceeding $1 billion. Successful large pharmaceutical companies often allocate 50-60% of revenue to R&D, seeking the next blockbuster. Although this may lower short-term EPS, major investment institutions tend to raise the valuation of these companies because continuous innovation signifies a longer-term competitive advantage.

Many US biotech giants adopt a similar strategy: maintaining moderate operating margins while investing other funds into R&D or acquiring promising small biotech firms. This is akin to TSMC’s R&D strategy—continuous investment in advanced process R&D—offering higher long-term valuation potential compared to UMC, which forgoes innovation investments.

PSR becomes a primary tool for evaluating emerging companies

Since many R&D-stage drugs lack profitability, investment firms often use PSR (Price-to-Sales Ratio) to evaluate the value of new drug companies instead of traditional P/E multiples.

FDA approval is the global passport

Whether in Taiwan or the US, FDA approval is the most critical milestone. The FDA has the strictest standards for drug regulation worldwide. Once a drug is approved by the FDA, approval processes in other countries are usually significantly accelerated.

Structural advantages of the US healthcare market

The US is the world’s largest healthcare market, and its unique capitalist healthcare model fosters a thriving biopharmaceutical ecosystem.

US drug pricing is highly flexible, with insurance covering most costs, allowing companies ample profit margins for innovation. In contrast, many countries strictly regulate drug prices through government healthcare systems—Taiwan’s National Health Insurance continually suppresses drug prices, preventing many advanced drugs from entering the Taiwanese market.

The US hosts nearly one million professionals in biomedicine, involved in R&D, manufacturing, sales, and other upstream and downstream sectors. Top-tier talent congregates here, forming a world-class innovation ecosystem. Additionally, US capital markets are highly enthusiastic about biotech investments, creating a virtuous cycle of “ample funding → talent clustering → industry innovation → company growth → attractive investment returns.” This has resulted in a unique biopharmaceutical ecosystem in the US, which is regarded by global investors as the most favorable environment for pharmaceutical industry development.

US biotech stock selection recommendations

The US healthcare market is divided into four main sectors: Pharmaceuticals, Biotechnology, Medical Devices, and Healthcare Services. Here are leading stocks in each sector:

1. Eli Lilly (LLY)

In 2024, Eli Lilly’s global market cap reached $842.05 billion, ranking 10th worldwide, making it the largest pharmaceutical company globally. Its biggest market is North America, accounting for about 60%. Its weight-loss drug lineup is expected to maintain strong growth in the coming years, making it a must-watch among US biotech stocks.

2. Pfizer (PFE)

Pfizer gained market attention during the pandemic for its vaccine and oral COVID-19 drugs. The company’s stock performance has been stable historically, and during major US stock market corrections, it has been an excellent entry point for long-term investors.

3. Johnson & Johnson (JNJ)

As the “King of Biotech Stocks,” J&J’s stock price steadily rises with relatively low volatility and offers generous dividends. Its anti-cyclicality and stable cash flow make it an ideal choice for dollar-cost averaging or long-term holding.

4. AbbVie (ABBV)

AbbVie mainly develops immunology, oncology, and virology drugs. Its core profit comes from Humira, approved by the FDA in 2002, used to treat rheumatoid arthritis. As Humira’s patent expiration approaches, market concerns about declining performance arose. However, AbbVie holds over 100 patents and has licensing agreements with giants like Pfizer and Amgen, earning royalties from biosimilars. The company continues R&D efforts seeking the next blockbuster drug, making it a good buy on dips.

5. Merck (MRK)

Merck, with a century of history, has its star product Keytruda, one of the world’s best-selling anticancer drugs. The company’s stock performance is stable, and it offers high dividends, making it another good entry point during market corrections.

6. UnitedHealth (UNH)

UnitedHealth is a representative of the US healthcare services sector. Benefiting from aging populations and increasing healthcare needs, its revenue and profits continue to grow. The long-term upward trend in stock price and attractive dividend yield make it a solid investment.

All these companies possess strong competitiveness, continuous innovation capabilities, solid financial foundations, stable cash flows, and attractive investment returns and dividend yields.

Additional perspectives on Taiwanese biotech stocks

SynCore Chemical & Pharmaceutical (1720)

SynCore is a diversified pharmaceutical company involved in Western medicine, health supplements, medical devices, and cosmetics. Its revenue and net profit have grown slowly in recent years, with assets steadily increasing and debt ratios stable. Although growth momentum is modest, its stable dividends make it popular among dividend investors.

HopKang Biotech (1783)

HopKang operates in biomedicine, medical devices, and skincare. Its main businesses include consumer products (cleansers, skincare) and biomedical products (bone repair materials, medical injections). Turning profitable in 2017, its fundamentals have stabilized in recent years, with healthy debt levels maintained at low levels long-term.

The big picture of global pharmaceutical investment

While biotech stocks have growth potential, Taiwan’s capital market has long been dominated by electronics stocks. Even with high-quality biotech companies emerging, replicating the multi-tenfold gains of the US market remains difficult. Although post-pandemic Taiwanese investors have increased their focus on biotech stocks, the reality is that the US remains the best market for pharmaceuticals.

US healthcare companies benefit from scale, innovation, and competitiveness, making it easier to identify high-quality investment targets. The Asian pharmaceutical market is still developing; even outstanding companies’ stock performance and overall strength do not match US healthcare stocks. This is due to differences in capital market environments, technological accumulation gaps, and investor professionalism.

Investing in US biotech stocks requires professional knowledge and understanding of the pharmaceutical industry. Interested investors should closely monitor US pharmaceutical development trends. In the global investment landscape, US biotech stocks remain the top choice for healthcare industry investments today.