Biotech Stock Recommendations: Investment Opportunities in the Pharmaceutical Industry and Leading Stock Selection Guide

Why Should You Focus on Biotech Stocks?

The healthcare industry is experiencing a golden era of rapid growth. With the global aging population, continuous emergence of new drugs, and booming telemedicine, the pharmaceutical and biotech sectors have become focal points in the capital markets. Unlike electronics, which are subject to economic cycles, medical demand has a rigid characteristic—regardless of economic fluctuations, people’s need for medical services and medications remains constant, making biotech stocks relatively resilient to economic downturns.

The US biomedical market is the largest and most dynamic in the world. According to forecasts, by 2027, the US biotech market will reach $445 billion, with a compound annual growth rate (CAGR) of 8.5%. In this context, understanding the investment logic of biotech stocks becomes increasingly important.

The Unique Nature of Biotech Stocks: Why Are They Difficult to Evaluate Using Conventional Methods?

Valuation logic for biotech companies is entirely different from traditional enterprises. Most biotech firms lack stable cash flow and profitability during R&D phases; their core assets are the pipeline of investigational drugs.

Breakthrough Moments Trigger Stock Price Surges

The turning points for biotech stocks often come from key events: clinical trial data releases, FDA approvals, orphan drug designations, etc. Once a drug passes FDA approval, the company shifts from a “story” to “reality,” often leading to a significant stock price increase. For example, Taiwan biotech company PharmaDrug doubled its stock price in 2022 amid a market crash, primarily driven by its drug receiving FDA orphan drug designation. In 2023, after completing Phase 3 clinical trials, PharmaDrug’s stock once reached a historic high of NT$388 in May 2024. Investors are more focused on future revenue prospects with high certainty rather than current profits.

Uncertainty and Volatility Coexist

Biotech stocks face numerous risks: clinical trial failures, competitor moves, regulatory policy changes, patent disputes, etc. Any adverse development in these areas can cause sharp stock price fluctuations. This requires investors to have sufficient risk tolerance and long-term patience.

How Are Biotech Stocks Valued? How Should Investors Judge?

Traditional PE (Price-to-Earnings) valuation models are not suitable for R&D-stage biotech companies. Institutional investors often use PSR (Price-to-Sales Ratio) to evaluate the value of new drug companies because revenue ratios more accurately reflect commercialization progress than profits.

“Blockbuster Drugs” Determine the Company’s Future

The pharmaceutical industry has a key concept called “blockbusters,” referring to drugs with annual sales exceeding $1 billion. Successful large pharmaceutical companies typically reinvest 50-60% of revenue into R&D, which may lower short-term EPS, but large institutional investors tend to assign higher PE multiples and target prices to these companies. The reason is simple—continuous R&D investment signifies a steady pipeline of innovation and future growth potential. This explains why TSMC’s PE multiple is much higher than UMC’s: TSMC invests heavily in advanced process R&D, while UMC has shifted away from pursuing advanced nodes. This strategic difference determines long-term value.

Many leading US biotech giants adopt similar strategies: maintaining moderate operating margins, and allocating most funds to in-house R&D or acquiring promising small biotech firms to secure future competitiveness.

FDA Approval Is the Global Standard

Whether Taiwanese or US companies, the most critical certification is FDA (U.S. Food and Drug Administration) approval. The FDA has the strictest monitoring standards globally. Once a drug is approved by the FDA, approval in other countries and regions is usually expedited.

Why Is the US the Preferred Market for Biotech Investment?

Superior Capital Market Environment

The US is the world’s largest pharmaceutical market, with a pricing mechanism vastly different from other countries. Unlike Taiwan, where drug prices are controlled by national health insurance, US pharmaceutical companies can set their own prices, ultimately paid by insurers. Although this results in higher healthcare costs for Americans, it provides ample profit margins for drug companies to fund R&D and innovation.

Robust Ecosystem

The US biotech and pharmaceutical industry employs nearly one million professionals across R&D, manufacturing, sales, and other segments. Top-tier scientific talent is abundant, attracting the world’s leading medical research experts. Additionally, the US capital markets are highly enthusiastic about this sector, creating a virtuous cycle that fosters a unique and powerful biomedical ecosystem.

Scale and Innovation Go Hand in Hand

The US healthcare market is divided into four major sectors: pharmaceuticals, biotechnology, medical devices, and healthcare services. Each sector includes multinational giants, SMEs, and innovative startups. This multi-layered competitive environment produces numerous high-quality companies, making it easier for investors to find targets aligned with their risk preferences.

Analysis of Leading US Pharmaceutical and Biotech Companies

Eli Lilly (LLY)—The Largest Pharmaceutical Company by Market Cap

Eli Lilly has a market cap of $842.05 billion, making it the largest pharmaceutical company globally. Its revenue mainly comes from North America (about 60%), with notable performance in weight-loss drugs. As global obesity rates rise and demand for weight-loss medications increases, this market is expected to expand continuously in the coming years. LLY is undoubtedly a biotech stock worth watching.

Pfizer (PFE)—A Giant Rising from the Pandemic

Pfizer gained fame through its COVID-19 vaccine and oral antiviral drugs, which effectively treat mild cases. The company’s stock has shown steady growth, and market downturns in the US stock market often present good entry points for long-term investors.

Johnson & Johnson (JNJ)—Stable Growth and Generous Dividends

Similar to Pfizer, J&J has a stable stock growth trajectory and offers attractive dividend yields. Compared to other biotech stocks, J&J exhibits less volatility, making it suitable for dollar-cost averaging or long-term holding strategies. Its clear upward long-term trend and moderate fluctuations make it an ideal candidate for margin trading, earning it the nickname “King of Biotech Stocks.”

AbbVie—Expert in Immunology

AbbVie mainly develops immunology, oncology, and virology drugs. Its primary revenue comes from Humira, approved by the FDA in 2002, which is a first-line treatment for rheumatoid arthritis. As indications expand, Humira’s sales continue to grow.

Market concerns about patent expiration and biosimilar competition have been alleviated by AbbVie’s extensive patent portfolio—over 100 patents protecting its market position. More importantly, in 2018, AbbVie reached licensing agreements with Pfizer, Amgen, and others, allowing it to sell biosimilars in the US after 2023 and collect licensing fees, turning potential threats into new revenue streams. The company also continues R&D to find next-generation blockbuster drugs, making it an excellent buy point during downturns.

Merck & Co. (MRK)—Leader in Cancer Treatment

Merck has a long history in pharmaceuticals, with Keytruda as one of the world’s best-selling cancer drugs. The company’s stock performance is steady, with attractive dividends, making it an ideal long-term investment during US market corrections.

UnitedHealth (UNH)—Giant in Healthcare Services

UnitedHealth is a leading healthcare services provider. Benefiting from the aging US population and increasing medical needs, its revenue and profits grow steadily. Its long-term upward stock trend and stable dividends make it a good choice for defensive investors.

Investment Opportunities in Taiwanese Biotech Stocks

SynCore Chemical & Pharmaceutical (1720)—A Stable Dividend Player

SynCore is a diversified pharmaceutical company involved in Western medicine, health supplements, medical devices, and cosmetics. Its net profit has grown slowly in recent years, with assets steadily increasing and debt ratios stable. Although its innovation capacity is limited, its stable dividends make it popular among Taiwanese dividend stock investors.

Hoping Biotech (1783)—A Growth-Oriented Stock with Solid Fundamentals

Hoping Biotech focuses on biopharmaceuticals, medical devices, and health products, with two main segments: consumer products (facial cleansers, skincare, medical aesthetics) and biomedical products (bone repair materials, medical injections, ophthalmic drugs). Since turning profitable in 2017, its fundamentals have remained stable, with healthy asset-liability structures and low debt levels maintained over the years, offering certain investment value.

Core Insights on Investing in Biotech Stocks

Biotech stocks attract attention due to their high growth potential, but Taiwan’s capital market remains primarily focused on electronics, and the stock price gains of quality biotech companies often cannot compare to those in the US. As pandemic control strategies become societal consensus, Taiwanese investors are increasingly paying attention to biotech stocks. However, the US remains the most ideal global market for pharmaceuticals.

The US stock market hosts numerous excellent biotech firms with leading scale, continuous innovation, and strong competitiveness, making it easier to identify high-quality, investable targets. In contrast, Asian pharmaceutical markets are still developing; even with outstanding companies, their stock performance and overall strength lag behind US counterparts. This disparity stems from differences in capital market development, technological reserves, and investor professionalism.

Investing in biotech stocks requires deeper professional knowledge than other sectors. Interested investors should closely monitor US pharmaceutical industry trends. Globally, US biotech stocks remain the best investment choice today.