Biotech Stocks Recommendations | Profit Logic and Investment Guide for Pharmaceutical and Biotech Stocks

The US healthcare market is undergoing a profound transformation, expected to reach $445 billion by 2027, with a compound annual growth rate of 8.5%. In this massive market, biotech stocks have become the hottest topic among investors. Why? Because this industry has a completely different profit logic compared to traditional stocks.

Why Have biotech stocks become the new trend?

Compared to electronics stocks that depend on economic cycles, pharmaceutical and biotech stocks have a natural advantage—people will always get sick. Accelerating global aging, continuous new drug developments, and booming telemedicine are all driving up market demand. More importantly, the growth potential of pharmaceutical stocks is enormous.

Take Taiwan’s hottest biotech company, PharmaTech, as an example. In 2022, the year of the stock market crash, its stock price doubled. The reason is simple—its new drug passed the US orphan drug certification. At that time, EPS was still negative 2.93 yuan, yet the market went crazy. By May 2024, the stock price had risen to NT$388.

Investors focus not on current profits but on future substantial returns. These returns are largely unaffected by economic fluctuations.

Core logic of biotech stock recommendations: understanding three key points

1. Value comes from the future, not current profits

Traditional companies are evaluated using EPS and net profit, but most biotech firms are still in R&D stages without stable cash flow. Once a new drug is approved by the FDA, the stock price often surges sharply. The real assets of these companies are the drugs under development.

The market uses PSR (Price-to-Sales Ratio) instead of P/E to evaluate these companies. This is because a simple fact remains: once a new drug is approved, there is endless revenue potential.

2. Event-driven, highly volatile

In 2020, during the pandemic, companies developing vaccines saw their stock prices soar, but many of these companies did not live up to expectations. The Federal Reserve’s massive liquidity injection caused tech stocks to rise as well, but when the economic storm hit, companies with record-high revenues saw their stock prices halved.

This means biotech stocks are high-risk, highly volatile, and extremely sensitive to market sentiment. Clinical trial results, regulatory policy changes, patent disputes—any movement can cause dramatic stock swings. Investing in these stocks requires patience and risk tolerance.

3. FDA approval is the global passport

An iron rule in this industry: the US FDA’s standards are the strictest worldwide. Once a drug passes FDA approval, it can quickly gain approval in other countries. That’s why news of FDA approval from US pharmaceutical companies can instantly boost global stock prices.

Why is the US the top choice for biotech stock recommendations?

Simply put: different business models.

In Taiwan, due to universal health insurance, medical payments are controlled by the government, and drug prices are kept very low. Many drug companies are reluctant to bring their latest drugs into Taiwan. But in the US, the capitalist market logic prevails—drugs can be very expensive, paid for by insurance. This makes the US the largest pharmaceutical market globally.

The US also has unique ecological advantages:

• Talent concentration: Nearly one million professionals in biomedicine, covering R&D, manufacturing, sales, and more. Top talent is gathered here.

• Capital support: The US capital markets are very willing to invest in this industry, creating a virtuous cycle.

• Integration advantage: Large pharmaceutical companies continue to invest 50-60% of revenue into R&D after launching blockbuster drugs. Even if this temporarily lowers profit margins, major investment institutions tend to raise their target prices because it indicates continuous innovation.

This model has fostered a unique biomedicine ecosystem in the US.

List of recommended biotech stocks: US industry leaders

The US healthcare market is divided into four major sectors: pharmaceuticals, biotechnology, medical devices, and healthcare services. Here are the leaders in each field.

Lilly (LLY)

The 10th largest publicly traded company globally, with a market cap of $842.05 billion. Became the largest pharmaceutical company in the world in 2023. Its weight loss drug market is expected to continue growing in the coming years, with North America accounting for about 60% of its revenue. LLY is a biotech stock that must be watched closely.

Pfizer (PFE)

Known for its COVID-19 oral medication for mild cases. The company’s stock has steady growth, making it an excellent long-term investment during market corrections.

Johnson & Johnson (JNJ)

Stock price steadily rising, with relatively small fluctuations, offering generous dividends. Very suitable for dollar-cost averaging or long-term buy-and-hold, and is considered the king of biotech stocks. Its long-term upward trend and low volatility even make it suitable for margin trading strategies.

AbbVie (ABBV)

Focuses on immunology, oncology, and virology drugs. Its main profit comes from Humira (a first-line treatment for rheumatoid arthritis), which continues to receive FDA approvals for expanded indications. Although patent expiration concerns exist, the company holds hundreds of patents, making it difficult for competitors to break through. AbbVie has licensing agreements with giants like Pfizer and Amgen, earning licensing fees. It also continues R&D to find the next blockbuster drug, making it a good entry point during dips.

Merck (MRK)

Its key drug, Keytruda, is one of the best-selling cancer treatments worldwide. The company’s stock is steadily rising, offering high dividends, and is also an excellent entry point during market downturns.

UnitedHealth (UNH)

Benefiting from aging US population and increasing healthcare needs. Revenue and profits continue to grow, with long-term stock appreciation and decent dividends.

These leaders all possess strong competitiveness, solid financial performance, and cash flow, making them essential picks in the biotech stock recommendation list.

Opportunities and limitations of Taiwanese biotech stocks

Tainach Chemical (1720)

A diversified pharmaceutical company involved in Western medicine, health supplements, and medical devices. Revenue and net income have grown slowly in recent years, with assets steadily increasing. Although lacking in explosive growth, its stable dividends make it popular among dividend investors.

Kangxin Biotech (1783)

Engaged in biopharmaceuticals, medical devices, and health products. Has consumer goods (facial cleansers, skincare, medical aesthetics) and biomedical products (bone repair materials, injectables, ophthalmic drugs). Turned profitable in 2017, with stable fundamentals in recent years, low and stable debt levels.

But it’s important to recognize reality: Taiwan’s overall capital market still mainly focuses on electronics stocks. Even excellent biotech companies are unlikely to see 30- or 50-fold gains like in the US. The scale, innovation capacity, and competitiveness of the US pharmaceutical market far surpass those in Asia.

Final advice for investing in biotech stocks

Biotech stocks attract increasing investor attention because of their imagination space. But this field requires investors to have professional knowledge of the pharmaceutical industry.

In short: risk and return go hand in hand. High volatility brings high return opportunities but also requires sufficient risk tolerance.

Currently, the US remains the best investment market for pharmaceuticals, producing the most outstanding biomedicine companies. To seize biotech stock opportunities, US pharmaceutical stocks are the top investment choice worldwide.