Biotech Stock Recommendations: Why Has the Pharmaceutical Industry Become an Investment Focus?

The global pharmaceutical market is entering a new growth cycle. The US biopharmaceutical market size is projected to reach $445 billion by 2027, with a compound annual growth rate of 8.5%, demonstrating the industry’s strong investment potential. Unlike traditional industries affected by economic fluctuations, the healthcare sector has anti-cyclical characteristics—people need medical care regardless of the economy, which underpins the defensive nature of pharmaceutical stocks.

Why Are Biotech Stocks Worth Watching?

Huge Industry Growth Potential

Advancements in telemedicine, accelerated new drug development, and an aging population have made the biotech industry a hot target in the capital markets. Compared to electronics, which are more affected by economic cycles, the demand curve for pharmaceuticals remains more stable, prompting more investors to focus on this sector.

Stock Price Drivers Come from Future Expectations

Traditional financial metrics for biotech companies are often unimpressive—many are still in R&D stages and lack stable cash flow. However, once a new drug gains FDA approval or achieves breakthroughs in clinical trial data, stock prices often surge significantly. For example, Taiwan’s PharmaDrug doubled its stock price in 2022 driven by orphan drug certification, despite still reporting negative EPS at the time. Investors valued its future earning potential. By May 2024, after announcing Q1 financial results, the stock reached a new high of NT$388.

Policies and Events as Triggers

During the COVID-19 pandemic in 2020, vaccine developers’ stock prices soared; however, as the Federal Reserve’s QE policy ended, biotech stocks without profits continued to rise, reflecting market obsession with innovative therapies. New clinical results, patent approvals, and expansion of indications can all trigger stock price volatility.

Valuation Logic of Pharmaceutical Stocks

“Blockbuster Drugs” Determine Company Value

A key concept in the pharmaceutical industry is “blockbusters,” referring to drugs with annual sales exceeding $1 billion. Successful pharmaceutical companies typically reinvest 50-60% of revenue into R&D, even if this reduces current profit margins. Large institutional investors tend to assign higher P/E multiples to such companies because they understand the long-term value of continuous innovation. This is similar to TSMC’s high P/E compared to UMC—investment in innovation determines future competitiveness.

PSR as an Evaluation Tool

Since R&D-stage drugs lack profits, institutional investors often use PSR (Price-to-Sales Ratio) to evaluate biotech companies. This metric is more suitable than P/E for early-stage biotech firms.

FDA Approval as a Global Passport

The FDA has the strictest monitoring standards worldwide. Once a drug is approved by the US FDA, approval processes in other countries tend to accelerate significantly. This is why pharmaceutical companies worldwide prioritize FDA approval—it’s a gateway to the global market.

Why Is the US the Top Choice for Pharmaceutical Investment?

The US biotech and pharmaceutical industry has unique competitive advantages. First, the US is the largest pharmaceutical market globally, with drug pricing not strictly regulated by healthcare systems. Insurance companies bear the costs, allowing pharma companies ample profit margins to invest in R&D. In contrast, Taiwan’s universal healthcare system suppresses drug prices annually, discouraging importation of new drugs.

Second, the US hosts nearly one million professionals in the pharmaceutical industry, covering R&D, manufacturing, and sales across the entire supply chain. The concentration of talent drives innovation ecosystems. Third, the US capital market provides the strongest support for the industry, creating a virtuous cycle—capital inflow → talent attraction → accelerated innovation → investment returns. This positive feedback loop is unmatched globally.

Leading Companies in the Global Healthcare Market

The US healthcare market is divided into four main sectors: pharmaceuticals, biotechnology, medical devices, and healthcare services. Here are leading companies in each sector:

Lilly (LLY)

According to global market cap rankings, Lilly’s market value reached $842.05 billion in 2024, ranking 10th worldwide and making it the largest pharmaceutical company globally. Its obesity drug business accounts for about 60% of North American sales, with continued growth potential in the coming years.

Pfizer (PFE)

Its main support comes from COVID-19 oral antivirals, addressing the needs of mild cases. Long-term investors may consider entering during market corrections.

Johnson & Johnson (JNJ)

With steady stock growth, generous dividends, and relatively low volatility, J&J is a defensive choice among biotech stocks, suitable for dollar-cost averaging or long-term holding strategies.

AbbVie (ABBV)

Its flagship product Humira, used for rheumatoid arthritis, faces patent expiration concerns. However, the company’s hundreds of patents create barriers to competition, and licensing agreements continue to generate profits. Ongoing R&D investments provide new growth engines.

Merck (MRK)

Keytruda, its flagship cancer immunotherapy, is one of the best-selling anticancer drugs globally. The stock has steadily risen, and its dividends are substantial, making it a good entry point during market adjustments.

UnitedHealth (UNH)

Benefiting from an aging US population and increasing healthcare demand, its revenue and profits continue to grow, with long-term stock appreciation and attractive dividends.

Opportunities for Taiwanese Pharmaceutical Companies

Sundia Chemical & Pharmaceutical (1720)

A diversified manufacturer involved in Western medicine, health supplements, and medical devices. Its revenue has grown gradually in recent years, with stable assets and consistent dividends, making it popular among dividend investors.

Kangchen Biotech (1783)

Operates in both consumer products (facial cleansers, skincare) and biomedical products (bone repair materials, ophthalmic drugs). Its fundamentals are stable, with healthy debt levels, warranting ongoing attention.

Risks in Investing in Pharmaceutical Stocks

High Volatility

Clinical trial results, competitor moves, policy changes, patent disputes, and other factors can cause significant stock price swings. Investors need sufficient risk tolerance and patience.

Policy and Regulatory Risks

The pharmaceutical industry is highly regulated by governments, with significant differences in healthcare policies and insurance systems across countries. Developed nations generally regulate drug prices through insurance systems, adding complexity to the market.

Outlook for Biotech Stock Investment

Due to their growth potential and anti-cyclical nature, biotech stocks are increasingly favored by institutional and retail investors. However, compared to US stocks’ growth potential, Taiwan’s capital market remains dominated by electronics stocks, making multi-fold gains in biotech companies less common.

Currently, the US remains the most advanced market for the pharmaceutical industry, with leading global scale, innovation capacity, and competitiveness. While the Asian pharmaceutical market is developing, gaps remain in market activity, technological standards, and investor professionalism.

For investors interested in the pharmaceutical industry, focusing on US stocks offers mature business models and the best global investment opportunities. Compared to other sectors, investing in pharma requires deeper industry understanding and expertise, but the long-term return potential is promising.