U.S. biotech stock index performs strongly: analysis of medical stock investment prospects and top recommended stocks

Why Focus on Medical Biotech Stocks

As the global population ages rapidly, new therapies continue to emerge, and the telemedicine industry flourishes, the medical biotech industry has become one of the most promising investment sectors. Unlike traditional manufacturing industries that are easily affected by economic cycles, the medical biotech industry has a natural anti-cyclical characteristic—people need medical care regardless of the economy—making this sector relatively stable.

The U.S. biopharmaceutical market is the largest and most active in the world, expected to reach $445 billion by 2027, with a CAGR of (CAGR) of 8.5%. The performance of U.S. biotech indices also reflects investors’ continued optimism in this field, attracting substantial capital inflows.

Core Logic of Investing in Medical Stocks

Stock prices are based on future expectations rather than current profits

Valuation logic for biotech companies is entirely different from traditional enterprises. Most biotech firms are in the R&D stage, lacking stable cash flow and profitability. Their true assets are their drug pipelines under development. Once a new drug passes clinical trials and gains FDA approval, the stock price often skyrockets.

Take Taiwan’s TTY Biopharm as an example. During the 2022 stock market crash, its stock price doubled mainly because its drug received orphan drug designation in the U.S. Despite a negative EPS of -2.93 NT dollars in H1, it was enough to attract investors. By May 2024, after announcing Q1 financial results, the stock had risen to a high of 388 NT dollars. This clearly shows that investors value the company’s future commercialization prospects rather than its current financial performance.

Event-driven, highly volatile

Biotech stocks are easily influenced by clinical trial results, new drug approvals, competitive dynamics, patent disputes, and other factors, leading to large fluctuations in stock prices. For example, during the COVID-19 pandemic, many vaccine concept stocks surged significantly. However, as the Federal Reserve’s QE drove the overall tech sector higher, many unprofitable biotech companies’ stocks declined afterward. Investing in such stocks requires sufficient risk tolerance and patience.

Regulatory environment and policy risks

The medical biotech industry is highly regulated by governments, with each country having its own healthcare policies. Developed countries often have insurance systems (such as Taiwan’s National Health Insurance), which impose strict regulation on drug prices and medical services, greatly increasing the complexity of the healthcare market.

How to Assess the Fair Value of Medical Stocks

Importance of FDA approval

Whether in Taiwan or the U.S., the core focus is on FDA (U.S. Food and Drug Administration) approval. The FDA has the strictest drug monitoring standards globally. Once a drug is approved by the FDA, it is usually approved quickly in other countries.

Blockbuster drugs and R&D investment

In the pharmaceutical industry, there is a term called “blockbusters,” referring to drugs with annual sales exceeding $1 billion. Successful large pharmaceutical companies are willing to invest 50-60% of their revenue into R&D, seeking the next blockbuster. Consequently, major investment institutions tend to raise valuation and target prices for these companies, knowing that their future pipeline of innovative products will be continuous.

( Application of PSR valuation method

Many drugs in the R&D stage are not yet profitable, so capital markets often evaluate biotech companies using PSR (Price-to-Sales Ratio) rather than traditional PE multiples.

Unique Advantages of the U.S. Medical Market

The U.S. pharmaceutical market adopts a capitalist model, allowing drug companies to set higher prices paid by insurance companies. This results in a significant portion of Americans’ income going toward medical insurance costs. The high profit margins attract the world’s top pharmaceutical talent.

Over one million people work in the U.S. biotech and pharmaceutical sectors, spanning R&D, manufacturing, sales, and other segments. Top scientists and engineers enjoy a favorable employment environment, and the capital markets are very willing to invest in this industry. This creates a virtuous cycle, making the U.S. the most favorable country for pharmaceutical development and causing U.S. biotech indices to trend upward long-term.

Recommended U.S. Healthcare Leaders

The U.S. healthcare market is mainly divided into four sectors: Pharmaceuticals, Biotechnology, Medical Devices, and Healthcare Services.

) 1. Eli Lilly (LLY)— Market leader in weight-loss drugs

As of 2024, Eli Lilly’s market cap reaches $842.05 billion, ranking 10th globally, and has become the world’s largest pharmaceutical company by market value. Its weight-loss drugs account for about 60% of the North American market, which is expected to continue growing in the coming years. The broad prospects in weight-loss drugs make LLY a core healthcare stock to watch.

2. Pfizer (PFE)— Major supplier of COVID oral medications

Pfizer’s COVID oral medication treats mild cases and generates substantial revenue. The company’s stock has shown steady long-term growth, making it an excellent entry point for long-term investors during market corrections.

3. Johnson & Johnson (JNJ)— Stable choice among biotech stocks

J&J’s stock price has relatively small fluctuations, with an upward long-term trend and generous dividends, making it suitable for dollar-cost averaging or long-term holding strategies. Its stability also makes it suitable for margin trading aimed at long-term appreciation.

4. AbbVie (ABBV)— Well-protected patents for established drugs

AbbVie’s main profit comes from Humira, approved by the FDA in 2002, which is the first-line treatment for rheumatoid arthritis. The company has continuously gained FDA approvals to expand indications, increasing its enterprise value. Although there were concerns about competition after patent expiry, AbbVie holds over a hundred patents and, in 2018, reached licensing agreements with major firms like Pfizer and Amgen to sell biosimilars and collect royalties. The company continues investing in R&D to find the next blockbuster, making it a stock worth watching during dips.

5. Merck (MRK)— Global leader in cancer treatment drugs

Merck’s key product is Keytruda, one of the world’s best-selling cancer drugs. The stock has steadily risen and offers high dividends, making it an ideal entry during market corrections.

6. UnitedHealth (UNH)— Leader in healthcare services

UnitedHealth benefits from the aging U.S. population and increasing healthcare demand, with continuous growth in revenue and profit. Its stock price has been rising long-term and provides attractive dividend yields.

All these companies possess strong competitiveness, innovation capability, solid financial performance, cash flow, and offer substantial investment returns and dividends.

Recommended Taiwanese Medical Stocks

1. SynCore Chemical & Pharmaceutical (1720)— Stable dividend-paying stock

SynCore is a diversified pharmaceutical company engaged in Western medicine, health supplements, health foods, medical devices, cosmetics, and milk powder. Its revenue and net profit have shown slow growth in recent years, with steadily increasing assets and stable long-term debt ratios. Although it lacks explosive growth potential, its stable dividends make it popular among Taiwanese dividend investors.

2. Hecare Biotech (1783)— Dual focus on medical devices and biomedical products

Hecare Biotech produces and sells biopharmaceuticals, medical devices, skincare products, and precision chemical materials. Its business is divided into consumer products (facial cleansers, skincare, medical aesthetics) and biomedical products (bone repair materials, medical injectables, ophthalmic drugs). The company turned profitable in 2017, with stable fundamentals, healthy debt ratios, and is worth continued attention.

Summary of Investment in Medical Biotech

Medical biotech stocks are highly regarded for their growth potential, but Taiwan’s capital market still mainly focuses on electronics stocks. Excellent biotech companies rarely see the multi-tenfold gains typical of U.S. stocks. As the pandemic becomes normalized and governments pay more attention to biotech, Taiwanese investors’ recognition of biotech stocks may gradually increase.

However, in reality, the U.S. remains the best investment market for pharmaceuticals, nurturing many outstanding biopharmaceutical companies that are larger, more innovative, and more competitive, making it easier to find quality investment targets. The Asian pharmaceutical market is still developing; even with excellent companies, their stock performance and overall competitiveness are not on par with U.S. healthcare stocks.

Compared to other investment fields, investing in healthcare stocks requires professional knowledge and in-depth understanding of the industry. If interested in this sector, it is recommended to closely follow U.S. pharmaceutical developments and biotech index performance. Globally, U.S. healthcare biotech stocks remain the top investment choice today.