U.S. Stock Biotechnology Investment Guide: Leading Medical Industry Players and Valuation Logic Analysis

Why Focus on Healthcare Biotech Stocks

The healthcare industry is one of the most resilient markets globally. Unlike traditional industries that must contend with economic fluctuations, healthcare demand is inherently rigid—people need to see doctors, take medications, and purchase medical devices regardless of economic conditions. This characteristic makes healthcare biotech stocks a key long-term allocation for many investors.

According to market research, the U.S. biopharmaceutical market is the largest in the world, projected to reach $445 billion by 2027, with a compound annual growth rate (CAGR) of 8.5%. As the global population ages, telemedicine becomes widespread, and new drugs are continuously launched, this industry still has enormous growth potential in the coming years, with the likelihood of producing ten-bagger stocks.

Investment Logic of U.S. Biotech Stocks

Future expectations determine stock price movements

The value of biotech companies is difficult to evaluate using traditional financial metrics. Many of these companies are in R&D stages, often lacking stable cash flow and profitability. Their core assets are drugs in pipeline, which have no commercial value until FDA approval.

The key turning point is regulatory approval. Once a drug passes clinical trials and gains FDA approval, the company’s stock price often skyrockets. That’s why investors need to closely monitor drug development progress—it directly influences future revenue.

Taiwanese biotech company PharmaDrug is a typical example. In 2022, the year of the stock market crash, its stock price doubled, mainly driven by FDA approval of its orphan drug. Despite a negative EPS of NT$-2.93 in the first half of that year, investors flocked to it because they saw future commercialization gains. By May 2024, PharmaDrug’s stock price had risen to a new high of NT$388.

Event-driven and policy risks

Healthcare biotech stocks are affected by multiple uncertainties: clinical trial results, competitor movements, regulatory policy changes, patent disputes, etc. During the COVID-19 pandemic, many vaccine R&D companies’ stocks soared, but many proved to be fleeting. With the Federal Reserve’s QE injections, tech stocks generally rose, but when economic storms hit, many revenue-generating companies were halved, while biotech newcomers without profits soared—this is the result of the interplay between event-driven factors and policy environments.

Additionally, biotech and healthcare are highly regulated industries. Countries have strict policies on procurement and advertising. Developed countries’ insurance systems (like Taiwan’s National Health Insurance) regulate drug prices, making the market more complex.

How to Assess the Value of U.S. Biotech Stocks

Blockbuster drugs are the core revenue engines

The pharmaceutical industry has a term called “blockbusters,” referring to drugs with annual sales exceeding $1 billion. Successful big pharma companies typically reinvest 50-60% of revenue into R&D for new drugs, even if it reduces profit margins and EPS.

Large investment institutions tend to raise their valuation and target prices for these companies because they know these firms will continuously innovate. This also explains why TSMC’s P/E ratio can be much higher than UMC’s—after UMC announced it would stop investing in advanced processes, it appeared to save costs and increase profits, but in reality, it was just eating into its capital, which will eventually run out.

Many top biotech giants in the U.S. adopt a similar logic, maintaining moderate profit margins and using the rest of the funds for R&D or acquiring promising small biotech firms. This strategy reflects confidence in long-term growth.

PSR valuation method is more suitable for new drug companies

Since many R&D-stage drugs are not profitable, investment firms often use PSR (Price-to-Sales Ratio) to evaluate new biotech companies instead of traditional P/E ratios. This approach avoids the problem of valuing loss-making companies.

FDA approval is the global passport

Whether in Taiwan or the U.S., the most critical indicator is FDA approval. The FDA has the strictest standards for drug regulation worldwide. Once a drug is approved by the FDA, approval in other countries follows rapidly. This makes the U.S. market the primary battleground for drug commercialization globally.

Why U.S. Biotech Stocks Are the Best Choice

The U.S. has the largest global pharmaceutical market, with a completely different market structure. Taiwan’s National Health Insurance suppresses drug prices annually, discouraging many high-quality drugs from entering the Taiwanese market. In contrast, the U.S. biotech and pharmaceutical market operates on a typical capitalist model—drugs can be priced high, with insurance covering costs, creating strong incentives for R&D investment.

The U.S. biotech and pharma industry employs nearly one million professionals across R&D, manufacturing, sales, and other segments. The best talent naturally congregates here. The capital market is highly active, forming a healthy investment cycle and establishing a unique biopharmaceutical ecosystem. For these reasons, the U.S. is widely regarded by global investors as the most favorable environment for pharmaceutical industry development.

Analysis of Leading U.S. Biotech Companies

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

Eli Lilly (LLY.US)—Profit machine for weight-loss drugs

According to global market cap rankings, Eli Lilly’s market cap in 2024 reached $842.05 billion, ranking 10th worldwide and was the largest pharmaceutical company globally last year. Its biggest market is North America, accounting for about 60%. Its weight-loss products are expected to continue growing in the coming years, making it an essential target for U.S. biotech investments.

Pfizer (PFE.US)—Winner of the COVID era

Pfizer gained global attention for its COVID vaccine and oral antiviral drugs. The company’s stock price has steadily grown, offering generous dividends. During U.S. market downturns, it’s an excellent entry point for long-term investors.

Johnson & Johnson (JNJ.US)—Ideal long-term healthcare stock

J&J, similar to Pfizer, has steady stock growth with less volatility and pays high dividends. Its stable fundamentals and low volatility make it a prime candidate for dollar-cost averaging or long-term buy-and-hold strategies, also regarded as the biotech king. Its upward long-term trend and low volatility also make it suitable for margin trading to amplify returns.

AbbVie (ABBV.US)—Expert in immunology drugs

AbbVie mainly develops immunology, oncology, and virology drugs. Its primary profit comes from Humira, approved by FDA in 2002, which is the first choice for rheumatoid arthritis treatment. As indications expand, this drug has become the company’s revenue pillar.

Although investors worry about patent expiration leading to generic competition, AbbVie holds hundreds of patents, making it difficult for competitors to break through. The company also has agreements with giants like Pfizer and Amgen to license biosimilars after patent expiry and collect licensing fees. Meanwhile, AbbVie continues R&D to seek the next blockbuster drug, making it a good low-entry point.

Merck (MRK.US)—Leader in cancer treatment

Merck has a centuries-old family pharmaceutical history and is now a global healthcare solutions provider. Its flagship product, Keytruda, is one of the world’s best-selling drugs. Its stock price has steadily risen, and it offers high dividends, making it a golden entry point during market corrections.

UnitedHealth (UNH.US)—Beneficiary of healthcare services

UnitedHealth holds a significant position in healthcare services. Benefiting from aging populations and increasing healthcare needs in the U.S., its revenue and profits continue to grow. Its stock has long-term upward momentum and provides attractive dividend income.

Taiwanese Healthcare Stocks Also Have Opportunities

SynMed Chemical & Pharmaceutical (1720)

SynMed is a diversified pharmaceutical company involved in Western medicine, health supplements, medical devices, cosmetics, and milk powder sales. Its total revenue and net income have grown slowly in recent years, with assets steadily increasing and long-term stable debt ratios. Although growth momentum is modest and fundamentals are average, its stable dividends make it popular among Taiwanese dividend stock investors.

HopKang Biotech (1783)

HopKang Biotech engages in the sales of biopharmaceuticals, medical devices, skincare products, and fine chemicals. Its business includes consumer products (facial cleansers, skincare, medical aesthetics) and biomedical products (bone repair materials, injectable drugs, ophthalmic medicines). The company turned profitable in 2017, with stable fundamentals in recent years, healthy debt ratios, and consistently low debt levels, making it worth watching.

Outlook for U.S. Biotech Investment

Healthcare biotech stocks attract attention due to their vast growth potential. However, Taiwan’s overall capital market remains dominated by electronics stocks, and even excellent biotech companies rarely achieve the multi-decade ten-bagger gains seen in the U.S.

In comparison, the U.S. remains the best market for pharmaceuticals, home to many outstanding biopharmaceutical companies with larger scale, innovation, and competitiveness, making it easier to identify quality investment targets. The Asian pharmaceutical market is still developing; even with excellent companies, they cannot compare to U.S. biotech stocks.

This discrepancy is due to differences in capital markets, technological innovation, and investor professionalism. Therefore, for investors interested in U.S. biotech opportunities, it is recommended to keep an eye on developments in American pharmaceuticals. Globally, U.S. biotech stocks remain the top investment choice.