I’ve been paying close attention to investment opportunities in biotech stocks recently and have found that this field truly has many promising targets worth digging into. The growth space in the healthcare market is much larger than many people think—especially biotech companies in the United States, which really are a bit different.

To be frank, healthcare has a natural advantage: it’s recession-resistant. When people eat a mix of grains and staples, how could they not get sick? This is nothing like the electronics industry, which has to watch how the economy is doing. Healthcare demand is rigid. With global population aging, new drugs constantly being introduced, and telemedicine also developing rapidly, these are all long-term growth drivers. In the U.S., the biopharmaceutical market is expected to keep expanding over the next few years, with a compound annual growth rate staying around 8.5%.

But here’s a key insight: the value of biotech stocks mainly comes from future expectations, not from current financial reports. Many companies in the R&D stage don’t even have profits, and may not have stable cash flow. Yet if a drug passes clinical trials and receives FDA approval, stock prices often surge. Just look at PharmaEngine in Taiwan. In 2022—the year the stock market crashed—it actually doubled, mainly because its drug passed U.S. orphan drug certification, even though EPS was still negative at the time. The investment logic for these biotech potential stocks is completely different: investors are looking at the long-term revenue imagination after the drug goes on the market.

The reason the United States is the top choice for biotech investing is that it has a complete ecosystem. The U.S. is the world’s largest pharmaceutical market. Capital markets are very willing to invest in this kind of industry, and talent in the sector also concentrates there, forming a good cycle. The FDA’s monitoring standards are the strictest in the world. Once a drug is approved by the FDA, it can basically get through other countries’ approvals quickly. By contrast, Taiwan’s National Health Insurance puts pressure on drug prices, so many pharmaceutical companies simply don’t want to bring in the best drugs.

When it comes to valuation methods, this is also where many people are likely to fall into traps. Traditional P/E ratios simply can’t be used for biotech stocks, because these companies don’t have steady profits. In the industry, institutions mostly use PSR (price-to-sales ratio) to evaluate the value of new drug companies. Another concept to pay attention to is “blockbuster drugs,” meaning a single drug with annual operating revenue exceeding $1 billion. Successful big pharmaceutical companies typically invest 50–60% of revenue into R&D. Even if that lowers EPS, institutional investors tend to raise their target prices instead, because they know these companies’ innovative products will keep coming.

The competitive landscape of the U.S. healthcare market can be divided into four major segments: pharmaceuticals, biotechnology, medical devices, and healthcare services. If you want to choose a leading target, Eli Lilly (LLY) is currently the world’s largest pharmaceutical company by market value. In 2024, its market cap reached more than $842 billion, and the weight-loss drug market is expected to continue growing over the next few years. Pfizer (PFE) and Johnson & Johnson (JNJ) are relatively steadier choices, with less stock price volatility and decent dividends, making them suitable for dollar-cost averaging or long-term dividend-stock holding. AbbVie (ABBV) mainly relies on Humira, a blockbuster drug for rheumatoid arthritis. Although its patent will expire, the company still holds over a hundred patents and continues to invest in R&D to find the next blockbuster. Merck (MRK)’s Keytruda is one of the best-selling anti-cancer drugs globally; its stock price is also steadily trending upward along with high dividends. UnitedHealth (UNH) benefits from the increase in healthcare demand brought by the aging population in the U.S.

Biotech opportunities in Taiwan are relatively limited. Synta Chemical (1720) has stable dividend payouts, attracting many dividend investors. Kangxin Biotechnology (1783), which involves consumer goods and biomedical products, has stable fundamentals in recent years and a relatively low debt level. But to be honest, Taiwan’s overall capital market is still mainly driven by electronics stocks. Even if there are good biotech companies, it’s difficult for them to achieve the kind of multi-tens-fold gains seen in the United States.

Personally, I think that compared with other investment areas, biotech stocks really require a more professional understanding of the industry. High risk and high volatility are the norm. Clinical trial results, competitors’ moves, policy changes, and patent disputes can all cause sharp swings. But if you have enough patience and risk tolerance, U.S. biotech stocks are indeed among the most promising investment opportunities today—especially those leading companies that keep investing in R&D and continuously develop new drugs. Long term, there is still a real chance.