Taiwan Biotechnology Investment Overview | In-Depth Analysis of Popular Biotech Stocks and Market Performance

▶ Why Are Biotech Stocks Becoming Market Favorites?

Since 2023, the global investment environment has been unpredictable. The Ukraine-Russia conflict has triggered energy and food crises, aggressive Federal Reserve rate hikes have led to inverted bond yields, and turmoil in the US banking sector has caused market panic… In such an environment, investors are eager to find safe havens. Biotech stocks, due to their anti-inflation characteristics and low correlation with economic cycles, are gradually becoming the new darling of capital.

The ETF performance reveals the trend. Comparing the past year’s trend of the S&P 500 tracking ETF SPY.US and the biotech index ETF XBI.US, biotech stocks show significantly stronger resilience during downturns. Why is that? Because biotech companies’ performance mainly depends on their own drug development progress and is less affected by macroeconomic fluctuations. During recessions, when other assets decline, biotech stocks can reverse the trend or perform better defensively, making biotech stocks generally regarded as investments with relatively strong anti-inflation capabilities.

▶ Definition and Classification of Biotech Stocks

Biotech stocks refer to listed companies engaged in the research, development, manufacturing, and sales of new drugs and medical devices using biotechnology and engineering techniques (such as gene engineering, cell engineering, protein engineering, etc.) in the healthcare sector. They can be divided into two main categories based on business models: new drug R&D and sales, and medical device manufacturing. Many new drug R&D companies also engage in distribution, so the boundaries are not absolute.

Globally renowned biotech companies include Amgen(AMGN.US), Pfizer(PFE.US), Novartis(NVS.US), Bayer(BAYGn.US), etc. In Taiwan, investors can grasp the industry landscape through the Taiwan Biotech Index.

▶ Taiwan Biotech Index: An Industry Barometer

The Taiwan Biotech Index, compiled by Taiwan Index Plus, is based on market capitalization, free float, and liquidity criteria, selecting representative biotech and medical stocks to measure industry performance and track development trends. It includes major companies such as PharmaEngine, United Biomedical, Grape King, Taiwan Biotech, and M3Tech, with its fluctuations directly reflecting the overall trend of Taiwanese biotech stocks.

It’s worth noting that some popular biotech stocks (like Johnson & Johnson, Taiji) are not included in the index due to market cap or liquidity reasons.

▶ Which Taiwanese Biotech Stocks Are Worth Watching?

1. Growth Leader—PharmaEngine(6446.TW)

PharmaEngine was established in 2003, focusing on long-acting protein drugs for blood diseases, chronic hepatitis, cancer, etc. Over 95% of revenue comes from drug sales. Listed on the Taiwan Stock Exchange in 2016.

• Market Cap: NT$135.3 billion (as of March 15, 2023)
• Annualized Return: -1%
• Dividend Yield: None

Its stock price has increased by 45% in the past year, with a three-year gain of over 600%, far surpassing the Taiwan stock market’s overall decline of 10.5%. In the first two months of this year, revenue reached NT$540 million, up 351.22% year-over-year, showing remarkable growth. Notably, its new drug Ropeg for treating polycythemia vera has been included in Italy’s national health insurance, with a single dose priced at €7,550, which will become a key revenue driver in the future.

Investment Tip: As a growth stock, it is more volatile. Short-term prices may still have downside potential; patience for low-entry points is advisable.

2. Turning Losses into Profits—United Biomedical(4743.TW)

United Biomedical was founded in 2008, focusing on chronic skin and immune diseases. Over 75% of revenue comes from biotech new drugs, covering diabetes, foot ulcers, cancer, rheumatoid arthritis, etc. It was officially listed in 2011.

• Market Cap: NT$101.7 billion (as of March 15, 2023)
• Annualized Return: 0.3%
• Dividend Yield: 0.01%

In the past year, its stock price increased by 13%, outperforming the broader market. Since 2019, its self-developed new drugs have been launched successively, and it turned profitable for the first time in 2022. Its new drug “SuBiA” has obtained approval for listing in Taiwan, and earlier this year, “Bonvadis wound ointment” passed import approvals in New Zealand and India, with promising market expansion potential.

Investment Tip: The performance inflection point has appeared, with frequent positive signals, suitable for medium-term investors.

3. Stable Cash Cow—TaiMed(4126.TW)

TaiMed was established in 1977, specializing in manufacturing and sales of medical consumables, medical equipment, and gas pipeline devices, holding a leading position in Taiwan’s niche markets. Medical consumables account for over 90% of revenue.

• Market Cap: NT$5.997 billion (as of March 15, 2023)
• Annualized Return: 5%
• Dividend Yield: 3.6%

If you are looking for a biotech stock with stable profitability and continuous revenue, TaiMed is worth adding to your investment list. Its stock price has risen 17.5% in the past year. The company’s performance has steadily grown over more than 20 years, with profit margins consistently above 10%. It only experienced a loss in 2009, and its profit margin has remained above 15% in recent three years.

Compared to new drug R&D stocks that go through “years of no progress, then years of growth,” TaiMed’s main business in medical consumables ensures steady cash flow and less volatility.

Investment Tip: Ideal for those seeking stable cash flow and dividend income.

4. Value-Oriented Choice—Po Tai Co.(5312.TW)

Po Tai was founded in 1989, focusing on the R&D, design, and sales of eyewear and optical products. It is Taiwan’s largest eyewear retailer. Eyewear sales account for over 95%, listed in 1996.

• Market Cap: NT$3.838 billion (as of March 15, 2023)
• Annualized Return: 7.6%
• Dividend Yield: 4.5%

In the past year, its stock price increased by 5%, outperforming the broader market. Profit margins are stable around 10%. Although revenue has declined in recent two years, its annualized return and dividend yield are competitive within the industry. Brand recognition remains its core competitive advantage, but the risk of declining revenue over consecutive years should be noted.

Investment Tip: Relatively stable but lacks growth momentum, suitable for conservative investors.

5. High-Growth Dark Horse—Johnson & Johnson(4747.TW)

Johnson & Johnson (Jiangsheng Pharmaceutical) was founded in 1959, mainly engaged in manufacturing and sales of Western medicines, with product lines including capsules, tablets, suppositories, etc., treating central nervous system, respiratory, gastrointestinal diseases. Listed in 2013.

• Market Cap: NT$1.517 billion (as of March 15, 2023)
• Annualized Return: 3%
• Dividend Yield: 3.2%

Over the past year, its stock price surged 61.2%, far outperforming most Taiwanese biotech stocks and the market. From 2021-22, the stock hovered around NT$30-40, but since December 2022, it has accelerated upward, now stable above NT$45. Its performance growth aligns with revenue increases, with the highest monthly revenue growth reaching 41.52% last year, and in January and February this year, growth rates of 24.29% and 9.97%, respectively, maintaining steady growth.

A mid-term upward trend is established, but short-term adjustments are ongoing. Gradual, phased investment is more prudent.

Investment Tip: Strong growth potential, but watch out for short-term risks.

▶ What Is the Investment Outlook for Biotech Stocks?

In the current environment of high inflation and uncertain economic prospects, biotech stocks are worth considering for their defensive attributes. Especially those entering the “drug unblinding phase” (i.e., phase 3 clinical trials, the critical point for approval), such as PharmaEngine and United Biomedical. If their new drugs succeed in approval and listing, the potential returns are huge, and this will be fully reflected in their stock prices.

However, this is contingent on successful unblinding. Even at this stage, failure risks exist, so investment decisions should consider multiple factors comprehensively.

▶ Three Major Risks to Know When Investing in Biotech Stocks

1. Low Success Rate of New Drug Development

The success rate from R&D to final approval is less than 10%, but the process takes about ten years. During this long period, companies need to continuously invest huge amounts in research, with no guarantee of success. This is the fundamental reason for the high risk of biotech stocks.

2. Short Patent Protection Period

In Taiwan, new drug patents last up to ten years—usually, the first five-year patent can be extended by up to five more years. This means the exclusivity period is very short, and generic manufacturers can quickly introduce cheaper alternatives, eroding the original drug’s profit margins.

3. High Debt Due to R&D Costs

Developing new drugs involves long cycles and large investments. If a company’s revenue sources are limited, its products lack competitiveness, or R&D projects are not favored by capital, it can easily fall into debt, even threatening daily operations.

▶ Investment Strategies and Risk Management for Biotech Stocks

Diversify to Reduce Single-Point Risks

Avoid putting all your funds into a single biotech stock. Spread investments across multiple biotech companies to balance different business performances and avoid sector, regional, or size concentration risks. Focus on selecting stocks with solid fundamentals and growth potential to ensure portfolio diversification.

Regular Monitoring and Timely Adjustment

Continuously monitor your portfolio’s performance. Regularly review each stock’s performance, market dynamics, and relevant news to identify changes or risks early. Adjust holdings as needed—reduce or increase positions—to maintain flexibility and effectiveness.

Leverage Professional Analysis Tools

Choose reliable stock analysis tools that provide insights into company fundamentals and investment value. These should include financial metrics, R&D progress, product pipelines, etc., to help make informed decisions. Use tools from authoritative sources and combine them with your investment goals and risk tolerance for more accurate assessments.

▶ Summary

To select biotech stocks that can hedge against inflation, consider multiple factors such as company financial health (debt levels), stock valuation (overvaluation risk), and progress in new drug development (unblinding timing). In the current environment, we tend to recommend investors focus on TaiMed, Johnson & Johnson, and Po Tai Co., as they offer a better balance of stability and growth potential. Of course, each has its own characteristics—choose TaiMed for stable cash flow, Johnson & Johnson for growth, and Po Tai Co. for conservative allocation—tailoring your choices to your risk appetite and investment horizon.