Editor's note: Everyone loves the "Magnificent Seven" tech stocks... But don't count out the smaller firms. Our colleague Dave Lashmet certainly doesn't when it comes to medical companies. Today, we're sharing one of Dave's previous DailyWealth issues, which we last published in 2019. In it, Dave highlights the "magic" that smaller pharmaceutical businesses bring to the table. As he explains, even Big Pharma relies on their handiwork...

More than 20 years ago, Stansberry Research founder Porter Stansberry hired me...

He wanted me to write about the economics of medicine for the everyday investor.

The goal was to track revolutions, not evolutions. That meant finding actionable information on new, world-changing drugs – not new hospital beds.

The first great drug we came across was a cancer drug called Gleevec. It worked miracles... but only for a vanishingly small number of cancer patients.

In fact, you needed a specific tragedy in your genetic code to get the defect that Gleevec could hit. If two clusters of your DNA split and rejoined in a special way, your body built a gene that didn't exist before, and it led to leukemia...

This was one of the first cancer genes ever discovered, and the pill landed right in its heart. Gleevec killed the cancer cells that made the target.

In the U.S. Food and Drug Administration's ("FDA") Phase II trials, the results were astonishing: 98% of people's cancers disappeared, meaning they had a "complete response" to the pill.

The FDA approved Gleevec based on the incredible results.

But we passed on it. We never recommended that our subscribers invest in it. You see, despite the drug's promise, there was no buying opportunity back then...

The global pharmaceutical company Novartis (NVS) developed Gleevec.

At the time, Novartis was a $100 billion firm. So investors had to balance the upside on a $1 billion (or more) blockbuster drug against the revenue of its other products.

This brings me to an important point... The world's largest drug firms are marketing machines as much as factories for innovation. They must keep selling new drugs.

But as I'll explain today, we want to find the smaller companies that are making the "magic" happen. It's part of our unique approach to biotech – an entirely new way to invest in this sector...

You see, it typically takes about 10 years to develop a drug, and "patent protection" is 20 years... after which the drug then becomes a cheaper generic. So a drug company has roughly just 10 to 12 years to make back its return on investment.

That means if a Big Pharma company has two dozen drugs – like Novartis did at the time – then two or more will likely be coming off patent protection every year. That could mean a sudden 75% drop in revenue on that product line.

It's a complicated picture.

So instead, Porter and I focused on smaller pharmaceutical firms – the ones that were pure inventors. That's because big firms need to buy up the smaller firms' new drugs... so they can always be selling branded products.

In short, there's an entire economy in new medicines...

As of 2024, in the U.S., health care spending – everything from hospital stays to ACE bandages – accounts for $4.5 trillion per year. But globally, pharmaceuticals alone are worth $1.6 trillion in annual sales. And the latest inventions are valuable.

We also took a different view on these companies' products. When Porter and I first started searching for innovative medicines, we looked at it from a different perspective – like we were patients.

And that led us to a simple truth that most doctors and Wall Street didn't fully account for... People don't like side effects.

Sounds trivial, right? But here's the economic impact... When you realize that patients are customers, you realize they make choices. And they will always choose the safer course.

Imagine a drug that's 25% effective, with minimal side effects. Then compare it with a drug that's 50% effective that comes with severe side effects. You'd try the safer drug first.

There's no reason not to at least try it, because there's no downside. That's how a 25% effective drug can win 100% of the market.

Keep in mind, companies still need to prove the effectiveness of their medicines in controlled clinical trials. We don't like herbal medicines, or success by anecdote, or outright falsehoods (like stem-cell treatments). We want safe treatments that work.

With our early subscribers to Stansberry Venture Technology, we entered the ground floor of a new way of looking at medicine...

For example, we recommended Intuitive Surgical (ISRG) in March 2004 when it was an $18 stock. A little more than a year later, in April 2005, we booked a 124% return. Today, ISRG shares trade for roughly $383.

The big idea here was robotic-assisted surgery – plus, patents from the lone inventor who first imagined this concept. But these patents were more of a sketch than a device.

The magic was in the engineering. That's what really drives biotech developments...

A core demand in our economy is reproducibility, or the ability to scale. You have a smartphone only because a billion people have smartphones. Otherwise, you'd be holding a Fabergé egg. Let me explain...

More than a hundred years ago, Russian Tsar Alexander III purchased the first of these fancy eggs from Fabergé, a jewelry firm founded in Saint Petersburg. It's said only as many as 69 eggs were created, and Alexander bought one each year.

They're now the ultimate luxury bauble. I'm not sure if one will ever hit the auction stand... But I figure they'd go for $20 million each today.

Meanwhile, for $1,200, you can buy the iPhone 15 Pro Max from Apple. It has front and rear cameras that capture hours of high-resolution video and can transmit pictures and video globally in real time.

Both a Fabergé egg and a smartphone are handheld objects. They're colorful, even glistening. But one is ultimately static and unmoving... The other is all about movement, up to and including moving images.

In other words, the Fabergé egg is about what Fabergé, the company's founder, wants you to see...

Meanwhile, the smartphone is about giving you choices, which you can change at will.

Overall, the annual market for Fabergé eggs is worth, well, nothing, because they're all in private hands. On the other hand, more than $400 billion worth of smartphones were sold around the world last year.

This is the value of craftsmanship versus engineering.

Twenty-first-century medicine is like this, too...

Biotech relies on science and engineering. New chips, new software, and even new microfluidics shape what we can learn.

One of the trends we follow in Stansberry Venture Technology is artificial intelligence ("AI"), which has amazing potential in health care.

Consider cancer detection... Radiologists don't scan for brain tumors if you get an MRI for a stomachache. AI can.

This is a screening function by the machine itself – a radiologist will confirm what the AI finds. But this means early detection to stop a cancer before it becomes life-threatening. It's a fail-safe.

AI isn't the only trend we're watching, though. The biotech space is overflowing with opportunity today.

The biggest winners of the next decade won't necessarily be the juggernauts dominating the headlines. Instead, many of the best setups for outsized gains will be in the small innovators... the pure inventors in biotech.

Good investing,

Dave Lashmet

Editor's note: If you were late to other booms – like Big Tech – now is your chance to participate in a massive medical breakthrough. For the first time ever, one of Stansberry Research's employees is stepping forward to share how this technology saved his life... why this innovative treatment is unlike anything you've seen before... and why it's part of a once-in-a-generation financial opportunity, with potentially trillions of dollars at stake. Click here to learn the details.