Recently, I’ve been paying attention to a very interesting investment theme—the CDMO sector. It might be unfamiliar to many, but it is actually one of the hottest concepts in the current biotech and pharmaceutical industry.

Let me briefly explain what CDMO concept stocks are. CDMO stands for Contract Development and Manufacturing Organization, basically meaning contract manufacturing for drug companies. Pharmaceutical companies outsource drug research, formulation optimization, and pilot production to CDMO firms, which can reduce costs and accelerate time to market. The stocks of companies that engage in CDMO services are what we call CDMO concept stocks.

Why has this concept become so popular recently? I think there are a few main reasons. First, innovative drug development has been especially hot in recent years, with major pharma companies investing heavily in new drugs, which naturally increases demand for CDMO services. Second, the global CDMO market size continues to expand. According to data, the market reached $63.2 billion in 2021 and is projected to hit $231 billion by 2030, with an annual growth rate of up to 18.5%. This growth rate is quite impressive.

Taiwan’s government also sees this opportunity clearly. Last year, it announced plans to lead investments in CDMO companies, making it a new strategic industry. This is a significant positive for Taiwan’s CDMO firms. After all, Taiwan has rich experience in manufacturing, with talent and technology, making it well-positioned to develop the CDMO sector.

Regarding specific companies, global leaders include Lonza, WuXi AppTec, and Catalent. Lonza is the world’s largest CDMO provider, with revenue over $6.5 billion in 2022 and more than 790 clients. WuXi AppTec has grown rapidly in recent years, with a CAGR of 94.7% in its CDMO revenue, and is expected to catch up with Lonza within two years. Catalent is also an established company with a 90-year history, operating over 40 factories worldwide.

In Taiwan, PharmaEngine is the most closely watched CDMO concept stock, with a gain of over 100% in 2023, outperforming the broader market significantly. Besides that, companies like Handa, Yongxin, and Taiwan Biotech are also making moves in this sector, showing strong growth potential.

There are many ways to invest in CDMO concept stocks. You can buy individual stocks directly to enjoy stock price appreciation and dividends. You can also invest indirectly through ETFs or funds; for example, some gene editing technology ETFs include related companies. Additionally, contracts for difference (CFDs) are an option—though they involve higher leverage and risk, so caution is advised.

Looking ahead, the global pharmaceutical market will continue to grow, driven by aging populations and increasing healthcare needs. These factors are favorable for the CDMO industry. However, as capacity expands, competition will intensify, and the industry may face price wars. Therefore, when investing, it’s best to focus on leading companies, which tend to have lower risks.

Overall, the CDMO concept stock sector is worth paying attention to. In the coming years, as the pharmaceutical market grows steadily, related companies are likely to perform well, and their stock prices could rise accordingly. Still, any investment should be made based on your own risk tolerance.