CDMO Stocks: Why Global Drugmakers Are Turning to Indian Pharma
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A medicine can become a global success without carrying the name of every company that helped make it.
The brand belongs to the drugmaker. But behind it may be another business developing the manufacturing process, producing ingredients for clinical trials or supplying material once the medicine reaches the market.
For Indian pharma, that work is becoming an important growth opportunity.
Laurus Labs’ September-quarter results offer a glimpse. Its contract development and manufacturing business generated ₹904 crore in Q2 FY27, up 75% from a year earlier. That accounted for approximately 41% of the company’s quarterly revenue.
The appeal is easy to understand. A supplier that helps a drug progress from development to commercial production can build a much larger business around that relationship.
But getting there takes time, investment and scientific expertise. A promising drug can fail. A customer can change its plans. A new factory can take longer than expected to fill.
That combination of opportunity and uncertainty is what investors need to understand about CDMO stocks.
The company behind the medicine
CDMO stands for Contract Development and Manufacturing Organisation.
A pharmaceutical company hires a CDMO to perform agreed development and manufacturing work. Depending on its capabilities, the partner may develop a production process, improve yields, test quality, manufacture an active ingredient or produce the finished medicine.
The active pharmaceutical ingredient, or API, is the substance responsible for the medicine’s therapeutic effect.
Some providers also offer discovery and research services. These broader businesses are often called CRDMOs, with the additional “R” standing for research.
The distinction matters because companies serve different parts of the drug-development journey. A business focused on early research has a different revenue profile from one supplying large commercial volumes of an established medicine.
The CDMO earns from its services and contracted supplies. It does not automatically receive a share of the drug’s retail sales.
A blockbuster medicine can create substantial demand for its suppliers, but each supplier’s earnings depend on its particular role, pricing and contract.
Why this goes beyond a cheaper factory
Making a small quantity of a substance in a laboratory and manufacturing it consistently at commercial scale are different challenges.
A process that works in a laboratory may need substantial changes before it can safely and reliably produce larger batches. The manufacturer must control impurities, maintain quality and document how each batch was made.
Customers also need confidence that the supplier can protect confidential information and meet regulatory requirements.
Cost matters, but a low quote is of limited use if the supplier cannot deliver acceptable material on schedule.
This is where technical capabilities become commercially valuable. A partner that understands a molecule’s production process can help solve problems as the programme develops.
That relationship can become harder to replace once processes are established and qualified. However, customers can use multiple suppliers, and future orders remain dependent on their requirements.
For investors, the question is what makes a company useful to its customers beyond the price it charges.
A small project can grow into a much larger relationship
Consider an illustrative drug-development programme.
At an early stage, the customer may need relatively small quantities of material for testing. The supplier earns development fees and revenue from those batches.
If the programme advances, requirements can grow. More work may be needed to refine the process, support later-stage trials and prepare for commercial manufacturing.
If the medicine receives the necessary approvals and attracts demand, the supplier may secure recurring commercial orders.
| Stage | What the supplier may provide | Main uncertainty |
|---|---|---|
| Early development | Process research, analytical work and small batches | Whether the programme progresses |
| Clinical development | Trial material and further process development | Trial outcomes, funding and timelines |
| Commercial preparation | Scale-up, validation and manufacturing readiness | Approval, launch timing and supplier selection |
| Commercial supply | Contracted production for a marketed medicine | Sales demand, pricing and order volumes |
↔ Scroll horizontally to view the full table.
The potential increase in business helps explain the interest in companies with development programmes that could become commercial products.
But a project pipeline is not guaranteed future revenue.
A customer may discontinue a drug, delay development or choose another supplier. Even an approved medicine can sell below expectations. Development work can generate revenue along the way, but the anticipated commercial orders may never arrive.
Why India is attracting attention
India has an established pharmaceutical manufacturing base and considerable experience in chemistry and process development.
The opportunity is to use those capabilities in more work for innovative medicines, alongside the country’s existing generics business.
A 2025 BCG–IPSO report estimated the global CRDMO market at US$140–145 billion in FY2024, with India accounting for approximately 2–3%.
That estimate covers a defined set of research, development and manufacturing activities. It excludes some other outsourcing categories, so it should not be read as a measure of every pharmaceutical contract-manufacturing business.
The report identifies supply-chain diversification as an opportunity for Indian providers. Customers seeking alternatives to existing arrangements can consider additional locations and suppliers.
This is the business logic behind “China Plus One”.
However, consideration is only the beginning. Customers still assess technical capability, quality, capacity and delivery reliability before placing work.
The same report identifies constraints involving skilled people, regulatory processes, supplier networks and access to capital. India’s small market share leaves room to grow, but winning that growth requires execution.
Where weight-loss drugs fit
Weight-loss medicines have drawn attention to peptide manufacturing.
Peptides are chains of amino acids used in several medicines. Producing them can involve specialised synthesis, purification and analytical work.
This creates opportunities for companies with the required capabilities. It also encourages investment in equipment and materials used in peptide production.
Laurus Labs disclosed that it had operationalised its first commercial-scale peptide plant in Visakhapatnam. It also announced investments intended to strengthen its capabilities in peptide resins and oligonucleotides, another class of therapeutic molecules.
These disclosures establish investment in capability. They do not identify every customer or show how much future revenue will come from a particular weight-loss medicine.
That distinction matters when a stock is discussed as a beneficiary of a popular drug category.
An investor needs to establish what the company supplies, which stage the work has reached and whether meaningful revenue has begun.
The broader opportunity also extends beyond peptides into areas such as biologics and antibody-drug conjugates. The latter link an antibody to a drug and are used in certain cancer treatments. These technologies require different skills and facilities, so expertise in one does not establish capability in all of them.
The earnings are already telling different stories
Recent results show why the CDMO label alone is insufficient.
| Company and measure | Q2 FY27 | Q2 FY26 | Year-on-year change |
|---|---|---|---|
| Laurus Labs: total revenue | ₹2,206 crore | ₹1,653 crore | +33% |
| Laurus Labs: CDMO revenue | ₹904 crore | ₹518 crore | +75% |
| Syngene: revenue from operations | ₹833 crore | ₹911 crore | −9% |
↔ Scroll horizontally to view the full table.
Figures are rounded as presented in company releases. Laurus’ CDMO row is a divisional measure; the other revenue rows are company-wide.
Laurus attributed growth in its small-molecule CDMO business to advancing clinical projects, commercial supplies and new assets coming into use.
Syngene reported improving customer engagement and new manufacturing agreements. Nevertheless, its company-wide revenue declined year on year, even as it improved from the preceding quarter.
Both can be true. A business can make progress in winning future work while facing pressure on its current earnings.
The figures also show why one company’s growth rate should not become a claim about the entire industry.
A new factory has to earn its keep
CDMO expansion can require spending well before revenue catches up.
Facilities need equipment, employees, qualification work and customer programmes. A plant can be physically complete while commercial production is still some distance away.
During that period, costs may weigh on profits. If orders take longer to arrive, the company has more capital tied up without the expected earnings.
Once production grows, the same facility may spread its fixed costs across a larger revenue base. That can help profits grow faster than sales.
The reverse is also possible. Lower volumes or delayed orders can hurt margins.
This makes capacity utilisation, capital spending and cash generation important alongside reported revenue growth. Investors should also examine whether a few customers or commercial products account for a large part of the business.
What the share price already assumes
A strong industry opportunity can attract investment into both factories and shares. Those investments face different tests.
For the company, the question is whether spending on people and facilities produces profitable work.
For the shareholder, the purchase price also matters.
A high valuation can leave little room for delayed projects, slower customer demand or weaker margins. The business may continue growing while the stock disappoints because investors had expected more.
Before treating a CDMO company as a long-term growth investment, it helps to ask:
- How much revenue comes from research, development and commercial manufacturing?
- How concentrated are its customers and major products?
- Which projects are generating revenue, and which remain prospective?
- How quickly are new facilities being used?
- Is operating cash flow supporting the expansion?
- What growth does the valuation appear to require?
Indian CDMOs have an opportunity to become more deeply involved in how global medicines are developed and manufactured.
For investors, the task is to identify which companies are turning that opportunity into repeat business, productive assets and cash. The industry’s potential is the starting point. The company’s execution and the price paid for its shares determine the investment outcome.
Sources
Disclaimer: This article is for general information and education and does not constitute investment advice or a recommendation to buy or sell any security. Company examples illustrate business developments and are not investment recommendations. Investments in equities are subject to market risks.
