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Biotechnology, Medical & Healthcare Devices Industry in Hong Kong

Overview

  • There are approximately 250-300 biotechnology-related companies in Hong Kong, comprising of mainly healthcare-related companies with business on pharmaceuticals, medicinal or healthcare products of traditional Chinese medicine origin, and medical devices and diagnostics.
  • Hong Kong’s medical and healthcare equipment industry mainly targets the household consumer market. In 2018, Hong Kong’s total exports of medical and healthcare equipment increased by 4.6%, after a decrease of 2.3% in the previous year.
  • According to the United Nations, the world population reached 7.7 billion in 2019, in while 9% of the world’s total population were aged 65 or above. By 2050, one in six people will be aged 65 or above, i.e. accounting for 16% of the world’s total population.

  • An aging population and increased health consciousness are factors boosting demand for home healthcare equipment such as commode chairs, pill alarm boxes and positioning aids, as well as medical equipment for patients suffering from cardiopulmonary disease, diabetes and neurological disorder. According to the World Health Organisation, the total global expenditure for health is around US$7.5 trillion a year, representing close to 10% of the world’s GDP.

  • Technology plays a major role in household medical products and services. Innovations such as mobile microminiature and remote surgery techniques, DNA-based diagnostics, tissue-engineered organs and advanced information technologies provide solutions to some of the most persistent and debilitating healthcare problems and create demand for new medical and healthcare devices.

  • The Government has been actively promoting the development of biotechnology in Hong Kong. In the 2018-19 Budget, the Government has identified biotechnology as one of the four areas in developing innovation and technology.

Industry Features

Biotechnology

There are approximately 250-300 biotechnology-related companies in Hong Kong, comprising of mainly healthcare-related companies with business on pharmaceuticals, medicinal or healthcare products of traditional Chinese medicine origin, and medical devices and diagnostics. These companies engage in a wide range of activities, including product research and development, manufacturing, marketing and sales.

Medical & Healthcare Devices

Table: Industry Feature - Medical & Healthcare Devices
Table: Industry Feature - Medical & Healthcare Devices

The medical and healthcare equipment industry has two distinct markets: the household consumer and professional or institutional (hospitals and clinics). Most medical and healthcare equipment companies in Hong Kong are engaged in OEM business, such as producing massagers and blood pressure monitors for household consumer use; and rubber moulding, plastics/resins for institutional use. With increased competitiveness in price and product development, the Chinese mainland is increasingly putting pressure on Hong Kong local companies, inducing them to strive for product and company re-positioning. Many Hong Kong-based companies also provide engineering design services in order to enhance their competitive edge.

To lower production costs, many Hong Kong manufacturers have relocated their production facilities to the Chinese mainland, and most of them are engaged in the manufacturing of mechano-therapy appliances/massage apparatus. However, quality control, marketing, research and development, design, as well as material and equipment procurement continue to be conducted in Hong Kong.

Products with better growth prospects for Hong Kong manufacturers include home-based equipment, hygiene sterilised supplies, equipment for less-invasive procedures, orthopaedic tools and devices, devices and supplies for high health-risk diseases and injuries and telemedicine etc.

Performance of Hong Kong’s Exports of Medical and Healthcare Equipment

Table: Performance of Hong Kong’s Exports of Medical and Healthcare Equipment
Table: Performance of Hong Kong’s Exports of Medical and Healthcare Equipment
Table: Performance of Hong Kong’s Exports of Medical and Healthcare Equipment
Table: Performance of Hong Kong’s Exports of Medical and Healthcare Equipment
Table: Performance of Hong Kong’s Exports of Medical and Healthcare Equipment
Table: Performance of Hong Kong’s Exports of Medical and Healthcare Equipment

In 2018, Hong Kong’s total exports of medical and healthcare equipment increased by 4.6%. Exports to Mainland China, the largest market for Hong Kong’s medical and healthcare equipment increased by 5.6%. Meanwhile, exports to the EU increased by 17.2% and exports to the US dropped by 25.9%.

Among different product categories, Hong Kong’s exports of miscellaneous electro-diagnostic apparatus (including apparatus for functional exploratory examination or for checking physiological parameters) increased by 20.6%. Meanwhile, exports of miscellaneous medical instruments and appliances increased by 17.5%.

Outsourcing has been growing in popularity among overseas manufacturers of medical and healthcare equipment in recent years. Hong Kong companies are in good position to act as contract manufacturers or sourcing partners given their edge in quality assurance and intellectual property (IP) protection. Though the cost of regulatory compliance is relatively higher in Hong Kong than the Mainland, this helps to differentiate Hong Kong companies from other low-cost competitors. It also reinforces the role of Hong Kong companies as a partner providing high-quality products and services.

Sales Channels

Medical equipment is mainly sold directly to hospitals and clinics, while healthcare equipment is mostly distributed to department stores, chain stores and supermarkets via local or overseas trading companies. Well-established suppliers, such as Osim and OTO, have set up their own specialty shops.

Many of Hong Kong’s medical and healthcare goods are exported under OEM arrangements with supplied product specifications and designs. Hong Kong manufacturers are highly regarded for their handling of customers’ intellectual property (IP) and sensitive technology. In recent years, Hong Kong manufacturers have become increasingly involved in product design and development, engineering, modelling, tooling and quality control. In order to differentiate themselves from low-end products, many Hong Kong manufacturers apply for different international certifications for their products.

Apart from producing for OEM customers, some Hong Kong manufacturers also have in-house R&D departments to develop models produced under their own brand names. For these original brand products, Hong Kong manufacturers would sell to overseas importers and distributors, who would also act as agents to provide an after-sales services. It is advised that manufacturers/distributors take out insurance or make other arrangements to minimise the risk of product liability claims.

To further explore overseas market opportunities, medical and healthcare equipment manufacturers and exporters are encouraged to join the trade fair missions and exhibitions organised by the Hong Kong Trade Development Council (HKTDC). HKTDC also organises from time to time study or matchmaking missions for Hong Kong manufacturers to visit specific markets for establishing new business connections.

Industry Trends

Demographic trends have an important impact on the medical and healthcare equipment industry. According to the United Nations, the older population is, and will remain, predominately female. Globally, women outlive men by 5 years on average in 2019. Life expectancy at birth was 75 years for females compared to 70 years for males. Globally, life expectancy is projected to 77 years in 2050. These trends have resulted in an increasing demand for medical and healthcare products designed for the ageing population.

The wold spent US$7.5 trillion a year on health, according to the World Health Organization, and health expenditure as a percentage of GDP has been increasing among all major economies, including Mainland China. The increasing share of medical services or healthcare in household expenditures in some developing countries can be translated into more opportunities for Hong Kong exporters of medical and healthcare products. Meanwhile, growth of public health expenditure in the more industrialised countries is slowing down which, however, creates opportunities for home medical equipment targeted at patients undergoing recuperation and therapy processes.

As a result of the aging population, treatments for cardiopulmonary disease, diabetes and neurological disorders will see rapid growth, such as orthopaedic devices and pharmaceuticals that can help aging baby boomers stay active. In addition, increased consciousness in personal health and fitness in developed countries is boosting demand for home-based or self-care equipment such as pill alarm boxes, positioning aids, shower chairs, electric wheelchairs, canes, crutches and patient lifts. This equipment facilitates the prevention, detection and management of illness.

Modern technology plays major role in the medical and healthcare equipment industry. Innovations such as microminiature and remote surgery techniques, DNA-based diagnostics, tissue-engineered organs, 3D printing for cranial implants and advanced information technologies provide solutions to some of the most persistent and debilitating healthcare problems, and create demand for medical equipment utilising these new technologies. In addition, Bluetooth technology has also given rise to new medical devices such as a patient-worn pulse oximetry and a portable patient monitor. Technology has also led to telemedical services and less-invasive procedures.

Development of Biotechnology

Being a major player in promoting technological innovation in the city, Hong Kong Science Park has identified Biomedical Technology as one of the five key technology clusters, aiming to translate biomedical research from innovation to commercialisation. In 2017-18, Biomedical Technology was the fastest growing cluster. As of 31 March 2018, 82 biomedical technology companies had established their R&D hubs at Science Park, up from 65 in the previous year. During the year, 18 start-ups were incubated in the Incu-Bio programme.

The Biomedical Technology Support Centre at Science Park was opened in March 2009 to support the Biotech cluster in areas of therapeutics, diagnostics and medical devices. The Centre, with a total floor space of about 8,700 sq ft, provides a range of tools and affordable technical services for supporting research in biomedical technology. The usage rate of the Centre rose from just over 42,000 hours in the previous year to almost 99,000 hours in 2017-18.

To accelerate healthcare and biomedical industry development, Science Park launched the Healthcare Devices Innovation Hub in March 2018, which provides a one-stop services in support of wellness and healthcare device innovation for start-ups and SMEs. As of 31 March 2018, a total of 10 medical device companies had been established in the hub.

The presence of world-class biomedical companies in Science Park has also demonstrated Hong Kong’s unique advantage as a strategic biomedical research base in the region. The US biotech giant and uniform Grail merged with Cirina to set up at Science Park in 2017. The Stockholm-based leading medical university Karolinska Institutet has set up its first overseas offshoot, the Ming Wai Lau Centre for Reparative Medicine, in 2016. Bio-pharmaceutical firm Arbele Limited has also established its base in Science Park in the same year.

The Government also plays a key role in promoting the development of biotechnology in Hong Kong. In the 2018-19 Budget, the Government has identified biotechnology as one of the four areas in developing innovation and technology.

Also, the Government has been providing financial support to research projects in biotechnology through the Innovation and Technology Fund (ITF). As of 31 August 2019, a total of 575 biotechnology-related projects, amounted to US$150 million (HK$1,169 million), have been approved for the ITF. Projects funded cover research areas ranging from stem cell therapy and molecular diagnostics to the modernisation of traditional Chinese medicine and biopharmaceutical manufacturing.

To facilitate financing for biotech companies, Hong Kong Exchanges & Clearing (HKEx) offers specific guidance on the listing eligibility for pre-profit/pre-revenue biotech issuers that produce pharmaceuticals, biologics, and medical devices (including diagnostics). The new listing rules have been in place to broaden Hong Kong’s listing regime for emerging and innovative firms. Starting from 30 April 2018, listings of biotech issuers that do not meet any of the Main Board financial eligibility tests are permitted. At the end of April 2019, 7 pre-revenue and pre-profit biotech companies had listed on the HKEx and raised some US$2.8 billion through IPOs.

CEPA Provisions

Since the implementation of the third phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA III) in January 2006, all products of Hong Kong origin can be imported into the mainland at zero tariffs.

In the main, the CEPA origin criteria for Hong Kong items within the scope of the Product Specific Rules of Origin include: (1) change in tariff heading; (2) performance of specific manufacturing or processing operations in Hong Kong; and (3) fulfillment of the regional value content (RVC) requirement as specified. With effect from 1 January 2019, goods of Hong Kong origin can fully enjoy zero tariff preference through the enhanced arrangement for rules of origin when importing into the Mainland. Goods do not fall within the scope of the Product Specific Rules or Origin shall comply with the general rule of origin (General Rule) that the RVC of the goods is at least 30% of the FOB value of the products using the build-up method, or 40% using the build-down method.

Product development cost incurred in Hong Kong, in addition to material costs and labour costs, can be taken into account in calculating the RVC. Costs of raw materials and component parts originating in the mainland can also be included in calculating the RVC, provided that the RVC originating in Hong Kong is at least 15% under the build-up method or at least 20% under the build-down method.

Detailed information of CEPA, as well as the Product Specific Rules of Origin rules, is available at Trade and Industry Department’s website.

General Trade Measures Affecting Exports of Medical and Healthcare Equipment

Equipment for medical purposes faces stringent regulations in overseas markets. In the US, the Food and Drug Administration (FDA) is responsible for ensuring that medical devices comply with the safety and effectiveness requirements stipulated in the Federal Food, Drug and Cosmetic Act. The US regulations cover various aspects of design, clinical evaluation, manufacturing, packaging, labelling and post-market surveillance of medical devices.

In the EU, medical devices are covered by three main directives. These set out the requirements for the performance and safety of medical devices and the procedures for checking product compliance. A product is required to have a CE mark to show full compliance with relevant directives. The CE mark enables the product to be marketed in any EU member country.

The Japanese government has revised the Pharmaceutical Affairs Law (PAL), and it had come into force in November 2014. Manufacturers, repairers and distributors are required to obtain a business licence for Marketing Authorisation Holders (MAH). If the manufacturing facilities are located outside of Japan, these foreign manufacturing facilities are required to obtain Foreign Manufacturer Accreditation instead of a Manufacturer Licence.

To market medical devices in Japan, the MAH must register the device through the following procedures:

Pre-market Submission – Class I Medical Devices

To register and market General Medical Devices (Class I devices), the MAH only needs to file a Pre-Market Submission to the Pharmaceuticals and Medical Devices Agency (PMDA), with no assessment by the PMDA.

Pre-market Certification – Class II Medical Devices

To register and market a Specified Controlled Medical Device, the MAH needs to file a Pre-Market Certification application with a Registered Certification Body (RCB) to obtain certification. This procedure is quite similar to the European CE marking using a Notified Body. Each Specified Controlled Medical Device must apply internationally harmonised standards as is the case with CE marking.

Pre-market Approval – Class II, III & IV Medical Devices

To register and market a Highly Controlled Medical Device the MAH needs to file a Pre-market Approval Application with the PMDA to obtain approval. Class II devices that are not Specified Controlled Devices are also subject to Pre-market Approval.

On the Chinese mainland, under the Regulations on the Administration and Supervision of Medical Appliances, for medical appliances imported for the first time, the import enterprise must submit samples and all necessary product information, such as instruction manuals, quality standards and examination methods, together with certification issued by the exporting country (or region) for their production and sale to the State Administration for Market Regulation (SAMR) for examination, approval and registration. Imported medical appliances should be accompanied by Chinese instruction manuals and Chinese labels, which stated the Chinese name of the import enterprise. It is only after obtaining the import registration certificate that the enterprise may proceed to customs to complete import formalities.

Application procedures for import registration certificate:

i.    Application
ii.   Product testing by SAMR-accredited laboratories
iii.  Format checking; only applications meeting requirements will be accepted
iv.  Technical assessment
v.   Review and decision
vi.  Certificate issuance

Content provided by Picture: Doris Fung
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