Collaboration Environment for Life Sciences Companies in Hong Kong

With world-class universities participating in R&D and private sector innovation, Hong Kong has built a robust ecosystem for life sciences companies. This ecosystem allows companies to innovate, develop and commercialise their products. Whether through distributing products abroad or expanding product portfolio locally, companies are consistently devising strategies to commercialise their technology and IP and accelerate access to products for patients.    

Strategic collaboration has therefore been the name of the game lately.

Adding impetus to the drive for innovation and commercialisation, the Government has introduced a number of policies in the past few years to facilitate this objective (with an indication to review IP trading arrangements in the coming year^[1]). These include: - 

• the establishment of OASES (i.e., the Office of Attracting Strategic Enterprises) in 2022, which provides funding and consultancy services to companies in the life sciences sector to facilitate their business operations in Hong Kong;
• a tax deduction scheme introduced in 2019, where the first HKD 2 million spent on qualifying R&D activity will enjoy a 300% tax deduction and expenditure beyond that amount will enjoy a 200% tax deduction; and
• the “patent box” regime introduced in 2024; the tax rate for qualifying income derived from eligible IP (i.e., patents, plant variety rights and copyright subsisting in software) has been reduced from 16.5% to 5%. Eligible IPs must be developed by the taxpayers themselves, if the R&D process involves acquisition of third-party IP, the amount of profits subject to the lower tax rate may be proportionally reduced.

It is therefore not surprising that Hong Kong has attracted a number of life sciences companies to set up and expand in the city (several of them through OASES) and an uptick of biotech company listings under Chapter 18A of the Hong Kong Listing Rules since COVID.

There are many types of strategic collaborations that life sciences companies enter into. The type of arrangement largely depends on the life cycle stage of the product and the objective for collaboration. Typical arrangements we have seen in this sector include: -

1. Assignments: An assignment of IP rights may occur after a university has completed the R&D for a certain product. The university will transfer ownership and control of the IP to the start-up, tasked for commercialising the product. Companies who no longer wish to manage and monetise a non-core product may also assign the IP rights within the product to another entity. 
2. Co-development arrangements: Both parties will undertake to develop new IP that builds upon each party’s existing technology. A key point to note in these types of agreement is ownership and control of the co-developed IP. 
3. In-licensing arrangements: A pharmaceutical company may wish to expand its product portfolio locally. In-licensing arrangements allow the pharmaceutical company to license the right to develop, commercialise and/or sell the licensor’s product in a specified geographical territory. 
4. Out-licensing arrangements: Essentially the same concept as in-licensing arrangements and used when a pharmaceutical company wishes to expand to other markets. The pharmaceutical company will license their IP to other firms to manufacture, market and sell in certain territories. This opens new revenue streams for the licensor (e.g., in the form of upfront payments, royalties, etc.) and allows the licensor to leverage the licensee’s expertise and distribution network. 
5. Co-commercialisation agreements: Both parties will promote a product under a single brand name, the two companies often share the profit and loss of the co-commercialised product (and sometimes, the development costs as well). 

Our colleagues in the UK delve into more detail of specific licensing and collaborations agreements here (https://www.twobirds.com/en/insights/2024/global/licensing-and-collaborations-in-life-sciences).

If you have any questions about entering into these arrangements in Hong Kong/China, please do not hesitate to reach out to us. 

^[1] https://www.budget.gov.hk/2025/eng/budget06.html