Opportunities upstream

Hamid Yunis, Bella North and Daniel Mathias at McDermott Will & Emery look at the global market for IVF and highlight where the opportunities exist for investors. 

In the burgeoning global fertility services sector, sophisticated investors may see opportunities to consolidate and deliver greater success by providing financial discipline as well as professional managerial support.

Investors in search of a healthy return are increasingly analysing prospects in the fertility services sector following reports that the global market is expected to reach US$36.2bn by 2026 – a CAGR of 10.2%. This growth is driven by a number reasons, including advancements in treatments, better success rates and a global social and cultural shift in the use of techniques such as In Vitro Fertilisation (IVF) and other Assisted Reproductive Technologies (ART).

Investments in the healthcare sectors have historically proven themselves to be extremely resilient regardless of the economic cycle, arguably providing investors with confidence to pursue further opportunities in the wider health and social care sectors. This also seems to
apply to ART as a possible sub-sector for investment with some reporting that the ART sector is recession proof. The rapid expansion of middle-class economies across Asia and the MENA region in particular has contributed to a rise in global per capita disposable income, helping to expand global access and demand for services. Coupled with a greater cultural acceptance of the use of ART, demand for treatment continually outstrips supply.

For more mature ART markets such as Europe and North America, the combined offering of fertility preservation such as egg freezing and new techniques such as embryonic genetic testing are creating paradigm shifts in the field, increasing demand, accessibility and competitive pricing. Globally, demand is progressing a trend for cross-jurisdictional treatment standardisation as economies of scale are recognised through collaboration, a
more comprehensive healthcare offering and potential outsourcing of clinical support
services that supplement ART. Here, we consider some of the latest international transactions and the forces we believe are driving global market trends in this sector.

Outsourcing equipment

Success in ART relies on a highly skilled and therefore a relatively expensive labour force with the necessary technical knowhow typical of more traditional service economies. While this need cannot be avoided, providers are increasingly looking at how technology cannot simply aid treatment success rates but supplement further revenue growth.

The ability for providers to lease high-value equipment at scale and outsource testing and clinical support services to third parties provides opportunities for new entrants in the market, or those looking to expand, to minimise upfront capital expenditure and subsequent capital depreciation costs.

With this comes an opportunity for investors to move away from more traditional investments in supporting providers and instead consider a broader spread of asset structures such as medtech, diagnostics and women’s health services that seek to complement ART and yet still benefit from the increased in demand for fertility treatment and preservation services.

Women’s Health

Deals encompassing wider women’s health and targeted bolt-on goods and services that run in conjunction with providers claiming to complement and, in some circumstances, aid the success of ART is also appearing to gain traction. Fertility is no longer simply a medical procedure, but is increasingly being offered as part of a wider cross-section of wellbeing
consumer packages including diet supplements and alternative therapies in high-end clinics.

Providers of ART are recognising the benefit of potentially offering to support the psychological needs of consumers and integrating these services within routine fertility care. In the UK, the trend for private fertility clinics to offer add-on or supplementary treatments has been met with some negative coverage with some providers accused of offering medically unproven extras such as vitamin drips and acupuncture alongside traditional IVF that can potentially increase the total cost by thousands of pounds.

This does not, however, appear to detract from the continuing global trend and therefore investment opportunities in integrated care which aims to improve the co-ordination of services across all healthcare markets, including ART.

Data

The reputation and appeal of ART providers depends largely on its ability to collect, analyse and publish data on treatment success rates. Data on success rates of prior treatment cycles published by centralised regulatory bodies such as the HFEA in the UK and the CDC in the US provide a valuable resource for potential consumers to inform their choice of provider in an increasingly competitive market.

While beneficial for patients and potential consumers, this practice is not worldwide and jurisdictions with fewer regulatory requirements results in a lack of available data for investors to analyse market trends, treatment options and to monitor compliance with industry guidelines and accreditation standards.

New entrants into the market may also find it challenging to develop a robust business to secure funding and attract prospective clients without access to quality data. Collaboration with other providers, both nationally and internationally through the incorporation of new corporate entities or contractual alliances, can be seen as a successful tool to enable
providers to draw from a wider pool of quality data and success rates and therefore offer assurance to consumers.

Above all else these trends and practices have and will continue to rely heavily on global market regulation.

Key routes to market

Notwithstanding the global opportunities, significant issues for an investor to consider remain. Key challenges include:

• Identifying sizable businesses with
talented, clinician-led, management
teams

• Maintaining a strong brand with a
reputation for high success rates
and clinical leadership

• Understanding the various regulatory
and employment legislations,
particularly in navigating different
jurisdictions and regulatory
compliance standards (although
strong barriers to entry may also
be viewed favourably by a sophisticated
investor)

• Ensuring that adequate business
insurance coverage remains in
place

• Deepening effective and professional
cross-functional governance
structures

• Managing third party performance,
especially if relying on external suppliers
for key equipment, clinical
services and IT software.

• Managing data and privacy issues,
particularly personal information of
patients (both existing and historical
patients)

• Locating appropriate infrastructures/
clinics, alongside co-operative
landlords

• Developing a robust exit strategy.

For these reasons, some investors may prefer to invest through a debt instrument to gain exposure to this growing sector, while mitigating the extent of risks arising from a clinic’s management and performance.

Alternatively, we may see further developments in the typical investor profile (for example, a sovereign wealth fund with a potential to facilitate deeper partnerships with public bodies, or private family offices with a desire to hold an investment for a longer time horizon than typically permitted within a customary private equity fund structure).