Is the Fertility Solutions Space Due for a Recovery Soon?

The fertility field has come a long way since the first baby conceived by in vitro fertilization (IVF) was born in 1978. To get a handle on the industry and see where it is going, GLG spoke with Rick Dietz, former Interim CEO of IntegraMed and former Executive Vice President and Chief Business Officer at Boston IVF. Following are a few select excerpts from our broader discussion.

What’s the approximate size of the fertility market, and what does it encompass?

The U.S. fertility market is estimated at more than $7 billion. Roughly $3 billion of that comes from actual IVF clinic services, with $2 billion coming from related genetic testing. Another $2 billion comes from third-party donor-based services and long-term cryopreserved tissue-storage services. There are other elements of the business, including pharma drug sales and specialty equipment sales. But the $7 billion mostly represents those three components.

How has COVID-19 impacted the fertility services landscape?

Many fertility centers were shut down or in a significantly reduced service-capacity mode. Some of that was driven by state government mandates, as well as center-specific game plans and strategies that the clinics felt they needed to take for the safety of staff, as well as patients. But there was also an expectation that once we got beyond the first 60 days or so of the initial impact of COVID, things would start to rebound. That has been the case.

Most centers have come roaring back into full service. They’ve been able to take care of their patients in a safe and healthy way, as well as deal with procedural changes in the clinic to protect staff. An example would be rotating the embryology staff, so they weren’t all in the clinic at the same time. The expectation was that the market would come back by the time we got to mid to late summer, somewhere in the 70% to 80% range of pre-COVID. That expectation has been met. But will we get to pre-COVID levels before the year is out? No. Will we get to pre-COVID levels in the first quarter of 2021? It’s highly unlikely.

What are your expectations for the future as it relates to a potential economic downturn?

It depends on the geographic market. In the U.S., we have nine states that have mandates by which IVF services must be covered by commercial insurance. We have another seven states that have partial mandates. In those states, the financial barrier is low. The remaining 34 states have no mandate at all, making them self-pay markets with high barriers to entry. During a recession, like in the 2008-2010 period, clinics that were operating in insurance-mandated states tended to fare much better. The self-pay markets tended to experience the most negative impact.

What’s the growth outlook for this space?

Pre-COVID the expectation was that there was a 10% annual growth rate trend over the next several years through 2025. Obviously, COVID has created a pause. I project that overall we will see a decline of 5% to 10% this year. Growth rates will start to rebound in 2021, bringing levels back up to where they were in 2019. Some of that pent-up demand may finally catch up in the back half of 2021. I’d expect that the growth rates in Q3 and Q4 of 2021 might even outpace the overall annual average, assuming that the COVID impact is overcome.

Going forward, that steady growth will be driven by some positive demographic trends: the birthing-age population will grow through 2025, the social trends of women waiting to start families until later in life, the steady growth in egg freezing and the impact that’s had on third-party reproduction, as well as the overall growth of the same-sex couple market that needs IVF services for family building. From a broader perspective, the market has greatly benefited from the expansion of the conversation about infertility and breaking the stigma of it. That includes the social media realm, where high-profile celebrities and others have put out their stories, advancing overall awareness and understanding of infertility and the solutions that are available.

What areas within fertility services are growing fastest?

Pre-COVID, third-party reproduction had been growing faster than the average on a percentage basis. Egg freezing itself has generally underperformed. Expectations were quite high that young women would freeze their eggs prior to age 35 and have them available for family building when they were ready, but from an overall volume perspective, it has not reached the kinds of cycle volumes that the industry thought it might. Nonetheless, it is certainly a new service line for IVF clinics and offers new services to otherwise healthy young women who don’t have infertility issues but want to take advantage of fertility preservation.

What are the current trends in pricing, and how might they change?

Generally speaking, the penetration rates of IVF in the U.S. are still low versus other countries. A lot of that has to do with the financial barrier in self-pay states. IVF cycle prices are at a minimum $12,000 and grow from there depending on other services, including genetic testing. Third-party reproduction, while representing a smaller piece of total revenues for clinics, is probably the highest-margin business that clinics offer. Price points are $250,000 and up, and can be orders of magnitude higher depending on where patients get care and exactly what’s involved in the cycle.

Compare and contrast that against insurance-mandated markets where reimbursement rates for IVF are generally 30% to 35% lower. As a result of the reimbursement dynamics in those insurance-mandated states, the self-pay prices in these markets for those patients who may not have insurance tend to be 10% to 20% lower. Financial barriers tend to be a major obstacle for patients to get into the market and to receive services. In IVF-mandated markets, adoption rates are more than two times higher than self-pay markets. Extrapolated across the nation, if price points could be dropped by 25% to 30%, the industry could see significantly more patients getting treatments.

What’s the supply and demand for top-tier doctors in this space? How are practices retaining talent when there is rollup or acquisition by private equity?

There are 51 fellowship programs that graduate between 60 and 70 reproductive endocrinologists annually. In recent years, supply has not kept up with demand. That’s driven starting salaries for associates coming into the clinics up by as much as 25% to 30% over where they were in 2014-15. That dynamic, at least in the short term, will not change. IVF programs that have their own fellowship programs certainly have an advantage because they’re able to retain fellows graduating each year. Those fellows have learned the way of that clinic and are immediate contributors.

What might M&A look like in the next 6 to 12 months and where will it be focused?

We’ve come through the first stage of third-party investment entering the fertility field, in which the experiences have been varied and in certain cases expectations have not been met. I do expect that consolidation will continue. There are 450 IVF programs in the country, and there are a lot of small-to-mid players in the field who will face the challenges of investment and succession planning. Many of those first- and now second-generation physicians will look for liquidity and a way to get value out of their investment. Interestingly, while we’ve seen consolidation among some of the largest players working with private equity and/or strategic mergers, we have also at the same time seen a number of individuals go off and start smaller enterprises. We will continue to see that going forward.

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About Rick Dietz

Rick Dietz is an accomplished management executive with a proven track record in building profitable, multimillion-dollar brands and new business ventures. Most recently, he was the Interim Chief Executive Officer of IntegraMed America Inc. and prior to that served as IntegraMed’s Chief Operating Officer. Prior to joining IntegraMed, he served as the Executive Vice President and Chief Business Officer at Boston IVF. He assumed this position in October 2014 as a result of the largest merger in U.S. IVF center history — RSC New England and Boston IVF. Prior to the merger, Rick served as Executive Director at Reproductive Science Center of New England since 2007.

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This article is adapted from the September 3, 2020, GLG teleconference “Overview of Fertility Landscape Opportunities: Private Equity Investing.” If you would like access to this teleconference or would like to speak with Rick Dietz, or any of our more than 700,000 experts, contact us.