Jul 23, 2022 - Health

Cautious optimism from PE investors in fertility care

Illustration of a scale with colored shapes and images of dollars.

Illustration: Gabriella Turrisi/Axios

Private equity owners of the country’s leading IVF treatment platforms tell us they are getting educated on state laws and preparing for the aftermath of the June 24 Dobbs ruling.

Why it matters: While Dobbs introduces a new layer of uncertainty in the near term, investors say interest in fertility remains robust with long-term industry tailwinds plentiful.

  • "Women’s health is high on [investors'] lists," says one health care investment banker.

Zoom in: Fertility has always been a highly regulated industry, both around egg storage and outcomes reporting.

  • But, with a cash- and commercial-payor base, fertility has historically been deemed lower-risk by many investors from a reimbursement and regulatory perspective. (In contrast, many other medical specialties depend on Medicare or Medicaid reimbursement.)

Meanwhile, with decision-making reverting to the states post-Roe, the sector is entering a period of "moderate risk," one investor says, adding that as states legislate around abortion access, "it will return to a lower risk level."

The big question: If some state regulators ultimately decide personhood begins at the creation of an embryo — making it illegal to discard embryos — what will investors with clinics in those states do?

  • For example, if Ohio went a certain way, PE-backed clinics could hypothetically move over state lines to Pennsylvania. "We're not doing that just yet, but we have to make contingency plans," one investor says.
  • There are also operational workarounds being explored (i.e., inseminate in one place, implant in another). That hypothetically might not require clinics to relocate, but could increase costs.
  • The widespread hope is that legislative bodies will include carve-out language that protects fertility access. (More on this below.)

Reality check: "There is already a dearth of clinics in the country," says Lux Capital partner Deena Shakir.

  • Even in the so-called sanctuary states, Shakir says clinics are backed up: "We're starting to get indication that there will be a major crunch when it comes to existing supply."
  • And, there are already many so-called reproductive health care deserts.
  • Existing networks tend to be more penetrated in dense population centers that are "friendlier" — which may provide some insulation.

State of play: The fertility platforms of any scale are all owned by private equity.

  • Lee Equity's Inception Fertility, Amulet Capital's US Fertility, Webster Equity Partners' Pinnacle Fertility, Morgan Stanley Capital Partners' Ovation Fertility and InTandem Capital's Ivy Fertility. Plus, KKR-owned Spanish giant Ivirma has a U.S. presence.
  • PE-backed operators may be more nimble and have the financial wherewithal to shift gears and pivot, whereas an unfortunate consequence could be that more solo practitioners opt to close their doors, one investor says.

The bottom line: The ruling isn't expected to impede on demand, and market fragmentation only adds to a compelling PE playbook.

  • "[The ruling] hasn't changed or slowed down our perspectives around growth in regions of the U.S.," another investor says.
  • Demand is fueled by social factors and growth in awareness, a higher degree of employer coverage, and advancements in technology and science that can lead to higher success rates, which could drive down costs and push demand even higher.

Editor's note: This story has been corrected to remove a reference to unfertilized embryos, as embryos are by definition fertilized.

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