Economic challenges will propel fertility market innovation
The cost-of-living crisis is having a huge impact on fertility patients, making the sector ripe for disruption. A fertility expert tells HBI cunning new entrants will be the winners while established PE could well be the losers.
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Richard Banks, managing director at Swansbridge Management Ltd and formerly chief strategy officer at fertility group Virtus, tells HBI the difficulties are “down to consumer confidence due to the economic headwinds”.
“It’ll be a tough market until consumer confidence improves. What I think this will mean is a race to the bottom on price. All you have to do is look at the fertility group websites – they’re all offering cut price consultations and so on. The sector is ripe for disruption, and it will only be disrupted through innovation. We’ve already seen this in Ireland with the low-cost provider Thérapie.”
Bridge Clinic London is an affordable provider. Last month its managing director, James Barr, told HBI the group has also seen a “softening” of demand: “We’ve not experienced a drop in revenues but it is harder to go out and secure those patients. It will have more of an impact going into 2024.”
This came as a survey suggested as many as 49% of fertility patients were suspending their treatments due to cost. Banks’ outside view is that Bridge Clinic’s UK market is probably reasonably insulated from the cost-of-living crisis as the south east of England, especially London where it is based, has an affluent population and a “good dose” of international patients.
Catching up with HBI again, Barr reasserts that it is more difficult to find patients, but disagrees with Banks’ assessment of the UK market, saying: “I haven’t heard about a lack of consumer confidence outside London, it just doesn’t ring true – though of course cost of living is still a big factor, and will continue to be through H1 at the very least. Overall people are looking to start IVF as quickly as possible and it’s difficult to delay treatment, although of course there is anecdotal evidence that there are delays due to the current economic challenges.”
Price could also be a very important factor according to Banks: “You don’t do low price unless you want footfall. Low-cost IVF will be disruptive.
“Groups which have more apps, less physical contact time, and consolidate their operations will be going in the right direction. However a lot of fertility business is very touchy about consolidation into, for example, one big cryogenics storage facility.
“A lot of the big fertility groups have grown through acquisition and therefore have assets they’ve acquired – and are also run by PE meaning they have short investment cycles. I’m not sure a big, multinational, PE-owned group will do this – in my opinion it will be a new entrant.”
He concludes: “Disruption always happens at the fringe.”
Barr says: “It’s a pretty capital intensive business to open a full blown IVF clinic. You need consultation space, clinical space and then the lab. If you can expand your footprint with one lab and add on multiple satellite clinics that’s a lower cost model. We want to expand and that’s a cheaper and quicker way to do so.
“I think clinical providers are looking at the market creatively and trying to generate additional traffic. There are groups out there which have diversified with the introduction of a low cost package. To do that they’ve probably changed their delivery model, maybe with a nurse delivered and consultant supervised model. That’s one way to maximize utilisation of your doctor.
“I think in times when there’s a softening of demand you try and maximize opportunities elsewhere. We can embrace technology, and are looking at AI – for example we are trialing a system which selects the best embryo. Challenging economic situations force companies to look at their models and select opportunities to streamline.”
An example of the increasing digitisation in fertility is the partnership between Future Fertility, a group which has developed an AI to assess occyte (ovary cell) quality, and Eugin’s Madrid and Barcelona-based clinics which were acquired by Spain-based asset management firm GED. Banks says this benefits the AI company with a good “test bed” and gives Eugin a door to co-developing new products in future.
Previously HBI has been told by Hugh Risebrow, CEO at Latchmore Healthcare Associates LLP, that there are significant difficulties in creating low-cost fertility: “At the end of the day there isn’t a low-cost way of doing IVF. The basic clinical process you have to follow is the same. It’s quite labour intensive too, with fixed costs like staffing, testing, procedure costs, incubators and things in the embryology labs.”
What’s happening with TFP?
HBI understands that the long-awaited sale of TFP is still ongoing, with the latest being the international group had split its German, Austrian and Danish operations into a separate Holdco to be sold.
The group has been for sale since at least February last year. It has not been unusual that selling parties have needed to split assets up to sell them, with the prime example being conglomerate Fresenius selling its fertility group Eugin in two pieces to GED and IVI RMA in November.
Expansion of HM Hospitales
Meanwhile in Spain major hospital group HM Hospitales is expanding its fertility network with two new centres.
HM has a brand specialising in “fertility and reproductive medicine of high complexity” and has opened a new centre located in the HM Valdebebas Polyclinic in Madrid and a second at the HM La Esperanza Hospital in Santiago de Compostela. The group now has eight centres and carried out over 1,000 treatments throughout 2023.
This flies in the face of industry logic which suggests there is no real synergy between hospital groups and fertility practices. In addition to Fresenius, which runs hospital groups Helios and Quirónsalud and sold off Eugin, all the UK hospital groups which tried their hand at fertility sold the practices off with the exception of HCA UK.
Banks offers some thoughts on why HM Hospitales may be different: “Being attached to an existing hospital or polyclinic offers some advantages. Its existing geographic spread – by tagging onto existing infrastructure – allows HM to spread its Fertility coverage more cost effectively. In other words, they are not having to build new clinics from scratch – existing ultrasound facilities, consulting rooms, day case theatres, and pathology labs can all absorb work from the fertility operations.
“The operating model is also a bonus. Having hospital departments (as above) supporting fertility ops means those assets can be made to increase HM’s productivity and therefore are more cost effective. Building an IVF clinic from scratch is also expensive but in a hospital you could half the price as you have your scanning rooms, consultation rooms, etc. You need a cryo store and some of the equipment, but that’s it.
“Then there’s additional revenue – not only will primary fertility revenues be increased, but there is a secondary benefit to support service revenues. E.g. they are more productive, and more profitable without having to invest that much – this works especially well in areas such as pathology where automation is usually commonplace.”
The fact HM Hospitales is in Spain could also be a boon as, although other markets have loosened restrictions such as more acceptance of anonymous gamete donors, it is still the dominant fertility market for international patients.
However there is still the requirement for additional investment in equipment and the issues with patient synergy could remain: “Fertility is a highly emotive journey and very private. Not all patients will enjoy being in a hospital setting, however there are strategies that can counteract this. I think HM has quite nice facilities from my understanding.
“How they present is really important – patients need discretion, privacy, compassion, and they don’t want to be mixed in with the hips, knees, and plastics. If you can pull it off from an estate configuration perspective there’s no reason why it wouldn’t work.”
Banks tells HBI one possible reason why UK hospitals may have turned away from fertility: “In the past fertility services have been nice, profitable businesses, but private hospitals are more geared up around cardiac and orthopaedic and all the surgical staff want operating space so expanding fertility becomes problematic as you do so at the expense of your core services. I would imagine they’re well furnished with waiting list work coming in from the NHS – in the UK anyway.”
We would welcome your thoughts on this story. Email your views to Joe Quiruga or call 0207 183 3779.
