Fertility Services: Strong Demand with Room to Grow

Key Takeaways

  • Powerful, long-term societal shifts are driving strong growth for fertility services.
  • That growth, combined with a high degree of fragmentation, has captured buyers’ attention.
  • Substantial marketplace advantages can be gained by building scale platforms. Three key considerations should inform buyers pursuing this strategy.

For more detailed insights on the fertility services market from the Harris Williams Healthcare & Life Sciences Group, please click here.

Strategic and financial buyers have fertility services on their radar. No wonder: The addressable market is large, growing and highly fragmented; enjoys favorable payment dynamics relative to other sectors of healthcare; and is supported by strong demand.

In fact, the U.S. fertility services market is estimated to exceed $7 billion in revenue, while the global market generates $40 billion. The segment’s growth is strong as well, projected to exceed 10% CAGR through 2022.1

Figure 1: Large Addressable Market, Strong Growth

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Source:  CDC, Allied Market Research, Global Market Insights

Four factors are behind this growth in demand: cultural shifts, more prevalent chronic health conditions, increasing awareness and success rates, and reimbursement and benefit trends.

Cultural shifts

A number of societal trends have resulted in more couples requiring fertility services to conceive. For one thing, many women are choosing to become pregnant later in life. Between 1985 and 2015, the birth rate for mothers between 40 and 44 years of age increased by 185%, compared with a 32% decrease for women 20 to 24 during that time.2 That shift is driving demand for fertility services that increase success rates for such pregnancies.

Figure 2: Pregnancy Is Happening Later in Life

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Source: U.S. Census and Society of Obstetricians and Gynecologists of Canada

Additionally, more women are choosing to have children on their own, and in so doing, they must use fertility services to conceive, as evidenced by the growth of organizations such as Single Mothers by Choice and Choice Mom. More same-sex couples are having children as well. In fact, nearly 20% of all same-sex households are raising children.While some of these couples adopt children, many choose to use fertility services instead.

More prevalent chronic health conditions

Approximately 15% of couples in the U.S. are involuntarily infertile. Rising obesity rates, medical conditions, and other factors are driving infertility rates higher, increasing demand for fertility services.4

Obesity is an especially prevalent problem. The percentage of the U.S. population defined as obese is expected to jump from 36% in 2010 to 44% by 2030 (Figure 3).5 Women defined as obese are three times more likely to suffer from infertility than women with a normal body mass index, while male obesity reduces sperm quality and impairs mature sperm’s molecular structure.6

Figure 3: Rising Obesity Rates

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Sources: CDC, Grand View Research, Journal of Human Reproduction, National Institutes of Health, Systems Biology in Reproductive Medicine

Other common risk factors include alcohol use, stress, and limited exercise, as well as genetic or hormonal conditions and disease, and can make both genders susceptible to infertility.

Increasing awareness and success rates

High-profile references to fertility treatments in popular culture, plus campaigns like National Infertility Awareness Week, are driving positive awareness of the industry and its services. Michelle Obama’s revelation that her daughters were conceived by in vitro fertilization (IVF) was arguably one of the highest-profile endorsements of fertility services in the past decade.

The industry’s strong and growing track record contributes to growth as well. Approximately 8 million babies have been born globally using assisted reproductive technology (ART) services in the past 20 years, primarily due to technological and genetic testing advancements and substantially improved outcomes and costs.7 Furthermore, the likelihood of a live birth by the fifth cycle with IVF jumped from 75.8% in 2001-2005 to 80.1% in 2006-2010.8

Figure 4: Increasing IVF Success Rates

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Reimbursement and benefit trends

Another key growth driver: More U.S. adults have access to fertility services as employers extend health benefits to provide coverage for them. In fact, two-thirds of large U.S. employers offer some level of fertility coverage, which they see as an important tool for attracting new talent.In some cases, coverage for fertility services is mandated by government. Today, 16 states have passed laws that require employers’ insurance to either cover or offer some coverage for infertility diagnosis or treatment.10

Room to grow

Yet the fertility services provider market remains highly fragmented: The five largest players in the market capture less than approximately 25% of the total IVF cycles in the U.S., which means most providers have only local service areas.11

“There are very few providers with more than five locations, a critical physician mass, or the infrastructure they need to scale,” says Andy Dixon, a managing director in the Harris Williams Healthcare and Life Sciences Group.

Not surprisingly, says Dixon, this fragmentation, coupled with the growth drivers described above, has created strong buyer interest and M&A activity in the sector. “The sector’s strong growth, plus the opportunity to build platforms of scale, has attracted considerable investment in a number of sub-segments, including IVF clinics and labs, reproductive tissue, and fertility benefit management.”

Dixon also says a few larger OB/GYN platforms are pursuing vertical integration, including fertility services in select geographic markets.

In the past 24 months, consolidation and platform creation have accelerated, with activity from both financial and strategic buyers. Notable transactions include Boston IVF’s acquisition by NMC Health, GI Partners’ simultaneous purchase of California Cryobank (CCB) and Cord Blood Registry (CBR) to combine into a larger platform, the merger of the Prelude Network with Inception Fertility, and the acquisition of Ovation Fertility by Morgan Stanley Capital Partners.

The volume and pace of these recent transactions illustrate the significant opportunity to build comprehensive fertility services platforms that can offer a wide array of services across multiple locations. Such businesses tend to have five key advantages over smaller platforms:

Standardized best practices

Scale platforms are better positioned to gather clinical insights from a larger number of physicians and scientists. That helps them build and apply best practices and create some level of standardized practices, which, in turn, leads to more consistent and higher-quality clinical outcomes, enhanced brands, efficiencies and economies of scale, and reduced risk and cost across doctors and services.

More services, which can attract more patients

Smaller practices typically are less able to offer in-house ancillary services—such as genetic testing, egg or sperm storage, or donor or surrogacy services—because they lack the scale to do so cost-effectively, or the requisite specialized scientific expertise and administrative resources.

Physician recruitment

A large platform with a sophisticated infrastructure, a collaborative model driving leading outcomes, and a broad portfolio of services can also be attractive to doctors. This could include young doctors looking for a brand halo, strong administrative capabilities, and access to a broader medical and scientific community. It also could include doctors with established practices interested in becoming part of a national platform with expanded service offerings and access to shared best practices to drive even better outcomes.

International demand

With locations around the world and a global brand, a scale platform is well positioned to tap into international markets. This could mean bringing global patients to the platform’s U.S. locations, or acquiring foreign clinics and leveraging the platform’s brand, physicians, and operations to participate in local markets.

Potential for at-risk and subscription pricing models

Looking forward, with enough scale and visibility into what it really costs to deliver specific services, large platforms have the potential to create at-risk pricing models for employers, insurers, and individual patients that effectively guarantee that patients only pay if the service is successful.

As they pursue these scale advantage plays, platform builders should keep three considerations in mind.

Normalize for key variables

Today, there’s more data available than ever on the clinical outcomes generated by fertility services providers. That can help buyers evaluate potential targets’ track records and be more confident they are investing in providers that are delivering results.

However, such data can be difficult to interpret. “Buyers need to ensure they’re comparing ‘apples to apples’ and controlling for variables and the different ways that providers report their data,” notes Dixon.  “You can’t just get data from the Centers for Disease Control and Prevention (CDC) or the Society for Assisted Reproductive Technology (SART) and think that you can make direct comparisons.”

For example, adds Dixon, individual providers may employ very different techniques, requiring thorough due diligence to normalize for key variables such as the number of embryos transferred per cycle or the utilization of genetic testing in embryo selection.  Additionally, patient demographics and health characteristics may vary substantially within reported age groups, so buyers should request provider data that is less prone to selection and quality bias, such as donor egg outcomes.

Emphasize physician reputations

fertility_email_image.jpgPhysicians with a superior clinical reputation not only bring in more patients, but also are instrumental in attracting other high-quality physicians to the platform. The latter is especially critical in this sector, as the number of practicing reproductive endocrinologists is quite low.

“Buyers really need to do their homework to ensure they’re partnering with high-quality doctors from a clinical perspective,” says Dixon. “That’s especially important if they are growing a platform. They’ll want to have a well-respected set of clinicians whom other clinicians will feel good about partnering with if one of the vehicles for growing that business is via acquisition or new physician partnerships.”

Seek high volume across multiple doctors

The number of IVF cycles a provider handles is an important indicator of the strength of its business as well as its potential. The higher the volume, the higher the revenue generated and the greater economies of scale a provider can leverage in its lab and other functions. For many clinics, a cycle count of 400 per year indicates high productivity across multiple doctors, although in some cases or markets that could be lower.

“You want to make sure that you don’t have a single doctor driving a disproportionate number of cycles,” says Dixon. “That’s not scalable, and the provider is always at risk that he or she leaves and takes that business.”

Conclusion

The need for fertility services is unlikely to abate anytime soon—in fact, long-term demographic shifts are in place to support steady ongoing growth. With significant fragmentation still in place, platform builders can gain a range of marketplace advantages. To do so, they should be sure to compare the right performance metrics, focus on physician reputation, and seek practices with high volume spread across several productive providers.

Published September 2019

1. CDC, Allied Market Research, Global Market Insights.

2. U.S. Census and Society of Obstetricians and Gynecologists of Canada.

3. How many same-sex couples in the U.S. are raising children? The Williams Institute, UCLA School of Law. July 2018.

4. CDC, Grand View Research, Journal of Human Reproduction, National Institute of Health, Systems Biology in Reproductive Medicine.

5. Ibid.

6. Ibid.

7. European Society of Human Reproduction and Embryology, CDC, Obstetrics & Gynecology.

8. Ibid.

9. Fertility services can be attractive benefit. Managed Healthcare Executive. September 17, 2016.

10. National Infertility Association.

11. SART, IBIS, and internal estimates.