Investors see big money in infertility. And they’re transforming the industry

Investors searching for a new way to make big money in medicine have hit upon an age-old problem: infertility.

The money isn’t just in treating older women who have spent years trying to conceive. It’s in persuading younger women, still in their 20s, to start worrying about their future fertility now — and to pay for pricey tests and services, such as egg freezing, as a hedge against problems down the road.

Sensing a lucrative market, private equity firms are pouring money into building national chains of fertility clinics. Some are spending on splashy advertising and a deliberate strategy of reaching out to young women who are not yet trying to conceive. Venture capitalists are getting into the business, too; this year alone, PitchBook has tallied more than $178 million flowing into startups developing fertility products, such as a test that promises a credit-score-style rating of a woman’s fertility.

The new investors say they leave decisions about clinical practice to physicians. But they’re nonetheless transforming an industry that has long been dominated by standalone clinics.

Fertility experts see real benefits for patients: Clinics united into national chains have been sharing best practices, introducing newer technologies, and offering more flexible payment plans for customers.

But some doctors see potential drawbacks, too. They worry that the new ethos of treating fertility medicine as a cash cow may lead to clinics pushing patients toward unnecessary tests and services.

And some are concerned about the ethics of aggressively promoting fertility care such as egg freezing — which can cost between $14,000 and $18,000 per cycle in some cities — to healthy young women who may never need it. The procedure carries some risks to the woman and is no guarantee of a future pregnancy; IVF using frozen eggs has just a middling success rate.

There’s a fine line that must be walked to steer clear of “preying on someone’s emotions,” said Dr. Ravi Gada, who co-owns Dallas Fort Worth Fertility Associates, which has turned away multiple overtures from private equity firms.

The U.S. has nearly 500 fertility clinics. Among the recent shifts in ownership and approach:

• Lee Equity Partners, a New York private equity firm, last year bought into a large Atlanta fertility clinic and a frozen egg bank to launch a $200 million network called Prelude Fertility. This fall, Prelude bought a majority share of a large San Francisco clinic and then went even bigger by acquiring 22 new locations stretching from Connecticut to Texas to Las Vegas. Prelude promotes itself both to patients “ready to build a family now” and those who “want to keep [their] options open for the future.”

• TA Associates, a private equity firm with five offices around the globe, in 2015 bought into the Colorado Center for Reproductive Medicine, which had already begun to expand around the U.S. The investment has allowed to CCRM to “grow a bit faster,” by speeding hiring and infrastructure investments, according to Jon Pardew, CCRM’s CEO. New CCRM clinics opened in Boston and San Francisco in June, with another new U.S. location under construction.

• MTS Health Investors, a New York private equity firm, in 2015 created the Ovation Fertility chain by scooping up four clinics spanning the Sun Belt from Southern California to Nashville. This fall, Ovation bought two more clinics in Louisiana. The chain touts its scale as an advantage for patients seeking help, saying on its website that “many heads are better than one.”

New services crop up to monitor fertility

Meanwhile, entrepreneurs are promoting an array of new products aimed at assessing fertility.

A $950 genetic test launched this year, called Fertilome, reports on the likelihood that women have certain conditions linked to fertility problems, in an effort to help guide their next steps. The company behind it has marketed it with evening seminars aimed at working women, promising to outline “proactive steps you can take today to reach your future family building goals.”

Another startup called Modern Fertility has begun rolling out its test, which measures various hormone levels including several correlated with how many eggs a women has in her ovaries. (Such “ovarian reserve” testing is an increasingly popular metric, though it has some limitations.) The Modern Fertility test, which reports a number akin to a credit score meant to be monitored over time, is now available for $149 at Quest Diagnostics laboratories and will soon be available for use at home.

Then there’s egg freezing, a procedure pioneered for women trying to preserve their fertility before undergoing cancer treatments. In the last few years, it’s been rebranded as option for women who intend to put off pregnancy, perhaps because they want to pursue their careers or haven’t yet found a partner during their prime reproductive years.

Top Silicon Valley companies like Google, Apple, and Facebook now offer egg freezing as a benefit to employees, while some clinics are hosting “egg socials” with wine and hors d’oeuvres to pitch women on its benefits. More than 6,200 women froze their eggs at fertility clinics in the U.S. in 2015, up from 475 in 2009, according to the Society for Assisted Reproductive Technology.

Investors clearly see the opportunity: Extend Fertility, which says it’s the first practice in the U.S. dedicated solely to freezing eggs, opened in Manhattan a year and a half ago. It’s backed by the New York private equity firm North Peak Capital.

Sensing a market ready to take off

The business minds at Lee Equity were first drawn to the fertility field by data showing the climbing age of first-time mothers in the U.S. They were intrigued, too, by the legalization of same-sex marriage, which could expand the pool of couples eager to seek out services such as in vitro fertilization, which costs an average of $12,000 for a cycle but can double in price with extra services.

But as they began investigating the field, they found the potential market was greater still.

“Probably the biggest surprise to us as we started to work on our investment thesis in this industry was just how low awareness is of fertility services — not only IVF, but also egg freezing, as well as donor eggs,” said Collins Ward, a partner at Lee Equity who’s leading the investment in Prelude, the chain of fertility clinics.

So Ward and his team built Prelude in part to help its newly acquired clinics revamp their marketing strategy. (Dr. Mehmet Oz, who’s perhaps medicine’s most influential marketer as host of “The Dr. Oz Show,” sits on Prelude’s board of directors.)

For the clinics joining the Prelude network, that’s meant ad campaigns at the local level, both on social media and online as well on traditional channels like radio and print. Prelude is also pushing a national ad campaign on social media and digital channels.

Prelude’s goal: to pitch the chain as an one-stop-shop for fertility care, starting long before a woman is ready to conceive. We’re “making [the ads] more modern and speak to younger patients and younger Americans who live in social and digital media,” Ward said.

All that marketing, plus the aggressive expansion push, has “added significant costs,” Ward said — and the firm has been willing to invest in them, because of the promise of a sizable upside in years to come.

“You hear about private equity coming in, firing people, slashing jobs, cutting things down to the bone, and then trying to find an exit. That really hasn’t been the case in the IVF industry. The quality of care has remained very high … or gone up,” said Dr. David Sable, who previously spent years as an IVF doctor and now invests in biotech for a fund on Wall Street.

When investors come calling, some doctors resist

Fertility clinics are just the latest in a long list of medical practices that have caught the eye of private equity firms. They’ve already been buying up primary care practices, ophthalmology practices, and dermatology clinics. In some cases, doctors nearing retirement jump at the chance to sell stakes in their clinics, with an eye toward bolstering their own financial security and tapping into the business expertise of the new investors.

But other doctors have resisted the movement.

Shady Grove Fertility, a fast-growing network of clinics in the mid-Atlantic region, has considered private equity investment “from time to time,” but hasn’t bitten yet, said CEO Mark Segal. Instead, it remains co-owned by 28 of its physicians.

One reason: concern that outside investors could push the clinic toward “more of a focus on just continuing to add more patients,” Segal said, “without necessarily focusing on how that would impact patient care.”

“Being able to maintain that control of operations and decisions is important to us,” said Gada, one of the four doctors who co-owns Dallas Fort Worth Fertility Associates and has brushed off interest from private equity firms. He worries that the impromptu flexibility possible in a clinic like his — such as offering a discount to a woman coming back for a second or third IVF cycle — wouldn’t be possible in a chain backed by private equity money.

There’s no evidence so far that the consolidation of clinics is driving up costs for fertility treatment. But there’s no evidence it’s driving them down, either.

Sable said despite their benefits, the growing chains aren’t providing what the industry truly needs: more affordable options that would open up fertility treatments to less wealthy Americans. As he put it: “We need the IVF version of the Holiday Inn.”