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More people than ever before are undergoing fertility treatment in the UK. Latest figures from industry regulator the Human Fertility and Embryology Authority (HFEA) reveal 20,500 babies were born following IVF in 2017; an increase of 2.5 per cent on the previous year. The global fertility industry is predicted to be worth $21bn by next year, representing a compound annual growth rate of 9 per cent.
This is not just a medical success story; the baby making business is also big news for the investment industry. Add to this an increasing unwillingness from the NHS to fund fertility treatment, and the private sector looks ripe for investment.
Bella North, associate and specialist in healthcare at law firm McDermott, Will & Emery, says: “The UK market certainly proffers a reliable investment opportunity. In some areas, NHS commissioners have been shown to be reluctant to use their budgets [for IVF] and the private sector is stepping in.”
The mergers and acquisitions opportunities also look promising in this heavily fragmented market. Of the 134 private fertility clinics registered with the HFEA, two-thirds are standalone practices. Indeed, consolidation is already happening. Since 2018 the CARE Fertility Group acquired Bath Fertility Centre, while Sweden-based private equity firm Impilo AB, snapped up The Fertility Partnership.
And demand for fertility treatment is booming. While heterosexual couples are by far the largest demographic seeking fertility treatment, the HFEA reports the growth in requests from same sex couples, single women and surrogates are growing more quickly.
Despite its rapid growth and opportunity for returns, the fertility industry has always presented ethical questions. Multiple pregnancies, which are the single biggest health risk associated with IVF; increasing ages of those receiving treatment; gender selection; and mitochondrial replacement – therapy where the DNA of two women and one man is used to create a so-called three-parent baby, have all attracted controversy.
However, North says the UK has some of the strictest guidelines in the world. Gender selection is outlawed, and there is only one clinic licensed by HFEA to carry out mitochondrial replacement therapy.
“Investors will always face ethical considerations.” – Bella North, McDermott, Will & Emery
“The UK arguably sets itself apart from emerging and less mature markets that may lack strict ethical oversight, such as allowing gender selection,” she says.
Despite such stringency, North adds that investors will always face ethical considerations both from a regulatory and personal standpoint.
A new test
North says that while most investors choose to back fertility clinics, the boom in medical technology offers an alternative source of return.
Andrew Botham co-founded Testcard, one of a growing number of tech start-ups that aim to make life easier for those trying to conceive (and one of the investable companies available to Dolfin clients from its Private Investment Club). This home urine testing kit – which can test for pregnancy and infections – uses mobile phone scanning technology to provide instant results. The difference, Botham says, to the traditional stick tests is the user experience.
“People want to do a test and be sure they have the correct result. They don’t want a chemistry set, nor do they want jargon or too much information. They have the result on their phone which they can access when they want and is under their control,” he explains.
“An increase in control is critical to driving the future of the fertility industry.” – Andrew Botham, Testcard
Botham argues that an increase in control over how, when and where users interact with services is critical to driving the future of the fertility industry.
“We often end up with a one-size-fits-all in healthcare; if someone wants a certain service they must follow a certain route. Mobile technology provides a new path to reaching that same destination which suits many more users,” he says.
Since the rapid advances in tech leave some start-ups vulnerable to obsolescence should they be surpassed by more sophisticated rivals, Botham argues that early investment can reap investors greater rewards. In fact, venture capitalists who once waited for firms to prove their worth on the open market before investing, are increasingly looking at pre-revenue opportunities.
“More venture capitalists are looking at pre-revenue generating companies because they are worth peanuts before they hit the market. Established companies are buying start-ups once they are regulated and VCs want a slice of that,” he says.
Investors have a range of points at which they can get involved, one of which is Dolfin’s recently launched Private Investment Club.
The majority of TestCard’s seed funding came from one high-net-worth (HNW) individual. As the company moves to Series A, valued at around £12m, funding comes from a combination of HNWs and VCs. Should TestCard reach series B, the finance will most likely come from a mix of funds and VCs. As such, investors have a range of points at which they can get involved, one of which is Dolfin’s recently launched Private Investment Club.
The dynamics driving growth in this industry are undeniably powerful. Withering public funding for fertility treatment is pushing a burgeoning demand to the private sector, which now boasts the latest innovations in medical science and technology.
Yet while the investment fundamentals look enticing, the fertility sector has a unique set of ethical considerations and complexities. Investors will need to marry these two sides and ensure they complement each other rather than conflict if they are to find the right return.