IVF has the potential to change healthcare forever, but greed stands in the way

Reproductive technology is one of the fastest growing healthcare sectors in the country. From 2015-2020, the US in vitro fertilization (IVF) market grew from 231k cycles a year to 326k cycles a year, representing a CAGR of 7.13 per cent.

In addition to growing demand, IVF technology is also improving, with the rate of successful pregnancies increasing from ~30 per cent to ~45 per cent over the same period.

While reproductive technology has experienced significant growth in recent years, a 45 per cent success rate at an average price of US$20-25k per cycle means that IVF remains an inaccessible option for most people who wish to conceive.

To tackle part of this problem, many start-ups have created AI solutions to further increase the success rate of IVF while decreasing the number of cycles required for fertilization.

The offerings from these companies mainly revolve around utilizing AI to provide accurate embryo selection, implantation prediction, and end to end clinical workflow software.

In short, these companies allow embryologists to make non-biased, high quality decisions, while saving them from spending precious time in the lab on laborious data entry and manual processes. The appealing new innovations of these companies have drawn in nearly US$100m in funding from top investors.

There is clear excitement and conviction around reproductive technology, and it will be very exciting to see these solutions reach their full potential once they receive FDA approval.

However, while we should be optimistic about these developments, there is an important caveat that could potentially derail the growth of fertility technology.

Although all reproductive practices claim that they want to increase their success rates, there is an intrinsic conflict of interest between fertility clinics’ profit seeking business model and technologies that promote higher success.

Over the past five to ten years, there has been drastic consolidation in the IVF space, primarily driven by the entrance of private equity groups and expansion of large clinic chains.

Looking at data from the ~450 US clinics that report to the CDC, over half are held by only eight chains. When these stakeholders are added into the mix, the end goal almost always turns to profit rather than service. There are three main factors driving this relationship.

First, we can start with whether or not clinics really need to increase their success rate in order to attract more patients. In general, the fertility treatment industry is significantly supply constrained with outsized demand.

In the US there are about 450 clinics and 1,700 reproductive endocrinologists to fulfil the demand of 10.85 million females that are infertile in reproductive age. This would equate to roughly 22,000 cycles per clinic, while in reality the average cycle per clinic is only around 700.

While there are more nuances that factor into the demand, such as cost, social acceptance, and other medical conditions, the stark disparity in these numbers makes it fairly obvious that clinics are not compelled to increase their success rate due to the supply constraints of the industry.

Second, we can look at the typical customer acquisition cost for an IVF clinic. The average CAC per cycle ranges between US$1,000-US$3,500, or 5 per cent to 17.5 per cent of revenue per an average cost of a US$20k cycle.

These numbers are significant compressors of profitability, and clinics want to keep the customer acquisition cost low. As a result, retaining an existing patient that has failed their first cycle treatment could be extremely cost efficient.

Finally, we can look at the cost associated with software integration. The average cost to integrate software at a clinic ranges between US$180k-US$370k, compared to an average annual revenue of US$9m. Conservatively, this adds up to around 2 per cent to 4 per cent of revenue.

The question then becomes whether or not this is an additional add on to existing software or this software takes over the complete clinic flow. The latter is clearly more attractive, while the former could be problematic at a profit standpoint.

Given these factors, it is easy to see the potential conflict of interest between profit seeking operating model and technologies providing higher success.

While there are many reasons to be bullish on the tech companies revolutionizing workflow in fertility clinics, prices in the industry will only be reduced if technology is allowed to come in to help. In order to resolve this conflict of interest, clinics and startups must work together to find a solution that benefits all parties.

While it may cost clinics some profits in the short term, finding common ground and embracing this technology has the potential to fundamentally redefine fertility treatment across the globe.

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