The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference discusses investing in fertility and women’s health. It is authored by our colleagues Erin Dine, Kayla McCann Marty and Holly Buckley.

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Fertility and Women’s Health Investments – 6 Key Points

By Erin Dine, Kayla McCann Marty and Holly Buckley

Heavy commercial and private payor mix, the potential for solid ancillary services, and international growth prospects currently spark strong interest by private equity investors in the fertility and women’s heath subsector, according to experts who spoke on a panel at the 16th Annual Healthcare and Life Sciences Private Equity and Finance Conference in Chicago on February 20 and 21.

Experts included Harry Cendrowski, Managing Director, Cendrowski Corporate Advisors; Adam Flisser, MD, FACOG, Director, Marwood Group; Gregg Osenkowski, Principal, Sverica Capital Management; and Mitchell S. Stern, Managing Director, Dresner Partners/IMAP. The moderator was Kayla McCann Marty, Attorney at McGuireWoods LLP.

1. As private equity dollars continue to swarm the healthcare industry, one area ripe for investment is the fertility and women’s health subsector. The fertility and women’s health subsector is gaining increased attention for various reasons including international opportunities, societal changes (e.g., women desiring the option to have children later in life), and environmental considerations (e.g., the intersection between tainted water supplies and infertility). The current commercial and private-pay payor mix is also an attractive feature of the fertility and women’s health subsector today.

2. There are 15 “mandated states” (i.e., states that have passed state laws that require infertility treatment to be covered by insurers), but a number of other states may be moving in the direction of becoming a mandated state or even requiring government reimbursement for fertility treatments. Reimbursement availability could drive volume and more patient opportunities, but this trend will also likely depress prices overall. Nevertheless, panelists indicated that reimbursement opportunities should not be viewed as a deterrent to investment in this area, due to thriving and strong fertility and women’s health practice models that have been developed in the United States and internationally with various payor and payment models.

3. Fertility and women’s health practices can obtain significant value from professional investment dollars and a private equity fund’s management experience. Panelists noted that professional investors often offer strategies to improve consumer/patient-facing aspects of the business and can assist in increasing the overall value of the practice. Further, investments can enable investment in ancillary services (e.g., mammography, egg banking, sperm banking). In today’s landscape, few fertility or women’s health practices have achieved the necessary scale to support an ancillary service line like a laboratory.

4. When looking at potential EBITDA multiples in the fertility and women’s health space, some publicly available statistics may be inflated. This inflation is partially due to the surge of new technologies in the med-tech and women’s health space, including fertility applications, and the increased attention and attraction to genetic testing. Though the panelists did not expect EBITDA multiples in this space to increase substantially in the near future, the current double-digit multiples for fertility and women’s health platforms with reasonable scale and sophistication offer a target practice an attractive price tag in exchange for a significant investment opportunity.

5. When investors evaluate potential partners in this space, they are weighing various factors, including payor mix, geographical footprint, volume of health care practitioners, age of key physicians, growth potential, infrastructure, and success rates. Investors are also placing a high value on a practice’s reputation or brand, and its anchor physicians. However, by placing such a high value on these factors, investors are expecting that the anchor physicians will remain part of the practice and are incentivizing such physicians to be partners for growth through a combination of compensation and equity opportunities.

6. New technologies, applications and individualized genetic testing opportunities are transforming the fertility and women’s health subsector. Despite the growth in this area, panelists noted that political, regulatory, and ethical concerns implicated by this space may be limiting the industry (e.g., ethical issues related to IVF and genetics and the overall lack of reimbursement in the space). Once these hurdles are navigated, the fertility and women’s health industry could offer limitless opportunities for practice growth and professional investment in this area. With this in mind, fertility and women’s health practices, as well as private equity funds, are poised to continue on a trajectory of growth in this subsector.