Monash IVF will float on the Australian Securities Exchange today, the second Australian IVF firm to do so. With assisted reproductive technology now firmly on the radar of investors, we investigate the business of IVF, including its gradual commercialisation, how the market will value it, and the ethics of selling hope.
Charis Palmer: IVF is big business in Australia, and this week, Australian in-vitro fertilisation pioneers, Monash IVF will list on the Australian Securities Exchange.
The listing is a milestone in its 40-year history and is expected to raise $316 million dollars, with Monash IVF doctors retaining 18% of the company.
Ironbridge Capital bought a controlling stake in Monash IVF for an undisclosed sum in 2009, and it’s not the first time private equity has been involved – ABN Amro Capital bought Monash University’s controlling stake in Monash IVF back in 2007, when the business was worth just $200 million.
Robert Seamark: “Humans are notoriously infertile.”
“We don’t presume a human is infertile until they’ve been trying under optimised conditions for about 6 months and preferably a year before we start to think of them as having an infertility problem or issue.”
Charis Palmer: That’s Professor Bob Seamark, a veteran in the field of assisted reproductive technologies or ART, and current Professor Emeritus in the Department of Medical Biochemistry at Flinders University.
He’s watched IVF go from a doctor-focused endeavour to an industry with annual revenue of half a billion dollars.
Robert Seamark: “I could never understand why we had to commercialise these enterprises in the first place, I thought we had an ideal system with the ART group and the profits going back and basically stimulating research across the broad range of disciplines you need to fully evaluate the IVF process.”
Charis Palmer: Monash IVF is expecting to post a profit of $22 million this year. Its rival Virtus Health listed in June 2013, and since then its shares have climbed by about 50%. Based on the Monash IVF offer price, it will have a market capitalisation of $427.5 million compared with Virtus’s market value of almost $694 million.
The share offer is not open to the general public, and as capital markets expert Paul Docherty explains, it’s institutional investors that are most likely to be interested.
Paul Docherty: “One thing to note about the size of the listing is that it will probably when it lists be between about the 280th and 300th largest company in Australia, so you’re not looking right at the top of the tree, but probably still large enough for institutional investors to be interested.”
“One big appeal of this particular company, and the industry is the diversification benefit it can give investors. One problem with investing in the Australian market is the over-concentration of mining and financial stocks and this particular industry, not necessarily just the broader health-care sector, but this component of the health-care sector being the IVF industry gives some diversification benefits against that backdrop of the portfolio composition that most investors in Australia tend to hold.”
Charis Palmer: But what will ultimately determine the value of Monash IVF?
Paul Docherty: “Valuation is notoriously difficult particularly a company in an industry that’s in its relative infancy, given basic models that we use to try to value a company include not just the current business but also future growth prospects within that business and the industry and also the risk that it entails.
Charis Palmer: One risk is the clash between commercial interests and those of the doctors involved. In 2007, New Zealand based IVF business Fertility Associates decided to buy back a 40% shareholding the doctor-led business had sold to Monash IVF, after private equity firm ABN Amro bought in. The directors said they felt uncomfortable having private equity as a major shareholder, arguing it was more likely to care about the bottom line than pregnancy rates.
Professor Seamark again.
Robert Seamark: "Commercialisation certainly can cause tensions because there’s a clash of the cultures of science and business. I mean business has to focus on maximising profits for shareholders, they need answers, science is all about raising questions, I think that’s the principal issue.”
Charis Palmer: And then there’s the risk of growing a business that faces quite different challenges to those facing most listed Australian companies.
Bioethicist and Monash University associate professor Robert Sparrow says the mixture of commerce and medicine is something to be wary of.
Robert Sparrow: “When you combine the pursuit of profit with strong social forces and deep feelings, there’s always reason for concern.”
“When one is marketing IVF one is also necessarily marketing anxiety about infertility and the message that women are defined by motherhood, that parenthood is the most meaningful experience in a human life.”
Charis Palmer: For many IVF is a medical miracle, but Professor Sparrow says it’s important businesses marketing IVF do not sell false hope.
Robert Sparrow: “IVF doesn’t always work, it’s often a very psychologically gruelling experience for lots of couples, instead of perhaps coming to terms with the fact that their lives aren’t going to have children in them or at least not their own children, they spend years in and out of hospitals having lots of tests and experiencing lots of stress and anxiety and then they still come out childless, so being very honest about what the technology can and can’t achieve is terribly important when it comes to the ethics of business in this area.”
Charis Palmer: Professor Seamark says the success rates claimed by IVF firms can differ with official data.
Robert Seamark: “The live birth rates for an IVF cycle drops dramatically from women aged under 35 where we expect to get about 40% of those with a take-home baby after one cycle of treatment, to only about 12% for women aged 41-42.”
“I note the average age of women undergoing IVF in Australia is 35 and a half, and so the expected birth rate there would be about 32%, now if you read what the various groups around the world claim, you’ll find there are some assisted reproductive groups using the latest technology and they claim live birth rates approaching 70%, in other words almost double for under 35 and 36% for 41-42 year olds. Now we have to make allowance when accepting these figures for possible bias through for the groups electing their patients.”
Charis Palmer: Success rates matter for a business that charges around $8,500 per cycle, with most couples left at least $3,000 out of pocket after Medicare and health fund rebates. The number of IVF treatments fell for the first time in 30 years after a 2010 government policy shift that saw a cap put on rebates.
But University of Adelaide Obstetrics and Gynaecology Professor Ben Mol says Australia remains one of the leaders in IVF uptake.
Ben Mol: “The reimbursement of the government, which is good I think, in combination also with the fact that IVF is now done by commercial companies there has been a strong increase in the number of IVF cycles indicating that about one in 30 children born in Australia is born after IVF. Now that number for example in the Netherlands is one in 40 and in the United Kingdom it’s one in a hundred, but Scandinavia for example, specifically Denmark has one in 20.”
Charis Palmer: Professor Mol has researched the potential for overuse of IVF, and argues government rebates should be tied to research yet to be done comparing the success rates of IVF with natural conception.
Ben Mol: “I think there should be agreement between the government – the reimbursement – as well as clinicians and researchers and patients to set up those comparative studies.”
Charis Palmer: The concern, says Professor Mol, is that with greater commercialisation of IVF comes an unwillingness to consider how much of a difference IVF is really making, given up to half of all couples who resort to IVF could have conceived naturally.
Ben Mol: “People think that rushing to the most advanced technology will help them but there is actually no evidence for that.”
“The good thing is that people look into the efficiency of IVF, …this is good because it reduces the cost. I think it’s also good for the quality because those clinics are really dedicated to IVF it’s their core business and obviously this will increase both safety and effectiveness, however the downside of it is I think the number of treatments we do where we do not know whether this has added value over expectant management.”