China fertility drive delivers growth opportunity for IVF Hospital  

The hospital chain, which provides a range of fertility treatments, more than doubled its profits in the first half of last year and wants to use IPO proceeds to upgrade its services

Key Takeaways:

• IVF Hospital’s share of China’s in vitro fertilization (IVF) market was only 0.9% in 2022, although the company ranks fourth among private-sector providers of reproductive services
• The company has yet to obtain a license for the most advanced type of reproductive technology and it also trails Jinxin Fertility Group in market share

By Molly Wen

Grappling with a falling birth rate, China has started to subsidize fertility treatments for couples desperate to have a baby.

The move by some cities and provinces to bring reproductive services under the national health insurance scheme has offered hope to those struggling with infertility, as well as presenting a business opportunity for the medical sector.

IVF Hospital Management Group Ltd., keen to take advantage of the policy shift, applied last month to list its shares on the Hong Kong Stock Exchange, hoping to join its rival Jinxin Fertility Group (1951.HK) among the ranks of publicly traded companies in the field of assisted reproduction.

Founded in 2006, IVF Hospital is a one-stop provider of fertility interventions through four hospitals in China, located in the cities of Zhanjiang and Jieyang in Guangdong province, Kunming in Yunnan province and in the northern city of Tianjin. According to figures cited in its prospectus, the hospital group performed 6,706 cycles of in vitro fertilization (IVF) in 2022, making it China’s fourth-biggest private provider of infertility treatments although with a market share of just 0.9%.

Technology-assisted reproduction services include artificial insemination, IVF, embryo transfer and other measures to facilitate a successful pregnancy. Since it began offering such services in 2010, the hospital group had treated about 90,000 patients by end-June 2023, performing more than 57,000 IVF cycles and completing more than 67,000 embryo transfers, according to the prospectus. The services resulted in 33,000 births, IVF Hospital said.

The number of couples struggling with infertility in China has increased from 55.4 million in 2018 to 56.7 million in 2022 and is expected to rise to 64.8 million by 2030, according to a study quoted in the prospectus. Infertility in couples of childbearing age is defined as an inability to achieve pregnancy with regular unprotected sex over a period of at least 12 months.  The trend has been blamed on factors including couples delaying starting a family, the effects of stress, pollution and unhealthy lifestyles.

The fertility problems have driven up demand for medical help to conceive a child. China’s assisted reproductive technology market has increased from 25.2 billion yuan ($350 million) in 2018 to 27.9 billion yuan in 2022, according to the study in the prospectus. The market size is projected to reach 55.2 billion yuan by 2030, but the Chinese industry is still dominated by public hospitals.

Private provision of fertility treatments is a profitable business for IVF Hospital. The company brought in revenues of 369 million yuan in 2020, 420 million yuan the following year and 407 million yuan in 2022. Annual profits over the same period were 45.96 million yuan, 94.56 million yuan and 64.52 million yuan. Strict Covid controls weighed on earnings in 2022, but in the first half of last year the company generated 230 million yuan in revenue, up 29.9% from the year-earlier period. Profits more than doubled to 33.88 million yuan. The Zhanjiang hospital in Guangdong province was the biggest revenue earner, contributing about 50% of the total.

Gene technology

Assisted reproductive technologies seek to achieve fertilization and early embryo development in a highly controlled lab environment, to overcome underlying fertility problems.  This type of intervention has a higher success rate than lengthy drug treatment, but it is also expensive. The company said most of its patients had been treated with IVF and embryo transfer, with a pregnancy success rate of 53.6% to 66.5%. The average cost per patient for an IVF cycle in the first half of last year was about 55,000 yuan to 69,000 yuan.

It is worth noting that IVF Hospital is only licensed to deliver the first and second generations of IVF technologies. It lacks a license for the third-generation treatment known as preimplantation genetic testing (PGT), which can address a broader spectrum of fertility issues, such as genetic conditions, recurrent miscarriages or problems associated with older couples.

At present, fewer than 100 Chinese hospitals hold the third-generation license, most of them public hospitals. Jinxin Fertility Group, which was the first private provider to list on the Hong Kong Stock Exchange in 2019, has also obtained a PGT license.

IVF Hospital said the proceeds from the Hong Kong listing would be used to expand and remodel its existing hospitals and to get the necessary certification to offer PGT services at its Zhanjiang Hospital. China applies stringent rules on pre-implantation genetic tests, and it can take five to six years for a hospital to obtain a PGT license after being authorized for the other IVF technologies.

IVF Hospital, a medium-sized private medical group, attracted funding from Shenzhen Nanshan Hongtu Equity Investment and Shenzhen Futian Hongtu Equity Investment Fund controlled by Shenzhen Capital Group in December 2019. The backers bought 5% of its equity for 147 million yuan, giving the company a post-investment valuation of 3 billion yuan. At the end of 2021, the company explored raising further funds through an A-share listing. A filing was made with the securities regulator but to no avail.

For a while, assisted reproduction stocks were very popular among investors in the capital markets. Jinxin Fertility Group, after its Hong Kong listing in 2019, enjoyed a share price rally that took its market valuation as high as HK$66 billion ($8.5 billion) in 2021, 175% above its IPO valuation. But as biomedical stocks fell out of favor, its market value has fallen to about HK$8 billion.

IVF Hospital lags Jinxin Fertility Group in many respects, from patient numbers to its urban reach and licensed technologies. Applying Jinxin Fertility’s price-to-earnings (P/E) ratio of 48 times, IVF Hospital would be valued at 3.25 billion yuan, slightly higher than its post-investment figure in 2019. Investors will be keen to see if extra funds can help the company deliver a growth spurt, as China’s insurance scheme helps couples bear the heavy cost of fertility treatment.

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