Premium IVF services were in demand in June and July, which Virtus Health’s (ASX:VRT) new chief Kate Munnings speculates is because people simply have more disposable cash, due to travel restrictions and national lockdowns.

“We’re all scratching our head wondering why this is, so that’s our hypothesis,” she told Stockhead.

Australia’s IVF market has been extremely competitive for several years since Primary IVF, now Adora Health, interrupted the cosy duopoly of key players Virtus and Monash IVF (ASX:MVF) to introduce a race to the bottom on price.

Virtus said in its annual report late last week its Australian premium service volumes for 2020 shrank by 7.8 per cent, and volumes in its low-cost business The Fertility Centre (TFC) increased by 11.6 per cent.

The company posted a $469,000 profit for the year, down 97 per cent from $28m after the company wrote off $25m worth of intangible asset value in the Tasmania and Denmark clinic businesses.

However, Munnings ascension to the chiefdom in February came with a change in strategy, away from the increasing commoditisation of IVF and towards an AI-based system that, Virtus says, will increase the success rates of IVF generally.

She also says the next big trend in IVF is not older women wanting babies, but as the awareness of genetic screening grows families who want to screen out embryos which carry genetic conditions.

“Genetic conditions that cause disease and early morbidity can be prevented now through genetic testing rather than through … chance,” she said.

“Now that people can access their genetic makeup, they’re interested in it.”

That trend is being supported by programs such as the Mackenzie’s Mission pilot in Australia, which will screen 10,000 couples to see if they are carriers of a genetic condition that could be passed onto a child.


Getting success rates up

IVF success rates, as measured in babies taken home, are not high. In 2017 women generally had a 21.2 per cent chance of having a baby per cycle of IVF. Success rates are higher for younger women and fall to 10 per cent for women over 40.

This means that for every 100 treatment cycles women undergo in order to have a child, just over 21 babies are born.

Virtus has long relied on the idea that more older women and same sex families want babies and on pent up demand — that is, women can only put off getting pregnant for so long — for its outlook.

However, it has struggled to turn these themes into convincing financials despite fighting hard to maintain market share in Australia, and in Europe its clinics have consistently not lived up to their acquisition benchmarks.

Munnings says Virtus has a strategy to turn the foreign outposts into solidly successful enterprises in their own right, and begin competing on success rates rather than price.

The development of the Ivy Artificial Intelligence system last year has resulted in a proof-of-concept embryo evaluation tool, which Virtus is enrolling 1,000 patients at seven sites in Australia, Ireland and Denmark to test.

Munnings says this will improve an embryologist’s ability to select the embryo “most likely to result in a baby”, lifting the predictive power from 80 per cent for a human alone to 93 per cent.

She says the next step is to apply that technology across the business, from which egg and sperm to use and what ovary drug stimulation regime to use.

The company expects that this technology, combined with young families wanting to screen for genetic conditions, will help it to step outside the IVF price wars.


Foreign outposts

Munnings says the Ireland, UK and Denmark clinics are profitable and “very” commercially viable, but have never met acquisition expectations.

The Singapore division is the best performing operation.

However, the company has built locally-grown businesses in each location.

Ireland and the UK were both significantly restructured and both are bouncing back after COVID-19 shutdowns.

However, Munning says Virtus is “always reviewing the portfolio”.

Virtus will turn Denmark and Singapore into regional hubs, marketing the former as an alternative to Spain as an IVF medical tourism destination.