The reproductive sector – Fertile ground for PE offers | Latham & Watkins LLP
The fertility sector is likely to present growing opportunities for PE as an emerging multi-faceted industry.
The global fertility industry, which has grown significantly in recent years as demand continues to soar, is expected to be valued at over US$30 billion by 2023, up from around US$16 billion in 2016. While the global market is growing, fragmented European markets, fertility regulatory regimes and complex US regulations require specialized legal advice to successfully complete transactions. The recent transactions highlight the breadth and international reach of the investment opportunities that exist, from clinical-focused companies to those specializing in the development of medical devices.
Why the bump?
According to the United Nations, global fertility rates have fallen sharply since 1960, driving demand for fertility services and medical treatment. Social factors also contributed; many expectant parents decide to delay childbearing until later in life, while same-sex couples turn to certain fertility services. Governments are taking note – for example, France recently extended public funding for fertility services to lesbian and single women, as well as funding for fertility preservation for personal reasons. Employers are also paying attention and offering fertility benefits as a way to attract and retain talent, which will likely further drive the growing demand.
European regulatory fragmentation
In Europe, the fertility industry has disparate regulatory regimes applicable depending on the exact nature of the products or services offered, with each jurisdiction applying its own laws. Detailed regulatory due diligence is advised – extending to any ethical restrictions and licensing requirements that may apply in each territory, in addition to compliance with national laws and regulations.
While the current barriers to entry may be attractive to sponsors able to navigate this web of rules and regulations, greater convergence of EU rules applicable to fertility clinics and related industries (such as donors and genetic testing) could be on the horizon. The EU Human Tissues and Cells Directive is being revised, which could remove some of the barriers of working under multiple EU regulatory regimes and pave the way for new investment opportunities.
Business health checks
Negotiators should note that other key issues often go beyond those associated with similar deals outside the fertility sector – ownership of companies may be restricted requiring careful structuring, individual premises may require a license, and issues of data protection and genetic privacy need to be addressed.
For example, the United States has an established regulatory framework for the fertility treatment sector and adjacent industries, the nature of the regulation again depending on the type of products and/or services offered. The Food and Drug Administration regulates the manufacture or sale of biological products, including human tissue, and fertility-related medical devices, while US health care regulatory laws govern the provision of health services, including including fertility clinics, and any financial arrangements between such providers and product manufacturers. . Clinics and professional medical service providers in the United States are also subject to state oversight, which requires careful regulatory scrutiny. Additionally, data privacy is regulated on both a federal and state-by-state basis, creating a complex compliance regime.
As demand for fertility services increases on both sides of the Atlantic, we believe the EP will play an important role in funding the next stage of growth in this rewarding sector.