It's 'early innings' in the fertility market. Here's how to play the booming business with under-the-radar names

Published Thu, Nov 17 20221:00 PM ESTUpdated Thu, Nov 17 20223:07 PM EST

The multibillion-dollar global fertility market is ripe with opportunity. More people are seeking help in creating families, with the market predicted to reach approximately $47.9 billion by 2030, according to Precedence Research . Some 19% of heterosexual women with no prior births are considered infertile, which means the inability to get pregnant after one year of trying, according to the Centers for Disease Control and Prevention. That doesn't even take into account single parents or LGBTQ couples, who want to seek treatment and don't fit the definition of infertility. For investors thinking about the fertility market, pharma firms may come to mind. After all, those companies produce expensive drugs used in assisted reproductive technology, or ART. Yet investors may be overlooking some under-the-radar opportunities as smaller companies race to fill the gaps in not only drugs and hormonal treatments, but insurance, medical technology, DNA testing and financing. Addressing insurance needs The most high profile of these under-the-radar pure plays on fertility is Progyny, a benefits management company. When the company went public in 2019, it had a market value of $1.3 billion. Its market cap is now $3.2 billion. The company partners with employers to provide fertility and family-building benefits for employees. It includes a network of fertility specialists, a pharmacy and what it calls Smart Cycle, which bundles individual services, tests and treatments. Progyny is looking to address needs that have been unmet for a long time. Fertility treatments are costly and traditional insurance coverage can be limited. The average cost for an in vitro fertilization (IVF) cycle is $12,400, according to the American Society for Reproductive Technology. Medications can add another $3,500 to $7,000 to that bill. Oftentimes, the overall price tag can be much higher, and may include "extras" like genetic testing and embryo freezing and storage. "People are choosing to have children later and if that is just a societal change that we are going to see, there is no reason that fertility benefits shouldn't have a tail wind from that," said Stephanie Davis, senior equity research analyst at SVB Securities, who has an outperform rating on Progyny's stock. Progyny recently reported a strong third quarter with record revenue of $205.4 million, a 68% increase over the year prior, and raised its full-year guidance. The company added 105 net new employers, representing an additional 1.2 million individuals — bringing its total coverage to 5.4 million people. "When you consider this macroeconomic environment that we're in, where there's headline risk constantly around a looming recession, the fact that this many companies still continue to realize that this benefit is really important around attracting and retaining their employees is a really important, continued signal of the tail winds that we continue to experience," Progyny CEO Pete Anevski told CNBC. While the stock is down more than 30% year to date, analysts that cover the name like it. The average analyst rating is a buy and the stock has 68% upside to the average analyst price target, according to FactSet. "We were … encouraged by management commentary around the macro environment noting 50% of new customers were adding an incremental benefit despite the current backdrop demonstrating the resiliency of fertility," JPMorgan analyst Anne Samuel wrote in note after the earnings call. Progyny's biggest competitor is the collection of payers, or insurance companies, in the country, Anevski said. While they have the biggest market share, their benefits may be limited and include a diagnosis of fertility. They may not allow employers to pick and choose what to cover, like screening for any genetic abnormalities in embryos before they are implanted in the womb. Traditional insurance companies aren't able to structurally provide the same level of care, noted Polen Capital's Rayna Lesser Hannaway, head of the firm's U.S. small company growth team. For those carriers, the fertility market is only a very small slice of the health care pie, but for Progyny there is still a massive opportunity to be had, she said. "The capable competitors are not incentivized to try to compete with Progyny, yet Progyny has only just scratched the surface, penetrating less than 3% of its addressable market, which is large, self-insured employers," said Hannaway, who is portfolio manager of Polen's U.S. Small Company Growth Fund and U.S. SMID Company Growth Fund, both of which hold Progyny. Anevski touted that large opportunity, noting that the company is "very early in penetration of that market." The company is also starting to look beyond the large, self-insurance companies to the union labor market, which is another 25 million covered lives, as well as other areas within women's health, he said. "There's plenty of room to grow with the current product," Anevski said. "That said, we are actually looking at natural adjacencies that makes sense for us in women's health, whether it's other areas of reproductive health, like maternity support, like preconception, like postpartum, or other areas of women's health, like menopause, etc." He's also not concerned about a possible recession. People will continue to try to build families no matter what, he said. In addition, there are no signs that companies are skittish about adding the benefit despite all the talk about an economic downturn, he said. "Our most recent selling season shows that this benefit is still really important, because the belief is that the upcoming recession is going to be unique and is still going to have a tight labor market," Avenski said. Progyny, which works with firms like Amazon and Meta , certainly isn't the only benefits management company focusing on fertility. It also has competition in the private space. Kindbody, for instance, recently partnered with Walmart to provide family-building benefits for its employees. Maven, a women's health and benefits platform, recently announced a $90 million Series E round of funding. In October, fertility benefits manager WINFertilty expanded its partnership with the Military Family Building Coalition, which provides services to Air Force and Space Force members, as well as continuing its work with Navy aviators. 'The fertility benefit itself is no longer optional' Corporate America is responding to the increased demand for fertility treatments. For instance, 36% of companies with at least 500 employees covered IVF in 2021, compared with 27% in 2020, according to Mercer, an employee benefits consulting firm. Some 34% didn't offer any coverage of infertility services in 2021, versus 39% a year prior. The change is not just a function of some Americans starting their journey to parenthood later in life, it's also because the benefit is seen as a way to attract and retain female workers in what has been a tight labor market, said Julie Campbell, a principal at Mercer. In addition, the IVF benefit supports LGBTQ parents-to-be by acknowledging there are different paths to parenthood, she added. In fact, the number of employers looking at fertility benefits as a "must have" has skyrocketed, she said. "It is every industry and it is covering all different segments of the population," Campbell said. "There is this underlying theme that the fertility benefit itself is no longer optional. It has to be part of the package." There has also been a huge trend in covering the services outside of the health plan to allow equal and inclusive access, she added. That's where a player like Progyny may come in. A recent survey from decision intelligence company Morning Consult found that many Americans are on board. Some 70% of those polled said they would support companies adding family-planning benefits, such as IVF coverage. The survey was conducted Oct. 27-29 among a representative sample of 2,210 U.S. adults. Genetic sequencing, medication and more While Progyny is the largest pure play on fertility in the public market, there are also smaller companies looking to make some strides. In addition, large companies are focusing some of their efforts on reproductive health. Genetic-sequencing equipment maker Illumina , for instance, has technology used to screen for chromosomal abnormalities in IVF embryos. The firm, whose total shares are valued at $36 billion, recently announced it was cutting 5% of its global workforce in the wake of high inflation and a strong dollar. It has an average analyst rating of ho