Text: Ning Chengqian
Source: Bowang Finance
The "Survey Report on the Current Situation of Infertility in China" reveals a grim reality facing the mainland: the infertility rate in the mainland will climb to about 18.2% in 2023, which is equivalent to one in seven couples experiencing fertility problems.
Behind this phenomenon is the interweaving of multiple factors - the deterioration of the natural environment, such as environmental pollution; the effects of social change, such as a delay in childbearing age; and changes in personal lifestyle, including bad habits such as smoking, alcoholism, staying up late, and sitting for too long.
Faced with ineffective attempts at natural pregnancy preparation and traditional Chinese medicine conditioning, and even the desperation after resorting to superstitious methods, many families pinned their hopes on IVF technology, which became the last straw for them to realize their fertility dreams.
In this context, the field of assisted reproduction has ushered in a new capital trend. Aviaf, a "provider of assisted reproductive technology (ART) and assistive services", recently submitted a prospectus to the Hong Kong Stock Exchange, taking a key step in the capital market, with CITIC Securities as its sole sponsor.
Under the careful guidance of Professor Zhang Lizhu, the "mother of IVF in China", AVIE has successfully treated more than 100,000 patients and helped 36,000 IVF babies to be born (data as of June 30, 2024), occupying the fourth place in China's private assisted reproductive hospital market.
With the support of well-known institutions such as Shenzhen Capital Group and Futian Laterite, the valuation of Aviaf before the IPO has approached the 3 billion yuan mark.
But there are also hidden concerns behind the glamour. The average cost of a treatment of up to 60,000 yuan has discouraged many families who are eager for IVF. At the same time, ethical controversies have also put a lot of pressure on the company. Aviafe's IPO journey carries not only hopes and dreams, but also challenges and considerations.
01
With an average unit price of 60,000 yuan, how good is the IVF business?
Since its establishment in 2006, Avieve has been deeply involved in the field of assisted reproductive technology (ART) for 18 years. As a professional provider of ART and ancillary services, AVIE has created a one-stop all-round service for infertility patients with four franchised hospitals: Zhanjiang Jiuhe Hospital in Guangdong, Aiwei Hospital in Tianjin, Avi Hospital in Jieyang in Guangdong Province and Avi Hospital in Kunming, Yunnan.
The company's core technology is IVF, which is often referred to as "test tube baby". This technique uses drugs to promote ovulation of the ovaries, followed by a delicate egg retrieval procedure in which the eggs meet the sperm in the laboratory to create embryos. After 3 to 5 days of careful culture, the doctor selects the best quality embryos, transfers them into the woman's uterus, and then confirms the pregnancy through a series of tests and accompanies the patient until delivery.
The entire IVF cycle, from ovulation induction to embryo transfer, usually takes 7 to 14 days, while the embryo incubation process in the laboratory may be completed in 3 to 6 days. The average cost of each IVF cycle offered by Avieve is between 50,000 and 70,000 RMB.
In the market competition, Avieve has performed well. According to the Frost & Sullivan report, in 2023, the company ranked fourth in China's private assisted reproductive technology market, completing 7,848 IVF cycles throughout the year.
In order to meet the diverse needs of its patients, Avieve is constantly innovating its services. One such is the ART Lump Sum and Ancillary Services program, which allows patients to pay a lump sum fee and enjoy multiple embryo transfers. Patients can also receive a full or partial refund if they do not meet their pregnancy goals, with prices ranging from 48,000 to 68,000 yuan.
From 2021 to 2023, the number of patients choosing this service continued to grow, with 590, 956 and 1,129 respectively, increasing from 5.6% to 11.1% of total revenue.
In addition, AVIE also provides customized "first-class" services for high-end customers, including value-added services such as exclusive medical assistance, green channel for medical appointments and consultation with senior experts, with revenue of 1.4 million yuan, 700,000 yuan and 1 million yuan from 2021 to 2023, respectively. Although the revenue from this part of the service is relatively small, it also adds new growth points for the company. At the same time, the company has also launched gold, silver and VIP packages to provide patients with more personalized service options.
In terms of financial performance, Avieve has shown solid growth. During the reporting period, the company's operating income and net profit maintained stable growth, and the gross profit margin also remained at a high level. In 2021, 2022, 2023 and the first half of 2024, the operating income of Avieve will be approximately RMB420 million, RMB407 million, RMB494 million and RMB251 million, respectively, and the corresponding net profit will be RMB94.562 million, RMB64.517 million, RMB64.749 million and RMB37.648 million, respectively.
Gross profit margins for the same period were 45.9%, 43.3%, 44.4% and 44.3%, respectively. It can be seen that assisted reproduction is indeed a highly profitable industry.
Among them, ART services, as the company's main source of revenue, account for about 90% of the company's revenue. As the company's core hospital, Zhanjiang Jiuhe Hospital's revenue is close to half of the company's total revenue.
As of June 30, 2024, Aviave has treated more than 100,000 patients, completed 65,000 IVF cycles and 78,000 embryo transfers, and helped give birth to more than 36,000 IVF babies.
02
The intrinsic growth is average, and the ethical issues are prominent
Although Avieve has a certain market share and brand influence in the field of assisted reproduction, the challenges it faces cannot be ignored.
In terms of performance, Aviaf's performance has not been consistent, and its growth has been slightly mediocre.
In the past few years, the operating income and net profit data have fluctuated greatly, especially in 2022, due to the impact of the epidemic, administrative expenses and income tax deferral, both revenue and net profit have declined. Although the market has recovered in 2023 and the first half of 2024, revenue and net profit have recovered, the organic growth is still average.
In addition, Aviaf has not expanded for more than a decade and relies on the four hospitals it has previously established, which also limits the company's growth to a certain extent.
What's more noteworthy is that the company's gross and net profit margins are also declining year by year. The company's gross sales margin decreased from 45.9% in 2021 to 44.3% in the first half of 2024; Net profit margin decreased from 22.5% in 2021 to 15% in the first half of 2024.
In addition to performance issues, Avieve also faces the challenge of success rates. The data shows that the success rate of conventional IVF has decreased from 58.4% in 2021 to 51.4% in the first half of 2024. ICSI's success rate also dropped from 51.8% in 2021 to 45.5% in the first half of 2024.
The company explained that this was mainly due to the increase in the average age of patients admitted and the increase in the number of patients with serious gynecological diseases such as uterine cavity disease, which led to an increase in clinical pregnancy failures. The 2023 success rate reported by one of Aviave's rival hospitals ranged from 54.8% to 57.5%.
In its day-to-day operations, Avieve is also inevitably exposed to the risk of legal proceedings and claims. This is especially true of issues related to failed IVF treatments or embryo transfers, which, if not properly handled, can negatively impact a company's reputation and operations.
In fact, the company has already faced a lot of troubles at the legal level, such as Tianjin Aiwei Hospital being fined for price fraud and other issues, and Shenzhen Aiwei Aifu Hospital Management Group Co., Ltd. has been involved in as many as 89 judicial cases.
In addition, the ethical controversy surrounding IVF technology is also an issue that Avieve needs to face. For example, a child born to a couple in Anhui through IVF technology was found to be not biological after 8 years, which undoubtedly sounded the alarm for the entire assisted reproduction industry. As a member of the industry, Avieve must pay more attention to the construction of ethics and morality to ensure that the rights and interests of patients are protected.
In terms of shareholder structure, Avieve is characterized by a high degree of concentration. Ren Jizhong controls 91.81% of the company's shares through multiple entities, and although this shareholding structure is conducive to efficient decision-making, it may also bring certain governance risks. How to balance the interests of shareholders and the long-term development of the company is a question that Avieve needs to ponder.
It is worth mentioning that Avieve has also been planning for the capital market for a long time. As early as 2021, the company signed an agreement with a tutoring agency to plan to land on A-shares. However, due to various reasons, the company finally withdrew the A-share listing counseling record. Subsequently, Aviaf turned his attention to the Hong Kong Stock Exchange and submitted two prospectuses to sprint for the Hong Kong stock IPO.
However, as the company sprints to IPO, hidden concerns such as medical disputes and ethical disputes have also begun to emerge, testing the future direction of Aviave. In the future, the company needs to make more efforts in terms of performance growth, success rate improvement, legal risk prevention and ethics construction to ensure sustainable and steady development.
03
IPO for "scarce" licenses? Opportunities and challenges coexist
According to Frost & Sullivan's report, China's assisted reproductive technology services market is experiencing rapid growth and is expected to reach 37.7 billion yuan in 2026 and further grow to 55.2 billion yuan in 2030, with a compound annual growth rate of 7.8% and 10.0%, respectively.
Amid this wave of market expansion, Aviaf is intensively preparing for its listing in Hong Kong, with a fundraising plan focusing on the procurement and renewal of hospital equipment, facility refurbishment, and the acquisition of tertiary specialist hospital qualification for Zhanjiang Jiuhe Hospital, with a view to obtaining a license for PGT (preimplantation genetic testing), a high-end technology.
Assisted reproductive technology (ART) is constantly advancing from one generation to three generations. The first generation of IVF technology, in vitro fertilization-embryo transfer (conventional IVF), solves the problem of female infertility through the natural combination of sperm and egg in the culture medium, which is also the current source of income for Aviaf's routine surgery.
The second-generation technique (ICSI) goes one step further and injects a single sperm directly into the oocyte plasm outside the body, mainly for the treatment of male infertility. The third-generation technology (PGT) can perform genetic testing before embryo implantation, helping couples with fertility difficulties to screen healthy embryos, improve the success rate, and reduce the miscarriage rate.
However, the upgrade from one to three generations of technology is not an easy task. Medical facilities need to have the appropriate licenses to perform these procedures.
At present, Avieve already has a license for the first and second generation technologies, but the license threshold for the third generation technology is quite high. According to the prospectus, the standards vary slightly from province to province, but the basic requirements include: at least 5 years of IVF or ICSI experience, tertiary hospital qualifications and prenatal diagnostic technical qualifications.
There are very few companies in the country that can obtain a PGT license. As of 2022, only 93 medical institutions in the country have obtained this license. This also makes the market value of PGT particularly prominent. According to "Cat Finance", the unit price of the third-generation technology can be as high as about 100,000 yuan, and a patient can go through 2 to 3 cycles, which can bring about 250,000 yuan of income to medical institutions. Therefore, once Aviaf successfully obtains the PGT license, its earnings are expected to increase significantly.
In the face of such a huge market potential, Aviave's competitors are also taking active action. Jinxin Fertility's subsidiary, Sichuan Jinxin Xinan Hospital (Bisheng Campus), has obtained the PGT trial operation qualification in July 2023. Beikang Medical, Jinxin Fertility and other enterprises have obtained registration certificates for related products.
Even so, the Generation (Routine IVF) license that Aviaf has is still scarce. As of the end of 2022, there are only 559 medical institutions in China with a Generation (Routine IVF) license, which is equivalent to an average of only 16 medical institutions in each province that can provide IVF surgery for patients. At the same time, more than ninety percent of the licenses are in the hands of public medical institutions. At present, the assisted reproductive technology service industry is still dominated by public medical institutions.
Still, the generation of licenses owned by Avieve is still scarce. As of the end of 2022, there are only 559 medical institutions with first-generation licenses in China, and more than ninety percent of the licenses are in the hands of public medical institutions. Against this backdrop, Avieve is still actively pursuing a PGT license, which is expected to be granted in the next 8 to 10 years.
It is worth mentioning that with the continuous development of assisted reproductive technology and the encouragement of policy level, more and more regions will include assisted reproduction in medical insurance. Up to now, 10 provinces and cities have included some assisted reproductive medical service projects in the medical insurance catalog. The implementation of this policy will undoubtedly bring more opportunities to the assisted reproduction market.
With the support of industry outlets and policies, the assisted reproduction track has attracted the attention of many institutional and individual investors. Meditech, Hanshang Group and other companies have entered the field of assisted reproductive medical services through acquisitions.
However, there are both opportunities and challenges. In the context of declining fertility rates, the enthusiasm of the secondary market for assisted reproductive service hospitals has diminished. As the "first stock of assisted reproduction" on the Hong Kong Stock Exchange, Jinxin Reproduction's market value and stock price have shrunk significantly compared with the beginning and peak of its listing. This reflects the changing perception of the assisted reproduction industry in the market.
Overall, Aviaf's path to IPO is full of opportunities and challenges. With the support of industry outlets and policies, the company is expected to get more development opportunities. But at the same time, we also need to face challenges brought about by market competition and declining fertility rates. In the future, we will continue to pay attention to how Avieve will seize opportunities and respond to challenges.