What Does Wall Street Want with the Fertility Field? An Interview with David Sable, MD

Today, Griffin Jones spoke to Dr. David Sable, who directs healthcare and life science investing for the Special Situations Fund in addition to acting as the portfolio manager for the Special Situations Life Sciences Fund and the Life Sciences Innovation Venture Fund. Dr. Sable’s deep background in reproductive medicine and his interest in entrepreneurship led to a fascinating discussion about the future of reproductive endocrinology and IVF, with a focus on the fear of a private equity takeover and the realities of the large population of underserved people experiencing infertility in America today.

Griffin Jones: Today my guest is Dr. David Sable. Dr. Sable directs healthcare and life science investing for the Special Situations Fund, and is portfolio manager for the Special Situations Life Sciences fund and the Life Sciences Innovation Venture fund. Dr. Sable went to Wharton School and the University of Pennsylvania School of Medicine. He then trained his OB/GYN residency at New York Hospital at Cornell, he then trained his REI specialty at Brigham and Women’s. He co-founded and served as director of IRMS at St. Barnabas Medical Center in New Jersey. He’s now an adjunct in the department of Biology at Columbia University. He teaches Entrepreneurship in Biotechnology, which is what we’re going to talk a lot about today. He serves as a board member for Green News, Hamilton Throne, for Resolve, and has been on the medical and scientific boards of Ovascience, Progeny, among others. Today, he is featured on magazines like Forbes and a number of other media outlets and is active on Twitter and social media. Dr. Sable, David, welcome to the program.

David Sable, MD: Thank you for having me.

GJ: I am excited about this, because you’re the first person that I’ve had on the show thus far that I haven’t met in person. The main reason why I asked mutual friends to connect us is because you are a board-certified REI, now you manage a fund that invests in biotech. I’d like to start with the elephant in the room, which is when I meet with just about everyone in the field, at any given meeting, you ask what’s their biggest concern, four times out of five the biggest concern is the consolidation that’s happening in the field right now. Before I even ask if you share that concern or what it is, could you give us an overview of what’s happening, from your view?

DS: Sure. I guess people voicing concern about private equity and the concept of private equity, which is sort of an imprecisely defined and understood term… really just one more way of financing a business. Private equity gets a bad reputation because what some in the field do are buy businesses, go ahead and slash costs, try to cut the expenses that the business has, and then they go ahead and sell the business, resulting in job loss, sometimes poor service, not improving the business, but actually hurting it. Thankfully, in reproductive medicine, that has not been the case. What private equity has done here is kind of right out of a textbook of what they’re supposed to do. Private equity is attracted to profitable businesses that are somewhat decentralized and they sometimes consolidate and sometimes improve in terms of efficiencies, and kind of provide the types of financing that the business needs to grow or, in some cases, to improve. No one makes a program partner with a private equity firm, but as programs mature and they’re looking for.. Sometimes the partner’s looking for exits or equidity, or means of expanding beyond their local geographic areas, the private equity funds are one means of financing that. I have not seen cases where the private equity funds have put pressure on the IVF programs to change the way they practice. But, to be honest, they’re attracted to the better practices, the labs with high success rates that are doing very, very good jobs. And they’re expanding into other areas, maybe providing access to patients that wouldn’t otherwise have that. Sometimes it’s scary to think that private equity is gonna come in and change the way doctors practice, but that really has not been the case.

GJ: Cutting costs is one concern, one common theme that I really hear is a loss of control. I feel that especially physicians are concerned about that because there will be money coming from firm and private equity they are going to put in a business-centric CEO. You say that the cutting costs we haven’t seen, in that concern, but even if that isn’t the case, I still hear a concern of, it’s not going to be doctors calling the shots. How do you see that?

DS: Well, to be honest, a lot of the big practices, doctors aren’t necessarily calling all of the shots administratively. You can make the argument that there should be a balance between medical decision making and administrative decision making. I did have a background when I was running an IVF program, but I still needed help in terms of the management, some of the financing, staffing, hiring and firing… these were things that were not necessarily the doctor’s core competence. As a program enlarges, takes care of more patients, does more and more cycles, it’s probably better off that the doctors are spending most of their time doing medical care, research, and focusing on the clinical aspects rather than the enlarging administrative aspects of the practice. Yeah, I think that the fears that we’ll have non-doctors kind of calling all the shots, really it’s doctors in reproductive endocrinology are some of the most sophisticated businessmen within healthcare. I don’t think anybody’s making them do anything.

GJ: Private equity’s still pretty new to the field of fertility. It’s probably been around for much longer than some of us might realize, but really we’ve mostly noticed it within the last five years. There’s been a number of very big acquisitions in the last five years. It doesn’t seem to be slowing down yet, has it improved access to care? Do you think access to care … there’s less access to care now or do you believe it’s probably neutral?

DS: The industry’s continued to grow at about 2-6% per year, in terms of numbers of cycles. I think the access to care issue is a little bit beyond the private equity concerns, beyond the financing concerns, if you compare the United States’ IVF industry to that of other developed countries, we’re doing probably ⅓ the per capita IVF- number of IVF cycles as a lot of other countries. This goes beyond access of care and financing. If one and a half percent of our babies come from IVF in this country, you go to Australia, the UK, France… it’s 2,3, 4 times that. You got to Belgium or Denmark and it’s 9 times that. We’re not doing that much IVF. WE don’t have access the way that other countries do. But I don’t think that’s dependent on the ownership or the financing in the industry. We’ve kind of fallen into a… based on the relatively limited number of programs we have, we have about 480 programs. And about 1100 or 1200 Reproductive Endocrinologists practicing in the country. Everybody’s making a decent amount of money, everybody’s very, very busy. On the practice level, on the provider level, everyone’s doing a good job. They’re providing very high-quality care so that the patients that we’re seeing… what we don’t have is any movement within the US industry that’s going to expand beyond the 250-300,000 cycles a year we’re doing now, which really grossly underserves the 7 million people with infertility in this country, and it really barely touches the approximately 100,000 or so couples that are at risk for genetic problems that we could be preventing with IVF.

GJ: Why not? Couldn’t one Smithian argument be that the introduction of capital and of commercial and market interests would scale the technologies and the services to a point where access to care and services could be expanded?

DS: Well, it could be, but we need to increase the throughput. You can only put so many IVF cycles in a given lab. You can only ask a staff of reproductive endocrinologists and their embryologists to do so many cycles a year. So we need to find ways of scaling… how do we scale that? One is by technology. Ironically, for a field that’s very advanced and very new, we are still very…. Kind of…. Mom and pop, the way we run our IVF labs. There’s very little standardization. There’s very little automation of some of the repetitive tasks. The costs of that were not expanding access to care for the way we are in other parts of medicine. Secondly, we have a trade guild in the United States. You’ve got reproductive endocrinologists that go through fellowships. They’re superbly trained, they do absolutely outstanding work, but they also spent a lot of their time doing repetitive tasks that, frankly, people that are trained in OB-GYN, urology surgery medicine, Nurse Practitioners, surgical assistants could be doing some of these tasks, if the motivation was to do many, many more of these cycles. If you do many, many more of these cycles, and we want to give access to a lot more people, we have to lower the price point. There’s been no evil conspiracy that’s kept IVF expensive and kept a relatively small number of people that we’re retrieving. That’s just kind of the equilibrium that the industry has fallen into.

GJ: Is it a necessary equilibrium? Sorry to cut you off, you were probably continuing that thought, but I had Dr. Rob Kiltz on episode number 2, and there are few people attempting that model, which is there are a few practices in the country offering something to the tune of a $4500 base cycle. You might say, well, what does that include? And it doesn’t include medications, but even when you get up to anaesthesia and [inaudible] and monitoring and PGT, there are people doing that for about $9000 i the country, which is considerably less than what people are doing for more minimal packages for $13,000, let’s say. Why the equilibrium?

DS: Not enough people are offering that price point. And it’s not necessarily... The throughput that they’ve put in place is not enough to really expand access yet. Yeah, that may happen, these things happen…things do evolve. From the point of the consumers, there are two calculations they make when they decide where to go for care. One is dollars per baby, the other is amount of care, amount of time per baby. These are rational decisions that they make. Dollars can include the amount they pay the center, how much they have to travel, how much wokr they have to take off, and while things may be evolving in a way that there are lower price points here and there, we really almost need to build a parallel industry. The comparison I’ve always made is the IVF industry is like the hotel industry where we have nothing but the 4 Seasons and the Ritz Carlton. If you want to have a good night’s sleep, that’s it. We need to build the Hiltons and the Sheratons and the Holiday Inns so that people have just as good a chance at having a healthy baby at a lower price point. That’s gonna take some alternative practice delivery. It’s gonna take some extra technology, and maybe some change in expectations on the part of the patients themselves. When I ran the St. Barnabus program, it was really a point of pride to us that patients always had access to a doctor or a nurse. I used to tell patients that if they emailed me on a given day, I would get back to them personally before midnight the same day. As we expand to doctors overseeing a thousand cycles or two thousand cycles per doctor per year form the approximately 200 they do now, we might not be able to offer that. We have to come up with ways to make sure patients feel well-cared for and most importantly, to give them the same chance to have a healthy baby.

GJ: The HOliday Inn Expresses that I can think of right now, I’m thinking of four examples. They’re all in small markets, mostly in the interior parts of the country. Do you think that will… can you see smaller markets driving the value models of REI delivery, simply because when you talk to a lot of people coming out of fellowship, and doctors recruiting doctors coming out of fellowship, I don’t know too many people that are going to the small, interior markets. Almost all of them are going to the Bay Area, the New Yorks, the Bostons, the Los Angeles, the Austin and Denver… could you see a more value model of REI Delivery happening in larger cities? Could it be the answer to the access to care issue in the interior? Could you just comment on the private equity and the commercial interest in the interior versus the large practices and large markets on the coasts.

DS: That’s a great question, but I think we can look at it from a different standpoint. It’s.. we keep talking about how do we use the same resources to service an expanded scaled market. One of the things we’re focusing on… last year I launched a venture fund that’s investing only in innovation in IVF. One of the things we’re focusing on is how do we kind of make more efficient resources or create new resources that can be used in different ways? One of the assumptions that we are attacking is that everything has to be done at a centralized place. YOu’re probably too young to remember the enormous home entertainment systems that homes would have, where you’d have the big TV attached to a record player attached to a radio attached to huge speakers, taking up about seven feet of wall space in everyone’s living room.

GJ: I’m just old enough to remember.

DS: That’s what an IvF program is like. ANd they do everything all in the same spot. We do a little bit of satelliting, which makes a lot of sense, but the satellite is usually for intake and monitoring. If we were to be able to split up the IVF cycle in a technology sense, say we could take egg retrieval through vitrification of the eggs, put it into a closed system where the oocytes are never exposed to the air. And we could go from the egg retrieval right to the frozen eggs. And take that aspect of the IVF cycle, put storage somewhere else, and put the thaw, fertilization, development, transfer, and biopsy analysis and transfer in a third area. We may be able to leverage the expertise of the laboratory in a way that certain parts of the procedure could be done in more rural, less populated areas, and patients later move to the centralized IVF labs for the more specialized work. There’s, what, 480-odd IVF programs. There’s 35,000 OB-GYNs in the United States. If we could permit… not permit, but give them access to participating… and really, these are their patients. Let them participate in the care up to the point that they can, that it doesn’t compromise the outcome, and then when we need the more specialized lab work, centralize that so we can scale that, this is a means of kind of balancing the facilities. And these are facilities that we already have.

GJ: It seems to me like that could be a counter-argument for the concerns of private equity or of commercial interest entering the field. Some of those ideas come from ingenuity and from implementation on a very microlevel, but implementation and scale requires a lot of money and so there’s ultimately two entities that can fund that, either the government investing in research institutions that I still don’t know how they would help that scale, I see how they would help with the research. Or commercial interests that want to implement those systems because they want to make money from it.

DS: Yeah. Take those points one at a time… government is not gonna do it. They’re not going to change the reproductive medicine, meaning reproductive medicine industry. For one, they will not fund medical research when the sperm and egg are in the same dish together, that’s not gonna happen. Regarding the funding of the industry, it’s been kind of remarkable to me having gone into the investing side and looking at the amount of funding that goes into other areas of healthcare. There are 7 million people with infertility in the US. We spend about $5 billion on assisted reproduction. There are 15 million people with cancer in the US. WE spend between $85-90 billion to take care of them. I don’t begrudge a penny of that. It’s a rational use of… you know, we’re a wealthy country, we should spend a lot of money relieving and curing people of cancer. But there’s an enormous amount of economic work that’s gonna arise from filling people’s needs. And there are some bottlenecks in the process keeping that from happening in the reproductive medicine area. The nice thing about financing for healthcare, whether it’s private equity money, it’s doing consolidation to drive efficiencies, whether it’s venture capital, which is driving innovation, they are attracted to things that work. For example, in cancer, in oncology, you have survival rates, which are relatively easy to measure. In reproductive medicine, we have pregnancy rates. We are one of the more accountable areas in medicine. We tend to fund things that work and patients will be attracted to things that work. As we make investments in technology that make it easier to provide care cheaper and/or to let people that have not had the opportunity to provide care, give them the chance to provide care, then you’re gonna see the price drop as the supply expands. Some of that will be large investments from large institutions, some of that will be kind of organic investments by people in areas that couldn’t previously provide that service, and some of them will be leveraging existing facilities and labor in a more effective way.

GJ: The concern about consolidation is that people believe-- many people believe- that within ten years the field will be run by four or five large practice groups. The reason why I don’t share the concern to that degree is because I see the potential for a similar pattern to what we’ve seen in breweries and beer companies and regional banks and global banks. You have SAB, Miller Coors, and Anheuser-Busch that seem to have purchased everything, but the middle-sized companies like Yuengling and Sam Adams start purchasing smaller microbreweries, but starting the entire cycle anew every time it seems is twelve new micro or craft breweries popping up in every city every five years. And of course, we don’t see that rapidity or scale in our field, so when I think of the three or four practices in the country that are independently owned and are growing at a really fast rate, if they wanted to expand beyond their market places, these are groups that don’t belong to a large fertility network, I think they would be better off going to private equity firms themselves, because these are groups that have a different vision, a different model from what the current fertility networks could offer them. And so many of these folks have come from either visionary doctors that have left large practice groups or left universities and health systems, and I see these maybe not increase, but to be steady at least to the point where we have new players every few years. I’m not so worried about this impenetrable set of four or five practice groups that control all of the market or own all of the market within the next decade or two. How do you see the introduction of new players coming into practice ownership in the next decade or so?

DS: As opposed to the beer industry or the hotel industry, we should be doing well over a million IVF cycles per year, just to take care of infertility patients. That doesn’t include the many patients we should be seeing to prevent disease and preserve fertility after cancer and things of that sort. In the United States and most of the developed world, if you want a bottle of beer you can get one. Here, there is an enormous, enormous untapped market of people who have no access to IVF. I teach a course in entrepreneurship and I like to tell my students, Don’t let the availability of the type of financing dictate the way you run your business or the business that you want to grow and build. There are a lot of very creative ways to build what will be enormously successful, profitable, and more importantly, businesses that will provide care to people that really need it and can’t have it. That can be done with a lot of different ways of financing them. Private equity being just one of them. Unlike the other industries that you cited, where you’re really looking at just driving a more efficient way of delivering what’s kind of a commodity service, here we just have an untapped market four or five or six times bigger than the market that’s existing now that… I’m not that concerned about the incumbents. They can take over the entire 250,000 cycle model that we have right now. There are plenty of people who can go in more innovative ways, take care of the next million or million and a half, and at the same time help us take care of the five million cycles you need to create in China. That’s why when we decided to go into an IVF only fund, we decided to focus on innovation, and not on consolidation and efficiencies. We think that a lot of the growth is gonna come by you’ve got different practice models, but we also need new methods of delivering care. A lot of that is gonna be delivered by taking technology off the shelf, modifying it for the needs of an IVF practice, and developing very very high expectations and very very high outcomes at a much more effective standardized cost point.

GJ: That’s what I often say to the people that are voicing these concerns to me. That of all the concerns that I have, consolidation of practice groups from private equity firms is really low on the list. As a provider or… as a provider that is delivering care on a business model, I would be more concerned with all the other ways that my patients could be served, that is to say how other people could serve my patients if I’m not able to innovate to serve them in those ways. MObile care, as you mentioned, is a window that we probably haven’t even dipped our baby toe in the water for what’s available there.

DS: Yeah

GJ: And patient acquisition forms of user experience and user interface. The opportunity for… I’m far more concerned with what Silicon Valley could do in terms of patient acquisition and then essentially contracting out to anyone who could provide the care based on their ability to build and scale user experience than I am the consolidation of practice groups.

DS: Sure. Well, you were talking just about the supply side right now… when you look at the demand side, when you look at the disruption that’s gonna come from a company like Progeny, which is carving out specific IVF and egg freezing coverage for employers. They now cover over a million people. If you apply 8-9-10% prevalence of infertility to that million people, we have 80-100,000 new people entering the marketplace in an organized way that could now knock on the door and ask for IVF cycles. Traditionally, we’ve been treating the same 120-150,000 people per year, and those are the people who can afford to pay $15-20,000 per cycle every two months. As you mentioned, there are some people who have lower price points and there are mandated states that have invariably some effect on the price that's out of pocket. But we have this really coming wave of new people that will be demanding and can afford IVF services. But if I’m looking at growing an IVF practice, I wanna look at how I can best meet the needs of that group. That might be a scalable, very technology sensitive opportunity that kind of do an end around some of the larger practices that may be more than happy to just consolidate the existing market, so the … yeah… if you want to build a big practice or protect a big practice in midtown Manhattan or in the Bay Area or in Chicago or in LA, the market is changing a little bit. The rest of the world, you have an enormous opportunity to take care of people who have newfound ability to enter the marketplace and are looking for a place to get service. So… the opportunities are very much there.

GJ: A bit different of a topic from what we’ve been discussing, but when I saw you on Twitter, I just had to talk about it and we can come full circle when we conclude, but I laugh when I saw you say the words “slippery slope” when people are referring to ART, the words make you cringe.

DS: Yeah, that was my most recent article in Forbes. I was… [audio cut out]

GJ:... in the contemporary lexicon across the board, it says here… let’s talk about specifically what makes you cringe about it…

DS: Well, my concerns about slippery slope arguments in bioethics in general and reproduction go back to when we first were introducing preimplementation genetics for the purpose of preventing genetic disease. The pure good that comes from some of these technologies, to me, is just unequivocal. Whether you’re preventing a disease, or doing an IVF cycle for someone with a balanced translocation that’s just had six or seven or eight pregnancy losses in a row, if you can help them get a healthy pregnancy is purely good. The problem was that when you discuss these technologies, very very quickly the conversation devolves into discussions of hair color, eye color, athletic ability, and intelligence. It’s kind of the big four. And I get asked the question, well, aren’t you concerned about the slippery slope to Eugenics and Gattaca, and on and on and on, and the reality is the patients who we’re treating we’re relieving tremendous amounts of suffering. The attention that that gets is so overshadowed by these potential things that we could do with this technology is it’s misused or used in an inefficient way… yes, we can use preimplementation genetics just for sex selection, there are certainly a lot of people doing that, but at the same time we can do it for tremendously wonderful things. To the more casual observer, these things just get lumped together and the good gets pushed away. More seriously, the patients who are using these technologies to have a family in a healthy way, in ways that they couldn’t without them, they hear the news reports, they read the articles, they see the comments on social media, that the evil Eugenics things that we do in assisted reproductive technologies and that patients back when I was practicing second-guessed or were concerned that they were in some way doing something that was ethically questionable and we do our patients a major disservice that way by letting the conversation get hijacked by these concerns about the way that tech can be misused. Yes, it’s important to discuss these things, and we need to make decisions, and make hard decisions, to get triage or use of the technology in ways that are good. But the slippery slope argument is such a conversation stopper that it’s become a… it just fast forwards to the end of the conversation and lets people dismiss these very valuable technologies way too quickly.

GJ: I think that’s fair. It isn’t to say that there aren’t concerns with the power of the technology. Commercial interests aside, the power of the medicine and the technology and where it will be in a decade, in a century, are enough to have certain concerns about your argument that the words ‘slippery slope’ and that phrasing and that direction connote an automatic negative conclusion that is irrespective of all of the positive aspects that can be brought with it.

DS: Exactly.

GJ: Let’s conclude, then, with… because we talked a bit about your optimistic vision for the field, some opportunities for increasing access to care, for expanding the market, for serving segments of the market that are underserved. Let’s conclude by anything I didn’t ask you about private equity and commercial investment and their relationship with care, and any challenges or changes that you see in the next 5-25 years that I haven’t asked you about?

DS: You touched very briefly on using IVF, expanding the people that we offer the technology to for other reasons. You mentioned oncofertility, prevention of genetic disease, some of the uses for the transgender population. These are things that once we scale the ability of the technology, make it accessible, make it more available. There’s an enormous… new groups of patients we can do good for. This is where… the nice thing that I haven’t practiced medicine or been involved with clinical medicine for twenty years, and now being on the business side… this is where they merge. One of the nice things about investing in healthcare is if your north star is the good you can do for patients, it’s very good business to focus that way. There’s a nice merging and a coincidence of incentive behind treating patients well and running a business well. Thankfully the economics seems to line up that way. Once we start breaking down the bottlenecks in the IVF world, just the way we’re doing in many other areas of medicine, there’s an optimism there that I hope is well-placed.

GJ: There’s a number of questions that I didn’t get around to asking, there’s a number of follow up questions that I thought of as our conversation went on, and given that this field and this relationship with the field is growing and changing so quickly, we’d love to have you back on the show for future episodes. Dr. Sable, thanks so much for coming on INside Reproductive Health.

DS: Thanks for having me.