13 May 19

Eggs are identified for retrieval in preparation for a sperm injection at a clinic in California. Photo: New York Times Low cost competitors have hit Virtus hard.

Shares in fertility clinic operator Virtus Health slumped Tuesday following a profit downgrade as lower priced competitors muscle in on the industry.

In the process, it has become the latest in a growing list of former small cap market darlings falling out of favour as earnings have faltered. On Monday, for example, shares in construction services outfit Aconex dived 40 per cent on a profit warning.

Virtus shares were down 16.4 per cent at $5.19, after touching a low earlier of $4.98 as investors dumped the shares on the downgrade.

Monash IVF was collateral damage, with its shares marked down 10 per cent to $1.65.5c It is the second largest domestic player in the IVF market, with a quarter share.

In particular, Primary Healthcare has targeted the fat margins in IVF services, opening clinics in Melbourne, Sydney and more recently Brisbane, which appears to be causing problems for Virtus, the country’s largest IVF provider.

Last November, Virtus said it was experiencing weaker than expected IVF cycle volumes, and this morning it pointed to recent Medicare data for the December quarter which indicated a 6 per cent decline in volumes in the states in which Virtus operates.

Virtus confirmed its sales volumes fell 7.2 per cent in the December half, blaming low cost competition, most notably in NSW where volumes have slumped by 19 per cent.

“The level of this volume shortfall, should it continue in the second half will have a material impact on Virtus full year financial results compared to prior year,” it warned investors this morning.

“The exact level of the shortfall is highly dependent on fresh cycle activity in the second half of the financial year, and in particular, activity in the final quarter. We anticipate that volumes and margin in our [fertility clinics] in Queensland will come under pressure in H2FY17 as a result of increased low cost competition.”

Primary has made it clear the high margins on offer had drawn it to the IVF sector, with anecdotal evidence it can cost up to $10,000 per cycle. It’s most recent clinic was opened last November, in Brisbane.

Virtus has sought to meet some of the lower priced competition in the fertility market by competing head on, by unbundling some services, although analysts have warned that this could also serve to undermine margins.

Virtus has made a series of offshore acquisitions, expanding into Ireland, Singapore and most recently Denmark in a bid to reduce its reliance on the n fertility market.

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