Regulatory risk is one of the tougher risks to quantify. Even among more experienced investors, time spent listening to the pollies in parliament is time that could usually be spent far more profitably analysing the industry you're investing in.
The latest sector to jump into the regulatory spotlight is the fertility industry, thanks to a rabble-rousing Four Corners episode last night. It looked like a bit of a corporate knife job, but Monash IVF Group Ltd (ASX: MVF) and Virtus Health Ltd (ASX: VRT) were certainly cast in an unflattering light by Four Corners thanks to some interviews with (among others) Michael Chapman, a former director of Virtus Health and president of the Fertility Society of Australia.
In a nutshell, Four Corners argued that a significant number of fertility treatments are ineffective, chances of conception are occasionally misrepresented or glossed over, and government subsidies are helping a number of people (especially the over-40s) who generally have very low chances of conception.
Women over the age of 40 have reportedly been the fastest growing IVF segment over the past decade. Virtus and Monash also attracted extra heat for their focus on cycles rather than live births – in other words profits, not patient outcomes.
Clinics with lower success rates also reportedly chew through greater chunks of money than more successful clinics, yet many customers aren't necessarily aware of the differing success rates between clinics.
What's a shareholder to do?
I'd bet that this issue landed front and centre on a few politicians' tables overnight, but it's an open question if changes will be made to the industry – the recent public backlash over changes to pathology bulk billing was considerable. However, Four Corners reported that Monash, Virtus, and private player Genea account for 80% of the fertility market, meaning that any changes to the sector won't miss these three companies.
It's not too hard to envision an upper limit on patient age or the number of cycles that are covered by government subsidies, which could at the very least impact company growth prospects in the near term. Potential outcomes are both an 'if and when' proposition and highly uncertain, but this is an area that deserves scrutiny by shareholders.
