A looming crisis in Asia as women delay giving birth, leading to low fertility rates that have dire implications for economic growth, is opening huge opportunities for the fast-growing in-vitro fertilization (IVF) industry.
The successful debut of Australia's Virtus Health Ltd, which this week became the first IVF specialist to list on a stock exchange, is the latest sign that investors are eager to back fertility companies that have plans to expand into Asia's vast developing markets.
"The market is going to grow massively, there's no doubt, particularly in India and China we've seen huge growth," said Robert Norman, fertility expert and president of Aspire, an Asia-Pacific industry lobby group.
Several countries such as Singapore, Japan, and South Korea have fertility rates of less than 1.5 births per woman, a level experts consider very low. In contrast, the United States has a fertility rate of around 2.01 and Australia 1.9.
Governments in the region's more affluent countries are becoming concerned about the "low fertility trap", where fewer children leads to reduced spending on education and accompanying services, making it even more difficult to boost birth rates.
In the short term, very low fertility increases GDP per capita because households benefit from lower parenting costs. But in the longer term the size of the labour force falls as the population ages – a situation already in evidence in Japan.
To avoid the trap, some countries have introduced financial support for infertility treatment, including South Korea, which has a fertility rate of 1.4 according to World Health Organization (WHO) figures. Singapore, which has a fertility rate of 1.29, increased its subsidies from January, covering up to 75 percent of the treatment costs for couples receiving IVF.
Developing economies such as Vietnam, Cambodia and the Philippines have higher fertility rates, but are still keen to boost births to counter aging populations.
Regional giant China, with its increasing affluence and urbanization, is another IVF growth market because the technology is "not that widespread", said Gary Ng, a Singapore-based analyst at CIMB Research.
Indonesia, with a fertility rate of 2.1 but an aging population of about 240 million people, was "virtually untapped" from an IVF-provider's perspective, said Norman of Aspire.
India is currently dominated by Fortis Bloom Fertility and IVF Center, part of the country's No.2 hospital chain Fortis Healthcare Ltd, and a joint venture with Spain's IVI Max Reproductive Medicine and part of healthcare group Max India Ltd.
The South Asian nation has one of the highest fertility rates in Asia, at 2.2, but it also has liberal laws on commercial surrogacy which make it an attractive destination for IVF services.
All of these factors are opening doors for companies like Virtus, whose home market in Australia is nearing maturity as IVF cycles drop due to improving technology and government funding for private services is reduced.
"(Asia) is certainly a market that is highly fragmented and fairly immature," Virtus Chief Executive Sue Channon said. "So we would look to be able to take some of the consolidation and corporatization that has occurred in Australia into some of those countries."
Channon said Virtus would look at acquisitions, joint ventures and technology transfer possibilities in Asia, likely through cash and equity deals.
Virtus's Australian competitor, privately held Genea, has opened a joint-venture clinic in Bangkok which specializes in screening for genetic diseases particular to Asia.
"This is how Australian know-how works well in the Asian market," said Genea Medical Director Mark Bowman. "You can't just walk in and take over."
Genea's Thai venture was the result of decades-long association with local doctors, pointing to some of the challenges facing companies like Virtus as they eye regional opportunities for the first time.
Cultural barriers will also have to be overcome in countries like India and Indonesia, where couples may be reluctant to talk to outsiders about reproduction issues.
Some industry insiders are skeptical of Virtus's strong growth outlook due to the lack of public reporting about the IVF industry's profitability.
In Singapore, one of the most specialized providers of IVF services, Thomson Medical Center, was taken private by Singapore billionaire Peter Lim in 2011. Raffles Medical Group Ltd and IHH Healthcare Bhd include some IVF services among a wider range of treatments, making it difficult to pin down exactly how they have performed commercially.
Virtus shares began trading at A$6.01 ($5.68) on Tuesday, well above the A$5.68 offer price for the float by Sydney-based Quadrant Private Equity, giving the company a market value of around A$485 million.
With no benchmark for the listing, analysts said they had only been briefed by the Australian company once and were reliant on the prospectus rather than more extensive knowledge of the industry.
The company posted a net profit of A$24.7 million in 2012, and is forecasting profit of A$26.6 million this year and A$31.4 million next year.
"That looks positive on the Australian growth curve alone," one industry source said, requesting anonymity. ($1 = 1.0637 Australian dollars)