In a bid to gain traction with its intravaginal device for IVF patients, INVO Bioscience has modified its business strategy to focus on acquiring freestanding fertility practices.

For the first nine months of 2022, INVO reported a loss of $8.1 million on revenue of $544,000. By contrast, the company lost $6.8 million on revenue of $1.1 million during the first nine months of 2021.

INVO has had to refocus its business strategy after a distribution deal with Ferring Pharmaceuticals ended in late 2021. Ferring had issues convincing physicians at busy practices to bring its products on board, INVO Chief Executive Officer, Steve Shum, said in an interview with Inside Reproductive Health.

“For a medical practice operator that is generally running at 100% of capacity or close to it, the idea of bringing in a completely new treatment methodology leads to the question ‘why? Why do it if nothing is broken?’” Shum said.

Nevertheless, soon after the Ferring pact began in 2019, it immediately became one of INVO’s leading sources of revenue. In the last year of the agreement, $3.6 million of INVO’s $4.1 million in revenue came from Ferring’s licensing fees.

By comparison, INVO reported revenue of just $544,054 for the first nine months of 2022. Nearly $395,000 of that revenue came from INVO’s branded clinics in Georgia, Alabama and Monterrey, Mexico, which are operated in joint venture with existing fertility practices. Less than $150,000 was derived from direct product sales.

“We see quite a few smaller practices that have one to two or maybe three physician operators, and we think that's the right sort of size practice for us to entertain potential acquisitions,” Shum said.

The Sarasota, Fla.-based INVO is close to completing its first acquisition, which involves what Shum described as a “great practice” in an area of the U.S. he declined to disclose.

“It’s been around for quite a while, it does good business and it’s nicely profitable,” Shum said. “It has a good reputation in the area, which is important. So, we’re excited about it.” He later added that he hoped to announce specifics of the acquisition when the company releases 2022 year-end earnings, likely sometime next month.

Shum discussed the new strategy during the company’s third-quarter earnings call in November, and suggested there may be as many 100 clinics nationwide with annual revenue of $1.5 million to $6 million that could be purchase targets.

John Heerdink, managing partner of Vista Partners, a San Francisco-based investment management firm, noted during the earnings call that “If you tucked in one, two or three of these (practices), you would reach breakeven (or) profitability very quickly.”

A Ferring spokesperson did not respond to a request seeking comment on the agreement’s end. Shum said that the company looked for similar distribution deals with other firms, but that there has not been any success as of yet.

Shum noted that the cash-pay policies of many fertility practices and the INVO product may be at odds. According to INVO, the average cycle with its product runs $5,000 to $8,000, versus $12,000 to $15,000 for a traditional round of IVF, although both have similar chances for success. Although the lower cost may be attractive to clients, selling it to clinicians who rely almost exclusively on cash-paying patients bred a fear they may “cannibalize” their own revenue streams, Shum said.

By acquiring its own practices, INVO is able to provide its products to patients directly. Shum noted INVO would also provide administrative and other forms of support to the practices it intends to acquire. It plans to keep the practicing physicians and other staff in place.

INVO has plans to open as many as 20 joint venture clinics in the U.S., with plans to open new sites in Tampa and Kansas City soon. It is also offering its products in Malaysia and Spain, with plans pending to enter the Chinese and Indonesian markets.

Shum did not immediately respond to a follow up request to describe how the acquisition strategy will be funded. Shum noted that the company has identified and executed a letter of intent for specific funding to close the acquisition, but has not released any other details.

INVO has raised $1.025 million since late 2022 for general business purposes, according to recent filings with the Securities and Exchange Commission. That came from the issuance of $500,000 in debentures, $275,000 in unsecured convertible notes and even $250,000 chipped in by Shum and Andrea Goran, the company’s chief financial officer, along with the latter’s colleagues.

Regardless, the practice acquisitions will be a linchpin of INVO’s business moving forward. “We’re definitely going to work to try to find additional acquisitions this year and beyond, so it will become an ongoing part of our strategy,” Shum said. “But I would say right now we have a very intense focus on completing this first (transaction).”

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