Seven months ago, the average person didn’t think much about PPE, but now, Personal protective equipment has become a necessary part of our everyday lives. While it has existed for decades, used in hospitals and to protect against smoke and pollution, it now plays a role in all of our lives because of COVID-19. With the demand for PPE exploding, many companies are trying to get in the game, while investors are looking at how to sort out the winners and losers.
On a recent panel with TheStreet, Peter Whitby, CEO of O2 Industries, discussed how his company, already making respirators to protect against pollution, was poised to take off when COVID-19 hit.
Whitby had started his company in 2014 after an experience with the intense air pollution on a trip to China. The company designed and launched the O2 Curve respirator, which was not only used to protect against smog and air pollution, but also used by essential workers on the front lines fighting fires in British Columbia. O2 Industries had spent years in research and development and was selling respirators commercially when COVID-19 emerged and it had a big impact on the business.
“I became very aware of COVID on January 20, O2 CEO Peter Whitby told the panel. "So on that date, the Chinese government announced the transmission of the virus from human to human, and literally the next day here in North America, on the 21st, we sold out of product…So the end of January is where we really saw a shortage of PPE and a shortage of respirators.”
Not surprisingly, many other companies have seen opportunity in this space. The PPE industry is likely to generate close to triple its 2019 revenue by 2027 according to Allied Market Research, which estimates that the PPE market will reach 33.4 billion globally by 2027, up from just 12.9 billion in 2019 at a compound annual growth rate of 12.4%. Katherine Ross, video correspondent for TheStreet covering the coronavirus pandemic and its impact on big business, said, “from March onwards, that you've seen this kind of rush for U.S. companies and consumers to really hop on the mask train, whether it's from producing masks to wearing masks.”
While companies like 3M (MMM) - Get 3M Company Report, Honeywell (HON) - Get Honeywell International Inc. (HON) Report, Lydall are big names in manufacturing space even retailers like Etsy, Under Armor (UAA) - Get Under Armour, Inc. Class A Report and Nike (NKE) - Get NIKE, Inc. (NKE) Report now have a new source of revenue selling masks where there was none just eight months ago. So what should investors be watching?
Ross said, "right now you want to look at ..how much money are they putting in? Are they getting grants from the DoD or the government? Are they spending their own money and will they be making that money back? It's all about the balance sheet here, and you really want to be able to eye those parts of the business.”
Supply chain is another growing problem for many of these companies as supplies to make respirators and masks are growing harder to come by. Manufacturing production has been largely done in China, so there is a real effort to bring it back to the U.S. But with the N95 respirator masks, for example, the manufacturing process requires tiny plastic beads to be melted down to create that filter. Those plastic beads are in high demand right now so companies like 3M, GE (GE) - Get General Electric Company (GE) Report, for example, are struggling to keep up with the demand.
And for those investors worried that a potential vaccine could derail the growth track for investing in PPE, O2 Industries, Dr, Peter Maric told the panel, “Getting a vaccine out to the general public for a new virus that we’ve never seen before takes a very, very, long time…So the idea that people are going to be wearing personal protective equipment, it’s likely that ’s going to be happening for a long time.”
That will keep companies like O2 Industries continuing to innovate and leveraging their head start in the PPE space, “We’re fortunate enough to be in the business and have those relationships...We are at the forefront of it and we’re scaling as quickly as we can,” Whitby said.
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