Despite hopes that the number of coronavirus cases would be on the decline by now, quite the opposite is true. After dipping down to the lowest point of 30,000 to 35,000 new daily cases, the United States is back up to about 50,000 new cases a day. And as of Oct. 14, at least 36, 063,675 people globally are known to have been diagnosed with coronavirus, according to Johns Hopkins University data. Over 1 million have died, globally.
The surge in cases now, and the projected uptick as we head into the colder weather months and flu season, means that PPE or personal protective equipment will be in high demand for the foreseeable future.
That leaves companies who make PPE caught in a race to not only expand production, but fight for what is turning out to be a limited supply chain of material. At a recent webinar discussion on the business of PPE, I spoke with the CEO and Chief Medical Doctor of O2 Industries Peter Whitby and Dr. Peter Maric, respectively, and Katherine Ross, video correspondent at TheStreet, about concerns over supply chain issues as it relates to PPE, and what investors should know about the challenges and future risks these companies face.
O2 had the advantage of being in the business of making PPE respirators before the coronavirus hit, and saw literally overnight, how this virus changed the landscape.
“On January 20, the Chinese government announced the transmission of the virus from human to human, and literally the next day here in North America, we sold out of product," O2 CEO Peter Whitby said.
He added, “…there’s just been extreme demand. So O2 has really handled this by scaling production massively. So we're investing in manufacturing not only in Canada, in the US and China. So we really want to diversify that supply chain."
O2 is not the only company that has had issues with its supply chain. Many companies manufacturing PPE have faced challenges, especially in making the N95 masks, which are are in high demand for frontline workers. Ross said, “Supply chain has definitely been an issue. The filter is a tiny plastic filter and requires tiny plastic beads in order to be melted down to create that filter. Those plastic beads are in high demand right now for obvious reasons.”
“That means that, for example, 3M (MMM) - Get 3M Company Report, GE, they're struggling to keep up with the demand for the N95, which has opened up kind of this manufacturing hole that we have to fill.” She added, “CEOs such as the CEO of Lydall, got a $12 million dollar grant from the Department of Defense, in order to up their production of the melt blown filters that are needed for these kinds of respirator masks.” 3M was also awarded a $1 billion contract for medical and surgical instruments, equipment and supplies.
So investors should be watching to see who can successfully navigate the increased production of PPE including the N95 masks, with the challenges of a disjointed and disrupted supply chain. One that, before the coronavirus, had been primarily based in China. Now there are efforts to bring it back to the United States while at the same time ramping up production.
Not an easy task according to TheStreet's, Katherine Ross, “With companies already in this space, I would imagine it's going to be quite difficult. I mean, the shortage here is massive. And to try to move into a space where there's so many players shifting, it's kind of like playing a game of chess where you're not going to be able to land that win.”
As the number of coronavirus cases continues to spike, prepare to see the demand for PPE to spike with it. Investors should watch companies with a solid footprint already established in the business as having an easier time meeting that rising demand and procuring what supplies they need.
“We are fortunate enough to be in the business and have those relationships,” said O2 CEO Peter Whitby. "A lot of these companies trying to get into the space and procure that material, it’s just simply impossible. Good luck, you are not going to get it until next year. We are out in the forefront of it, and we are scaling as quickly as we can.”
For all PPE manufacturers, the race is on.