Supermax Depressed PE (only 7.7X) Yet the World Is Crying for
Oct. 30, 2020, 4:37 AM +08
By Laura Strickler, Stephanie Gosk, Lisa Cavazuti and Brenda Breslauer
Original article from NBC News: https://www.nbcnews.com/politics/politics-news/trump-admin-woefully-behind-stockpiling-medical-gloves-covid-19-surges-n1245298
Something has got to be seriously out of whack when the world is begging and crying for gloves and there isn't enough to go around, yet the KLSE values Supermax with a paltry and depressed 7.7X annualized PE (price earnings ratio) despite 5 continuous quarters of rising profit. What gave? Are there conspiracies? Make your own conclusion.
The synthetic rubber “nitrile” gloves are a critical barrier to infection for health care workers on the front lines, but experts say the United States is poorly positioned to get ahead of a global shortfall of more than 200 billion.
“Gloves are just needed everywhere,” Mary Denigan-Macauley, the Government Accountability Office’s director of health care, said.
Denigan-Macauley told NBC News that her team pressed the Pentagon, the Department of Health and Human Services and the Federal Emergency Management Agency over the summer about what they were doing to secure more personal protective equipment, especially nitrile gloves.
She said her team recommended the federal government come up with a plan to “mitigate these critical supply needs,” but that no such plan materialized.
“Health and Human Services is woefully behind on reaching their goal of the number of gloves that they would like to stockpile,” Denigan-Macauley said.
The Strategic National Stockpile, which is supposed to be the source of last resort after hospitals have exhausted their supplies, is running dangerously low on gloves amid soaring demand across the country.
HHS set a goal to have on hand a 90-day supply in the stockpile, or 4.5 billion gloves. But as of this week it had 2 million, according to department officials.
The department estimates the current demand to be at 8.7 billion a month, or 104 billion gloves per year.
Experts said bolstering the supply chain requires a delicate balancing act -- stockpiling too much of a sought-after medical product could drive up prices and make it more difficult for hospitals to obtain them.
In an interview, Paul Mango, deputy chief of staff for policy at Health and Human Services, acknowledged that the government was well below its target for medical gloves.
He said the agency had procured 700 million gloves overseas that would be delivered in the coming weeks as part of President Donald Trump’s mandate in April to “rethink the role of Strategic National Stockpile,” which includes deepening and broadening the supply, improving data collection on supply and demand, and ramping up domestic production.
“We still aspire to have 4.5 billion in the stockpile,” Mango said.
A Department of State spokesperson said that embassies have been working with the Malaysian government to obtain more gloves. “The administration has taken swift and aggressive action to invest in the domestic production of nitrile gloves,” the spokesperson added.
While the federal government was proactive in jump-starting domestic production of ventilators and N95 masks, supply chain experts say that much less progress has been made on gloves.
Boosting domestic production of nitrile gloves is more challenging than other personal protective equipment since the raw ingredient for the synthetic rubber gloves is almost exclusively acquired in Asia. Experts say 99 percent of gloves are manufactured in Malaysia and China.
“When you think back to February, March, April on the masks and gowns, you could put a manufacturing machine for an N95 in the space of a 2-car garage for $150,000,” said Chaun Powell, the vice president of Premier, a group purchasing organization for more than 4,000 hospitals nationwide, “But a dipping line for gloves costs several tens of millions of dollars.”
Aside from one $22 million Air Force contract to boost a factory’s production in New Hampshire to 500 million gloves, there have been few efforts to date by the federal government to ramp up production in the U.S.
In July, the Pentagon issued a call for additional proposals from domestic glove manufacturers asking companies to explain what it would take for them to ramp up to 250 million gloves a year, but announcements on any new contracts are still a few weeks away, according to Mango. Any new factory will take between 16 to 18 months to stand up, according to supply chain experts.
The solicitation on the Pentagon’s website says plans were due by Aug. 3, and “evaluations will begin within 48 hours.”
Mango defended the delay in awarding any new contracts, saying HHS was doing appropriate due diligence. “I’ll just say that in one case, we got 400 responses,” he said. “You know how long it takes to evaluate 400 responses to make sure that it’s quality?”
Richard Renehan owns Renco, whose subsidiary American Performance Polymers received the $22 million contract over the summer to expand production at its factory in northern New Hampshire. His company is one of just a handful of glove manufacturers in the U.S., including a Japanese owned factory in Alabama and a Korean venture with the Navajo Nation.
Renehan’s company, though, is the only one owned by an American.
He says he’s hired 100 more staff in the last few months to deal with the avalanche of demand and hopes to add 100 more.
He said he started to worry about domestic supply of gloves back in February when he got a strange phone call.
The caller was from a Florida-based health care consulting company and claimed to be working on behalf of the Chinese government. He offered to buy Renehan's entire output for the next year.
For a small business owner, it seemed like a great deal but Renehan says he saw a possible threat to national security.
He declined the offer and immediately called a contact at the Pentagon.
“Something's going on here," Renehan said he told the Pentagon employee. "These guys are trying to buy all our gloves.”
A deal wasn’t signed with the Pentagon until July. Renehan said it took an additional two and a half months to receive the funds.
“Took way too long to get it,” he said. “The government needs to work a little faster.”
“When I look at farm subsidies with hundreds of billions of dollars, I say, ‘Well, what about industrial subsidies?'” Renehan added.
Richard Heppell runs the global Japanese company Showa, which has a factory in rural Alabama that produces medical gloves. Heppell, who is based in the Netherlands, said no one contacted him from the federal government until he appeared on CNN in August to discuss domestic production of personal protective equipment, including gloves.
Shortly after he appeared on TV, Heppell said, he received a phone call from a government official. He’s now in discussion with FEMA and the Department of Defense, and he hopes to have a deal in place in a few months.
Heppell said he wants to boost his production to 2 billion a year and hire hundreds of additional employees but he says he needs at least a five-year contract.
One ambitious effort by some West Coast venture capitalists is banking on raising $100 million to build a new factory but given the long lead time, any new production facility would still be more than a year from making gloves.
Cathy Denning of Vizient, a group purchasing organization for health care providers, said demand for gloves rose from 22.4 billion from January through July last year to 27.3 billion in the same time frame in 2020, a 22 percent increase.
Denning said her member hospitals face price gouging from foreign suppliers, as well.
“We have a couple suppliers who wanted to buy a container load [of gloves],” Denning said, “They have a deal with our suppliers for 3.5 cents and the container is on the water and making its way here, and the price goes from 3.5 to 7.5 cents, and then by the time it hits the shore – that supplier wants to raise the price again.”
Some of the larger hospitals, such as the Massachusetts General Hospital in Boston, predicted the medical glove shortfall and stocked up.
“We’re in a pretty good position” but “I know that’s not true everywhere,” Dr. Paul Biddinger, Mass General's chief of emergency preparedness, said. “For me, the big point is still how fragile the medical supply chain is and how much we need to rethink how we can build in more safety to the chain.”
The situation is more critical for smaller hospitals in hot spots like South Dakota.
“This is life and death,” said Brad Haupt of Monument Health who oversees procurement of supplies for five hospitals in Rapid City, where they are in the midst of spiking caseloads.
Haupt said he’s never seen this much usage and is now concerned about a looming shortfall.
“If we don't have these products, people get sick and die,” he added. “So going forward, we have to ensure that we have control of our production capabilities for these products that are critical for taking care of not just Covid patients, but patients every day.”
The global demand for nitrile gloves has reached 585 billion this year, according to the Health Industry Distributors Association, but manufacturers are only capable of producing 370 billion at current levels -- a nearly 40 percent shortfall.
Earlier this week in Florida, a truckload of 6 million medical gloves bought by Medgluv, a Florida based distributor for local hospitals, was brazenly stolen from a warehouse.
Medgluv President Jerry Leong said he wasn’t shocked by the theft given the soaring demand for gloves.
“My orders right now are all the way to December of 2021,” he said. “And even then, they’re asking us to place orders for 2022 right now.”
Another wrinkle could also be emerging soon in the glove supply chain.
The Centers for Disease Control and Prevention does not regularly require gloves to be worn by health care providers when administering vaccines, according to its website, so the federal government will not be providing gloves as part of the vaccine “kits” it will be distributing nationwide when a Covid-19 vaccine becomes available, according to Mango, the HHS official.
But Claire Hannan, executive director of the Association of Immunization Managers, said many of her state members are planning to use gloves anyway and are having a hard time finding them.
“What we hear from local health departments, pharmacists, nurses and
other community vaccinators is that they prefer to wear gloves and the
public expects that vaccinators will wear gloves,” she said. “And public
trust is critically important.”