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One U.S. company's risky effort to build a new mask factory during COVID

Stock MarketsFeb 05, 2021 06:15AM ET
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© Reuters.

By Timothy Aeppel

LA VERNE, Calif. (Reuters) - Dan Izhaky is betting $4 million that the pandemic will change what Americans are willing to pay for high quality face masks from his new factory here in this suburb of Los Angeles.

It’s a risky wager.

Before COVID-19 hit, the United States imported much of the personal protection equipment needed by health care providers, mainly from Asia. Some U.S. companies pivoted in the crisis, such as liquor companies churning out hand sanitizer and plastics firms making face shields.

But one item that remains in tight supply is N95 face masks, which provide a high level of filtration against airborne contaminants and are closely regulated by the U.S. government.

Izhaky is president of United Safety Technology Inc, a startup that is poised to open a new N95 mask factory possibly within weeks. While the plant is still being fitted with machinery, his goal is to make 1 million masks a day when it’s up and running. Izhaky said if they get approval from regulators soon, the plant could be shipping that amount by the end of the second quarter.

“The big question we face is what happens post-pandemic,” said Izhaky, “when you have a hospital administrator or whoever it is that’s in charge of purchasing” and looking at U.S.-made masks that cost more. The pricing of many types of protective equipment remain elevated by shortages, but once the market normalizes Izhaky estimates his masks will cost about 30% more than Chinese masks, or about $1.15 each.

Other domestic producers are likely to face the same challenge, including industry giants Izhaky will compete with. 3M Co has quadrupled its domestic production of N95 masks since the start of the pandemic, expanding a factory in South Dakota and hiring 300 workers and now makes nearly 100 million masks in the U.S. a month. Honeywell International Inc (NYSE:HON) has opened “multiple new locations in the Phoenix area” to make N95 masks, said spokesman Eric Krantz, and converted a significant portion of a factory in Rhode Island that also makes safety glasses.

Krantz said Honeywell doesn't view the expansion as a risk.

“We’re confident there will be continued demand for high-quality respiratory protection products," he said in an email. "We’ve made smart, strategic investments in expanding our N95 production."

But many smaller producers aren't so sure.

“China subsidizes their face masks,” so every producer faces a challenge in competing with China after the pandemic, said Vitali Servutas, CEO of AmeriShield, which built a factory that makes single-use surgical masks, not N95 masks, in Virginia last year in response to the crisis.

Izhaky hopes, but is not certain, that the pandemic will make Americans more willing to pay a premium, or that U.S. government policy will mandate more domestic sourcing which would benefit his venture. Actions by the incoming administration of President Joe Biden, including an executive order aimed at increasing the production of a wide range of goods in domestic factories through Buy American programs, have made him more optimistic.

David Sanford, the brigadier general who directs the supply chain advisory group at the Department of Health and Human Services working on COVID-19 response, has been helping Izhaky and other manufacturers work through the process of getting certified and connected to domestic distributors of medical goods. He said Izhaky’s new factory is exactly the kind of project the U.S. needs to encourage.

“But there’s always a risk,” said Sanford. He adds there are ways the government can support businesses like this, short of giving direct government contracts to purchase goods at higher prices. A requirement to buy U.S.-made protective equipment could be built into Medicare and Medicaid reimbursements, for instance.

Making masks isn’t that hard. The process is highly automated and doesn’t require a costly cleanroom. But getting a dependable supply of the materials, particularly the specialized layers of filtration material that makes them effective, is a challenge.

“You can buy a face mask machine for a few hundred thousand dollars and start it up in 90 days. That’s happening all over the world,” said Sara Greenstein, CEO of Lydall (NYSE:LDL) Inc, a U.S. producer of the material that has agreed to supply Izhaky’s operation.

Lydall, aided by federal funds provided early in the crisis, has nearly tripled capacity at its one U.S. plant capable of making the material. With competing Chinese material expected to continue to sell at much lower prices after the pandemic, Lydall CEO Greenstein has "high confidence" there will be government-led programs in the United States and Europe "to buy product made here to help keep that supply chain stable and competitive.”

At the United Safety Technology plant in La Verne, engineers are busy fine tuning the first of the machines that will eventually turn out cup-shaped masks.

Edward Zheng, Izhaky’s partner in the venture, said their goal is to source all the materials domestically, with a key exception: the machines that make the masks in the factory are imported from China.

One U.S. company's risky effort to build a new mask factory during COVID
 

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