Why does a Miami mask-maker have millions of them waiting for buyers?
Medical products manufacturer DemeTech moved into masks early during the COVID pandemic but now is left holding millions of them. What happened?
Luis Arguello is mad about masks. He isn't angry about wearing masks. He's disappointed the market for American-made surgical masks has not materialized like he thought it would just 10 months ago.
Arguello is the president of medical products maker DemeTech, based in Miami Lakes.
"We rolled the dice with no clients, no buyers. I said, 'Let's see what happens,'" Arguello said in December 2020.
The bet has not worked out.
After spending about $15 million, hiring hundreds of new workers and expanding its business beyond its core medical suture business into masks, the company is left holding nearly a warehouse full of surgical masks it had expected to sell in bulk to state and federal governments.
Instead, it is marketing masks on its website to the consumer market, selling them not by the pallet but by the batch.
"We haven't sold one order to any government this year. Where we could have made three billion masks, we stopped," Arguello said.
He blamed politics and the lack of clear communication from the federal government.
"When the current (Biden) administration came into power, we were hoping they would refill the stockpiles. They approved all this funding for people to get out there and for schools to buy and for states to buy. But nobody's bought," he said.
As of late May, the national medical stockpile included more than 400 million N95 masks and less than 300 million surgical masks. In July, the Biden administration said it would buy another 127 million N95s.
More demand could be coming. The infrastructure bill passed by the Senate in August includes the requirement that any federal government contract to buy American-made masks and other personal protective gear last for at least two years. That would supply makers like DemeTech more assurance that a big buyer will stick with it, soaking up the supply of masks in its Miami Lakes warehouse.
Aisle after aisle of pallets are stacked 10 feet high in that warehouse. Boxes of 20 million N-95 masks and 200 million surgical masks are shrink wrapped, just waiting for buyers. Instead, in a make-shift shipping area — between the row of mask-making machines and the inventory — DemeTech fulfills online consumer orders.
"The message is clear, and the message has backing from both political parties," said Arguello. "That is what is the big conundrum here. The message is approved. The funding is approved, but there is no action that is being taken."
China-made masks have been targeted by DemeTech and other American makers for undercutting competitors and pricing their products well below cost. Early in the pandemic, China put export restrictions on its mask manufacturers.
The American makers say that encouraged low-quality masks from China to flood the market. U.S. trade group the American Mask Manufacturers Association has called on the World Trade Organization to take action against China.
"If you look at the political long game of this ... if our country depends on China for critical supplies, we won't take such a hardline stance on them politically," said Arguello. "That's what's really going on."
He has to make a decision soon — whether or not to renew the lease for its Doral facility. The company rented the space in 2020 to quickly expand into making masks.
DemeTech hoped to fulfill a demand for a secure source of important protective pandemic gear. The idea was a steady supply of American-made equipment like masks, gowns and gloves was important — it shouldn’t be vulnerable to foreign manufacturers and international trade tensions.
It hasn’t worked out that way.
Where there had been 1,500 workers working three shifts a day making upwards of 5 million masks a day in that facility, now, Arguello said, "you have a security crew."
If government interest in its masks doesn't ramp up soon, DemeTech expects to turn back the lease and disassemble the machines, making it more difficult to ramp up production capacity if it is needed.
Arguello does not think others who got into the American-made mask business in 2020 will return either.
"I feel that this virus is probably going to go on for some time and we will see another virus. So these entrepreneurs that stood up have learned a very difficult lesson. The next time we need them, will they again invest their life savings? Will they again heed the call to arms? I can tell you, from confidential conversations with many of them is no," said Arguello. "They all feel abandoned. They invested everything, sleepless nights, and they got the facilities up and running, and now they're left hanging."
For almost 20 years, DemeTech experienced steady growth making sutures and surgical mesh and selling its products to hospitals in more than 100 countries. Then the pandemic hit and hospitals stopped performing any surgeries except for emergencies. The goal was to keep beds and staff available for surges of patients infected by COVID-19.
Despite the mask disappointment, DemeTech is using the lessons learned to help it return to growth and expand in other areas.
"It's opened a lot of eyes internally in terms of how quickly we can scale and pivot," Arguello said.
The firm is exploring new product lines such as cannulas, syringes, and surgical gowns — products used in DemeTech's familiar territory — the hospital operating room.
"I think that the supply chain has been exposed,"said Arguello. "So what we're looking at as a company is where we strong? Where do we have a presence? Where have we seen the biggest weakness in terms of supply chain? Where [are] we reliant on Asia? What makes sense to produce in the country, whether it can be automated and where people will pay for quality? That's where we're putting our attention."
Health care had been thought of as recession-proof until the COVID-induced temporary shutdowns of elective surgeries. Analysts expect the medical products industry to rebound face with forecasts predicting 50% growth of the global suture market before the end of this decade.
Arguello expects the same for DemeTech's core business line, citing the difficulty to make sutures, the relative small number of American manufactuers, and the ability to compete on something other than price.
"In no country around the world am I pegged against the lowest cost manufacture," he said. "That is what is missing from the personal protective equipment aspect, where everyone around the world has looked for the lowest price, but it's the one product that can potentially save your life. You don't hear people saying, 'I want the cheapest vaccine' or the 'cheapest test.' I want the best test, the fastest test, the best vaccine. Don't you want the best masks?"
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