Safeskin Corporation History

Address:

12671 High Bluff Drive
San Diego, California 92130
U.S.A.

Telephone: (619) 794-8111
Fax: (619) 350-2378

Website: www.safeskin.com

Public Company
Incorporated: 1985
Employees: 2,500
Sales: $150 million (1996 est.)
Stock Exchanges: NASDAQ
SICs: 3069 Fabricated Rubber Products, Not Elsewhere Classified

Company Perspectives:

The success of Safeskin Corporation is based upon our vision in identifying specific needs in the marketplace and introducing innovative products that exceed the demands of our customers. In 1995, Safeskin Corporation put into place the cornerstone of a strategic foundation. This will provide support for the broadening of our reach into new markets and the expansion of our product line.

Company History:

Safeskin Corporation is the leading manufacturer of latex gloves for the U.S. health care market. Safeskin pioneered the hypoallergenic latex examination glove market, having developed a proprietary manufacturing process that removes much of the allergen-producing proteins found in natural latex. Safeskin has taken the lead in the fast-growing nonpowdered segment of the examination glove market and has made strong inroads in the market for surgical gloves as well. Safeskin gloves are used in a variety of health care and medical settings, including the dental and veterinarian fields, and for nonmedical uses such as in the clean rooms for semiconductor manufacturing and other high technology industries requiring sterile manufacturing environments. Safeskin management, administration, sales and marketing, and product development functions are located at its San Diego headquarters. Manufacturing, including latex processing, takes place at the company's Thailand and Malaysia plants. The company is led by President, CEO, and Co-chairman Richard J. Jaffe, a founder of the company. Safeskin co-founder Neil Braverman, until 1996 a co-CEO of the company and who also owns Paramount Oil Company based in Florida, remains a co-chairman of the company. Safeskin's growth parallels the rise of the AIDS scare; the company has assumed a leadership role in producing high-quality gloves for the medical community and has also been instrumental in setting FDA standards for latex gloves.

A Better Glove for the 1980s

Both Braverman and Jaffe had already proved their entrepreneurial mettle when they joined together to build Safeskin in 1987. Braverman's career began with an engineering degree from Georgia Institute of Technology in 1960 but would take him to the Far East, where he would spend some 25 years building Flair Corporation, an electronics manufacturer, before selling his company to U.S. Industries in 1985. In that year, Braverman incorporated Safeskin, but the company would remain inactive for the next two years.

Meanwhile, the younger Jaffe had been attending Cornell University's business school. Jaffe ended his studies in 1977, however, when he joined his brother in setting up Nutri-Foods International to make Italian ices and other frozen snacks. Operating at first from a rented garage in Long Island, New York, Nutri-Foods sold their products to hotels, camps, stores, and especially at area elementary schools. The company did well, until government regulations forced schools to drop junk foods, including Italian ices, from their school lunch programs.

Jaffe was forced to rethink his company's focus. "We had the choice of going out of business or coming up with something new," Jaffe told Investor's Business Daily. "We knew kids would continue to eat (Italian ices); now it was up to us to find a product that the schools would let them eat." At this point, Jaffe deployed a tactic that would come to serve Safeskin well: he talked to his customers. Jaffe discovered that by altering Nutri-Foods' Italian ice recipe, specifically by removing the sugar and adding two ounces of real fruit juice, he could get the company's products back into the schools. The new ices, dubbed Guido's Ice Juicy, were a big hit with the company's young customers. "It came down to listening to the customer, to going out there and saying, 'Hey, what do you need?"' Jaffe continued. "And once we developed what they needed, the business took off."

Nutri-Foods' success attracted the attention of the Coca-Cola Company, which paid the Jaffe family some $50 million to acquire Nutri-Foods as part of Coca-Cola's foods division in 1985. Jaffe himself was part of the package, and for the next two years he served as the foods division's president. Jaffe left Coca-Cola in 1987, intending to take a year off to write poetry and play golf. But within two months, Jaffe met Neil Braverman, and he was back in the entrepreneurial world.

By then, Braverman had decided on Safeskin's direction. The AIDS outbreak among the homosexual population in the early 1980s was threatening to spread to the general population, a threat dramatized by the media attention surrounding actor Rock Hudson's death from AIDS. Then the medical community was shaken by a well-publicized claim that a patient had contracted the HIV virus from her dentist. The rising incidence of HIV infection, and the parallel rise in Hepatitis B incidence, prompted recommendations from the Centers for Disease Control that health care providers and anyone who came in contact with bodily fluids wear latex gloves, a recommendation that would later be passed into law. Manufacturers rushed to fill the demand for latex gloves, flooding the market with inexpensive latex gloves; many of these gloves were soon faulted for their low quality, often revealing flaws such as pin-prick holes, which eliminated their ability to protect against virus transmission.

Braverman brought Safeskin into the latex glove market. His years in the Far East had enabled him to develop strong manufacturing contacts in Malaysia, the world's prime source for natural latex. Safeskin at first manufactured regular latex gloves, beginning in 1987. But Braverman quickly recognized an opening in the market. "A friend of mine who is a dentist told me that there was a need for a good quality glove," Braverman told the South Florida Business Journal, "but I knew that I would need money to begin manufacturing." The money would come from Jaffe, whom Braverman met in 1987. More important, Jaffe brought his sales and marketing experience to complement Braverman's background in engineering and manufacturing. The pair became co-CEOs of the company, with Jaffe working from the company's San Diego headquarters and Braverman working from Safeskin's Boca Raton, Florida headquarters. Safeskin opened its first manufacturing plant in Malaysia.

Safeskin faced a glutted market already dominated by major producers. But Braverman and Jaffe recognized a new opportunity in latex gloves. "At the time, manufacturers were making gloves to protect doctors from the AIDS patient. To me, that was a requirement. I said, 'You have to do that or you can't be in business,"' Jaffe told Investor's Business Daily. "What we decided to do was protect the health-care worker from the glove itself." Safeskin had recognized a new need in the health care community. "Behavior was changing. Doctors were starting to wear gloves 10 hours a day, not just 10 minutes a day. The way we saw it was that anything you put up against your skin for 10 hours a day is going to cause a rash."

Indeed, health care providers faced two problems from the latex gloves. Cornstarch and other powders were added on the inside of the gloves to aid in putting on and taking off the gloves. But with extended wear, the powders were causing irritations to the wearer's skin, and many providers were developing contact dermatitis, a condition that could become debilitating, from the gloves. The powders also carried the risk of contaminating the patient and acting as impurities to skew lab results. At the same time, the powders were known to draw out the proteins from the latex, leading to a second, still more debilitating threat from prolonged contact with latex gloves. Latex, a natural product from rubber trees, contained a number of natural proteins that acted as allergens in people. Prolonged contact with latex products was found to increase allergic sensitivity to latex, a condition that would affect a growing percentage of the health care community. Extreme allergic reactions to latex presented the risk of life-threatening anaphylactic shock; sufferers faced this risk even from breathing the air in which powdered latex gloves had been used. Safeskin turned its attention to developing a hypoallergenic latex glove. Using a proprietary process, the company succeeded in leeching out most of the natural proteins found in latex. After six months of development, the company was ready to launch its first latex glove product, winning FDA approval to label the glove as hypoallergenic.

Winning credibility and convincing customers proved another hurdle for the company, which bucked the industry's low-price, commodity trend by insisting on premium prices for Safeskin gloves. By the time the company introduced its first glove, the market was already flooded with latex gloves. As Jaffe told Forbes, "We had manufactured 200 million gloves, but we had no customers, no distribution, and there was a two-year glut on hand. We dug a pretty deep hole for ourselves." Safeskin next set out to build a distribution network. Facing stiff competition from established glove makers for the attention of purchasing agents, Safeskin took the company's gloves on a different route, working with a network of manufacturers' representatives to reach customers directly. "We bypassed purchasing agents and went to the end users--the docs and nurses&mdashø educate them on the benefits," Jaffe told the San Diego Union Tribune. Safeskin hoped that these users, impressed by the quality and greater comfort of the Safeskin glove, would pressure their purchasing departments to buy the Safeskin product. The strategy worked. Sales, which were less than $1 million in 1988, climbed to $4 million in 1989, then to $9.5 million in 1990.

A Market Leader for the 1990s

The company, meanwhile, had been preparing to expand its product line. As complaints about the problems associated with the powders used in latex gloves began to rise throughout the health care industry, Safeskin had been listening closely. But instead of launching a reduced-powder glove, the company again took a different approach. Although powders remained a necessary part of the manufacturing process, Safeskin developed a proprietary technique for removing all of the powder from their gloves after production. Demand for the powder-free hypoallergenic glove, introduced in 1991, was overwhelming. By the end of the year, Safeskin's sales had doubled again, to $17 million, and the company posted its first-ever profit of $1.2 million.

Turning profitable gave the company the ability to develop its own sales and marketing staff and, in 1992, the company began direct marketing, hiring experienced salesmen for the new department. "We got those with five years of experience and a record of successful sales because we couldn't afford to train them," Jaffe told the San Diego Union Tribune. With the new strength in sales and the launch of Safeskin's HypoClean powder-free hypoallergenic glove, Safeskin's revenues doubled yet again, nearing $34 million, for a net profit of $6 million in 1992. The sales staff was encouraged to follow the company's founders' policy of asking customers what they wanted from their gloves. The company responded by extending its range of glove sizes, adding extra-small and extra-large sizes to the industry's three-size standard. The company's sales and marketing activities also were gaining success in convincing purchasers that higher-priced Safeskin gloves were also more cost-effective than their low-priced competitors.

The company's share of the total latex glove market was on the rise, growing from one percent in 1991 to 14 percent by the end of 1993. Within the hypoallergenic and powder-free categories, however, Safeskin was already the clear market leader, with 49 percent and 96 percent shares, respectively. By then the company, already turning out some 1.2 billion gloves per year, was having difficulty meeting demand at its two Malaysian plants. Safeskin set out to expand its manufacturing base. To finance this expansion, and to pay down debt, the company went public in December 1993, selling 2.9 million shares at $12 per share, for $30 million. The company, with sales rising to $57.3 million for net earnings of $11.7 million, paid off its debt and purchased land for a new production operation in Thailand, which began operation at the end of 1994.

Safeskin also looked to expand its product offerings by entering the surgical glove market, which, at some $400 million in yearly sales, represented the largest of the medical glove markets. At the same time, Safeskin was promoting its products beyond the health care industry to the pharmaceutical industry, veterinarians, and workers in semi-conductors, computer processors, and other clean rooms, as well as tollbooth operators and police officers. Another potential growth area was in food processing and handling. Meanwhile, powder-free gloves were becoming the fastest growing category of the latex glove market, growing by 200 percent between 1993 and 1994 alone.

In 1994, the company introduced two new products, the Dura-Fit and Satin Plus gloves, both aimed at the examination glove market. Safeskin was also making plans to expand its presence in the $500 million European market, opening two new sales offices in the United Kingdom and Germany, complementing a sales and warehouse operation already in place in the Netherlands. European sales were expected eventually to reach as much as 25 percent of Safeskin's annual sales. The company's sales continued their strong growth, reaching $84 million.

In March 1995, the company entered the surgical glove market with the launch of its Supra line of latex surgical gloves. The glove featured a unique textured surface and an ergonomic design to minimize fatigue and the risk of carpal tunnel syndrome and other repetitive stress injuries to surgeons' hands. In that same month, Safeskin received a major revenue boost: an agreement to form a distribution alliance with General Medical Corp., a medical and surgical products distributor. The alliance, which called for General Medical to distribute Safeskin's gloves under General Medical's private label, would add a minimum of $75 million to Safeskin's revenues over the initial three-year life of the agreement. Toward the middle of the year, however, Safeskin hit a bump: heavy rains in the rubber-producing region had reduced the supply of latex, while increased automobile sales were driving up the demand for rubber, resulting in latex prices reaching their highest levels in 60 years. Safeskin's strong relationship with its customers enabled the company to raise its glove prices for the second half of the year, helping to offset the higher costs of raw latex. During the year, Safeskin introduced its first nonlatex glove, made of nitrile, a petroleum derivative, for the laboratory and scientific markets, and the company also moved to reduce its overhead by opening a latex processing plant at its Thailand site. Nevertheless, pricing pressures dampened the company's income growth, which posted a slight four percent increase to $14.9 million, despite the company's jump in revenues to $117 million. The company began a restructuring effort, consolidating its headquarters at its San Diego location, as Safeskin prepared to expand the company beyond its core glove product lines. Braverman, however, remained behind at an office in Boca Raton and in the following year reduced his participation in the company, stepping down from his position as co-chief executive, but remaining co-chairman of the company.

By the beginning of 1996, however, Safeskin was the clear leader in the glove market, reaching a 24 percent share to top chief competitor Baxter Health Care Corporation's 18 percent share. In the following year, the company continued its expansion, adding new production lines at its Thailand site to increase capacity and preparing to launch new products, including a new surgical glove using NASA design technology. The company also responded to the growing number of health care workers and others afflicted by the rise in latex allergies by introducing a nitrile glove for the examination glove market.

Throughout 1996, the company continued to make strong gains. In July of that year, the company negotiated an extension of its agreement with General Medical, boosting revenues from that alliance to at least $100 million. By the end of the year, after posting a two-for-one stock split, the company announced two new contracts worth as much as $110 million combined. The first contract named the company one of two suppliers for the 1,800-facility hospital alliance of Premier Purchasing Partners, worth from $80 million to $90 million over five years. The second contract was with Catholic Materials Management Alliance, with 230 health care facilities, worth $21 million over three years. Safeskin, which was estimating more than $150 million in revenues for 1996, closed out the year with a new boost to its image, when it was named to Standard & Poor's SmallCap 600 Index. The company continued seeking to expand its product line beyond gloves. With Jaffe's knack for anticipating markets, Safeskin's future ventures should fit the company well.

Safeskin Corporation History

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