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Here's Why Retractable Technologies Is Skyrocketing 22% Today

By Todd Campbell – Jul 8, 2020 at 4:17PM

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The company's been awarded a multimillion-dollar government COVID-19 contract to expand production of needles and syringes.

What happened

Retractable Technologies (RVP -1.14%) shares are soaring 22% at 3:55 pm EST on Wednesday after announcing $53.6 million in U.S. government funding to increase syringe and needle manufacturing capacity to meet potential demand related to the COVID-19 coronavirus.

So what

The healthcare company, which manufacturers syringes and needles designed to improve patient safety, was awarded the contract on behalf of the Biomedical Advanced Research and Development Authority (BARDA). In exchange for the funding, Retractable Technologies will "increase its manufacturing capacity for hypodermic safety needles and corresponding syringes." 

A gloved physician fills a syringe.

IMAGE SOURCE: GETTY IMAGES.

The U.S. government payments will be used to buy equipment and supplies necessary to ramp production, and the company has agreed to provide facilities, expertise, labor, and maintenance for equipment bought through this agreement for 10 years.

Previously, Retractable Technologies reported in May that future results "may be materially affected" by a $83.8 million order for automated retraction safety syringes from the U.S. Department of Health and Human Services on May 1. Management anticipates fulfilling this order during 2020 and 2021.

Now what

Needles and syringes are essential to patient diagnosis and treatment, and COVID-19's rapid spread has revealed capacity gaps that the U.S. government is attempting to fill via financing agreements like this one. 

Retractable Technologies didn't disclose a timeline for this new funding, so investors will want to pay particular attention to its next quarterly update for insight. Nevertheless, these agreements are significant given Retractable Technologies revenue was just $11.2 million in the first quarter of 2020, up from $7.9 million in the same quarter last year. 

Since the company's already profitable, with first-quarter net income of $322,773, up from a loss of $129,211 one year ago, this company is worth watching.

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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