POLITICAL ECONOMY

Kodak’s US$765 Million Manufacturing Loan On The Rocks As Red Flags Multiply

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By Kyle Blankenship

Eastman Kodak’s unlikely deal with the federal government to dive into drug manufacturing has raised eyebrows—not only for the size of the loan itself but Kodak’s lack of experience. Now, with investigations mounting, the US is pumping the brakes.

The government put the US$765 million loan on hold after “allegations of wrongdoing” on the company’s part jeopardized its federally funded move into pharmaceuticals, the US International Development Finance Corporation (DFC) said in a terse tweet Friday.

Kodak and the DFC signed an interest letter in late July for a loan that would have jumpstarted Kodak’s move into manufacturing active pharmaceutical ingredients (API) for a range of  generic drugs.

The government’s interest in Kodak—a photography company that declared bankruptcy in 2012 and has no experience in drugmaking—as well as insider trading allegations spurred a growing number of investigations in recent days.

Late last week, a group of influential House Democrats sought documents on the DFC loan, arguing that Kodak didn’t appear to have the needed experience to qualify for the massive funding deal.

That group included majority whip Rep. Jim Clyburn, D-South Carolina, the chair of the House’s Coronavirus Crisis Subcommittee, and Rep. Maxine Waters, D-California, chair of the financial services committee.

“DFC’s decision to award this loan to Kodak despite your company’s lack of pharmaceutical experience and the windfall gained by you and other company executives as a result of this loan raise questions that must be thoroughly examined,” the House members wrote in a letter to Kodak Executive Chairman Jim Continenza.

The Democrats’ call for an investigation came days after the US Securities and Exchange Commission (SEC) opened a probe into the deal after allegations of suspicious trading ahead of the announcement and questions about stock options the company granted just ahead of the announcement. Earlier in the week. Sen. Elizabeth Warren, D-Massachusetts, called the deal “questionable” and asked for a formal investigation from the SEC. 

The DFC loan as envisioned would have covered the cost to repurpose two facilities in Rochester, New York, and St. Paul, Minnesota. The revamped plants would have brought 360 new jobs online and indirectly employed another 1,200, the government said.

The DFC said Kodak would be capable of producing “up to 25 per cent of active pharmaceutical ingredients used in non-biologic, non-antibacterial, generic pharmaceuticals” when running at full speed.

Kodak’s planned entry into the drug industry came as the Trump administration has worked to flesh out a network of “onshore” manufacturing for API and finished drugs amid the COVID-19 pandemic. In May, the administration floated a four-year, US$354 million contract with a fledgling company, Phlow Corporation, to build a generic medicine and API plant in Richmond, Virginia, and supply COVID-19 treatments produced there.

That deal was awarded by the Department of Health and Human Services’ Biomedical Advanced Research and Development Authority and could be expanded up to 10 years and to a total of US$812 million—among the largest agreements ever signed by the agency.

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