Irregularities Behind Kodak’s API Coup?

06.08.2020 - Last week’s announcement that photography group Eastman Kodak had received a 25-year, $765 million US government loan to produce active pharmaceutical ingredients (APIs) took the market by surprise. The plan was said to be to secure a national emergency supply, in order to reduce dependence on Chinese and Indian imports.

In the wake of the Kodak deal, questions were raised as to why the photography company  was tapped, bypassing established pharmaceutical and chemical players. Some drugmakers directly questioned the rationale, with Teva’s CEO, Kare Schultz, saying the Israel-based generics maker had only recently been in discussions with the White House about how to make US production of APIs more sustainable.

Some smelled a political motive behind the plans, with one investigative journal writing that from the second quarter of this year, Kodak’s lobbyists had worked exclusively on coronavirus-related matters, lobbying on two pieces of COVID relief legislation in Congress and contacting federal agencies regarding “COVID-19 Programs-Specialty Chemicals Manufacturing.”

With the charge led by Massachusetts Senator Elizabeth Warren – who hopes to become vice president if Democrats win the November elections – US congressional committees seeking to shed some light on the transaction have asked the stock market watchdog Securities & Exchange Commission (SEC) to try to sniff out any irregularities.

Late last week, before a probe could begin, it emerged that, on the back of the transaction, Kodak’s board had awarded executive chairman Jim Continenza options for 1.75 million company shares, and three other executives received options worth $712,000 each.

On news of the pact with the federal government, the newspaper Wall Street Journal (WSJ) reported that Kodak’s market capitalization leapt from just over $100 million to nearly $1 billion. Its share price surged from around $2 on Jul. 27 to $60 on the announcement, before tapering off.  At that level, Continenza’s potential take would have amounted to as much as $16 million on paper. Kodak said he still holds the stock.

The US plans for domestic API production date back to the onset of the pandemic in the West in March, when India put a freeze on exports. In May, president Donald Trump issued an order allowing the US. International Development Finance Corporation (DFC) to financially support domestic production of strategic resources for emergencies and “to strengthen any relevant domestic supply chains.”

According to the WSJ, a priority of the administration is to produce starting materials for hydroxychloroquine, the old malaria drug the president has repeatedly touted as a cure for Covid-19.