Kodak, the company that for years was synonymous with film photography, broke new ground this week. The 131-year-old brand had dabbled in a handful of new business ventures in recent years, as the film market has been almost completely replaced by digital. Who could forget a few years ago when it (unsuccessfully) dabbled in cryptocurrency? But now, Kodak is making another unexpected business turn: the generic drug industry. The announcement sent shares flying, rising a whopping 2,760% in only a few days.
A Long Road to Pharma
Thanks to a loan from the Trump Administration, Kodak will start producing ingredients for generic drugs. It was the U.S. International Development Finance Corporation, by way of the Defense Production Act, that doled out the loan. The program attempts to build America’s ability to produce medications and drugs domestically. This is especially relevant amid the current pandemic. The U.S. government reportedly gave Kodak a $765 million loan to enter the business.
The news amazed investors. For so long, Kodak has seemed to be a relic of the past. In fact, now that the disposable camera and film photography businesses are so outdated, the company has developed a retro image, an icon of nostalgia.
But its inability to keep up with the times led Kodak to file for bankruptcy in 2012. Then, in 2018, Kodak attempted to enter the booming field of cryptocurrency. While this announcement also caused Kodak shares to surge, it didn’t last long. “KodakCoin” was basically dead on arrival. They were late.
This week’s announcement caused such an enormous rise in share price, that the stock exchange actually had to pause trading—multiple times. Kodak’s share price skyrocketed from $2.62 at close on Monday to $44.44 at its highest point on Thursday. As of market close on Thursday, it was trading at $29.61.
Trading volumes were also up, increasing from 1.6 million to over 270 million on Wednesday. For the first time in a while, New York Stock Exchange circuit breakers were tripped for a good reason. The huge swing in price caused the breakers to halt trading of Kodak 20 times on Wednesday.
Capitalizing Off the Surge
Investors and politicians alike were jubilant about the announcement. New York Governor Cuomo said the move will create 300 jobs in the state. Peter Navarro, a trade advisor for the Trump Administration said, “It’s going to be the renaissance of the great state of New York as an industrial power.”
Investors, specifically those using Robinhood, showed great enthusiasm over the surge in price. According to the investment app, there are now over 12-times the number of accounts holding Kodak stock compared to the beginning of the week.
Perhaps the happiest of them all though, is Kodak CEO Jim Continenza. He made himself a pretty penny when the price jumped, as he owns 650,000 shares. He also has 3.8 million stock options and phantom stock that’s worth around $135 million.
Some Lingering Skepticism
Though the short-term results of Kodak Pharmaceuticals was exciting, some are still concerned about the long-term potential of the venture. Kodak was quite successful at the peak of its film business, but over the years, the company displayed an inability to contend with competition or changing technology. Not to mention, Kodak has no past experience in the pharma industry.
An investment bank that specializes in the healthcare industry expressed major concern over this last point. A statement from SVB Leerink said,
“We are puzzled by the Trump Administration’s decision. In particular, we find it puzzling why generic pharmaceutical companies who have the capabilities and know-how for this have not yet been awarded such contracts.”
It’s a very fair question as the answer seems entirely unclear. If the goal of this decision was to fast-track America’s generic drug industry surely it would be better to fund a company with know-how in the sector. If the goal was simply to jump-start corporate activity in New York, it seems like a pretty random choice to go for a company that’s been irrelevant for decades.
Only time will tell if this venture will prove picture perfect, or go the way of its failed cryptocurrency. Either way, there was definitely tons of money to be made this week thanks to the soaring share price.