Shares for Kodak, a company best known for selling cheap cameras and film, saw an astronomical 1,600 percent surge in value this week as news spread that it was pivoting to manufacturing generic pharmaceutical products to help combat the coronavirus pandemic. On Tuesday, President Donald Trump announced that his administration was invoking the Defense Production Act to furnish the company with a $765 million loan in order to launch Kodak Pharmaceuticals. Trump framed the move as part of an effort to lessen the U.S.’s dependence on foreign drug suppliers. Kodak has claimed that film chemicals are similar to the key starting materials used to make drugs, and plans to leverage 16 million square feet of manufacturing space for the task. One of the drugs that the company plans to produce is hydroxychloroquine, the debunked COVID-19 cure that president touted throughout the pandemic.
Kodak’s stock peaked as high as $60, and investors traded 272 million of its shares on Wednesday, up from its previous daily average trading volume of 125,000. Much of this activity came from day traders using the investing platform Robinhood. Before Trump’s announcement on Tuesday, approximately 9,300 Robinhood users had Kodak in their portfolios; by noon on Wednesday, that number rose to more than 72,000. Many financial analysts are warning, however, that a lot of things don’t quite add up about Kodak’s sudden bout of success on the stock market. Taken all together, this week has been a particularly fishy Kodak moment.
This isn’t the first time that Kodak has so brazenly changed course in order to capitalize on the zeitgeist. The company fell into dire financial straits after failing to adapt to digital photography, filing for bankruptcy in 2012. Since then, it’s tried to find a niche outside of cameras. In 2018, at the height of the blockchain technology craze, Kodak made of big show of launching KodakCoin, a cryptocurrency designed for photographers. In the days after the company’s announcement, its stock rose by up to 245 percent. Kodak abandoned the project after the price of Bitcoin fell back to Earth, causing the hunger for new cryptocurrencies to subside. This is why some analysts are skeptical of the company’s sudden shift to pharmaceuticals. As Bloomberg’s Matt Levine writes, tracing a line from one sketchy trend of our times to another, “They pivoted to blockchain in January 2018, and now in July 2020 they are pivoting to accepting hundreds of millions of dollars from Donald Trump to produce hydroxychloroquine.”
These seemingly impromptu shifts are even more worrying because Kodak’s financial health isn’t particularly stable, and it’s unclear whether this new pharmaceutical venture and government loan will be enough to sustain the company in the long term. In 2019, Kodak divulged in its annual report that it had a negative cash flow and was operating at a huge loss. In the first quarter of 2020, the company reported that its revenue had further declined by 8 percent and that it had a net loss of $111 million. William Ebbs points out in CCN that, if Kodak keeps burning cash at this rate, the company may blow through the $765 million Trump loan before even establishing a profitable pharmaceutical business. It may take another $765 million loan to keep them afloat until then.
Lastly, Kodak’s pharmaceuticals announcement has been shrouded in controversy after it was revealed that CEO Jim Continenza bought about 47,000 shares of his own company’s stock on June 23, long before news of the loan became public. As a result, Continenza made a profit of more than $200 million over the course of two days this week. Kodak has denied accusations of insider trading, though, claiming that Continenza’s purchase was simply part of his regular ongoing investment in the company. Kodak stocks also saw a suspicious spike in trading volumes on Monday, a day before the announcement, which also raised concerns about insider information. However, it turns out that Kodak representatives had just accidentally told reporters about the loan a day before it was public and forgot to embargo it.
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