In March 2020, Eastman Kodak shares bottomed to an all-time low of $1.50. Then, along came the coronavirus pandemic and a $765 million federal loan from the Trump Administration. Kodak’s plan is to launch Kodak Pharmaceuticals and to produce generic drugs to help reduce U.S. dependency on foreign drug makers.
The cash infusion will add over 350 new jobs and indirectly employ another 1,200. This is quite a comeback, considering Kodak filed for bankruptcy in 2012. The expectation is that Kodak will be capable of producing about 25% of the active drug ingredients used in generic pharmaceuticals.
Wall Street traders and investors have rarely seen a stock skyrocket like Kodak. During a volatile trading week, Kodak’s stock soared—causing trading halts as Stock Exchange computer controls brought trading to a standstill. At one point the stock climbed more than 650%.
Kodak, the film and camera giant before digital photography tanked the industry, already makes some pharmaceutical materials. Its new mission will expand, and Kodak’s CEO expects it will take up to three and a half years to ramp up to full production.
Surging as high as $60 a share, not surprisingly Kodak share value pulled back to the $25 range as traders took quick profits. Nevertheless, timing, as they say is everything. As Kodak’s core photo and film processing business model became redundant, during the past 14 years the company’s revenue declined by about $10 billion. During the first quarter of 2020, Kodak had a pre-tax loss of $53 million.
Kodak has pharmaceutical sector experience dating back to the 1990s when it manufactured nonprescription medicine like Bayer’s aspirin. It spun off its pharmaceutical subsidiary to focus on its film business. Kodak’s former pharmaceutical subsidiary Sterling Winthrop sold out to two other buyers with enormous price tags of $2.93 billion and $1.68 billion.
So, along with some experience in pharmaceuticals, Kodak’s chemical manufacturing expertise is transferrable to pharmaceutical manufacturing. Whether retooling its manufacturing gear will be slow or costly or whether Kodak will have to convert or reopen new facilities is still unclear.
Then there is the natural investor skepticism that Kodak won’t do well against pharma giants like Mylan and Teva Pharmaceutical Industries. Both those companies have a production capability several times greater than Kodak.
On the other hand, Kodak will be producing products in a seller’s market. The large drug manufacturers have been struggling to keep up with the demand. For example, generic dexamethasone, which reduces the mortality risk of one third of COVID-19 patients on ventilators is in short supply.
On the even brighter side, Kodak’s stock before the surge was severely undervalued. Also, Kodak has an acceptable financial health status with a debt of $263 million versus $209 million in cash assets. Zhiyuan Sun, a statistician writing for the Motley Fool, puts it this way:
“…I think this rally more or less puts Kodak close to fair value. Pharmaceutical investors who feel they are missing out may wish to open a small stake, while those who can’t resist the urge to take profits may want to consider selling a portion of their holdings.”
On the other, if someone comes up with a “miracle cure” and reliable inoculation for COVID-19, Kodak could be—to coin a phrase—over exposed.
