House Dems launch probe into Kodak's unexpected $765M drug manufacturing loan from the feds

stormy Capitol
House Democrats have launched an investigation into a $765m government loan to Kodak for potential drug manufacturing. (USCapitol via Flickr)

The Trump administration’s surprising $765 million deal that would enable former photography giant Kodak to start making drug ingredients has yet to be finalized, and it’s already attracted plenty of controversy. First, insider trading allegations from the U.S. Senate—and now, an investigation by House Democrats.

A group of powerful Democrats led by Rep. Jim Clyburn, House Coronavirus Crisis Subcommittee chair and Majority Whip, are seeking documents and information from Kodak and the U.S. International Development Finance Corporation, a bank-like agency providing the $765 million loan.

The lawmakers are questioning why the government picked Kodak, which has little experience in pharma manufacturing, for such a major pact, as well as suspicious stock transactions by company executives.

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“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.

Continenza previously touted Kodak’s “deep expertise in chemicals manufacturing” as a good foundation for pivoting to pharmaceuticals. But the lawmakers raised doubts about that logic—and so did the chief executive of the largest U.S. generics producer, Teva.

“Borrowing money to start up manufacturing in itself does not make manufacturing sustainable,” Teva CEO Kare Schultz told The Wall Street Journal. “Even if you get the capital at zero interest, that does not mean that you can be cross-competitive…I don’t see how it’s plausible.”

RELATED: Camera maker Kodak dives into drug manufacturing with $765M federal loan

The Kodak deal follows another Trump administration pact for domestic drug manufacturing, with a startup called Phlow. That company is working in concert with Civica Rx, a group of hospital purchasers that set out to make their own drugs to answer persistent shortages and hefty price increases. Phlow nabbed a $345 million loan from HHS’ Biomedical Advanced Research and Development Authority (BARDA) to make drugs at risk of shortage.

Besides Kodak’s fitness for receiving the loan, the Democrats also pointed to “significant amounts” of Kodak shares Continenza and board member Philippe Katz gained ahead of the July 28 loan announcement. These include about 46,700 shares Continenza bought on June 23 and 1.75 million stock options the company’s board awarded him on the day before the loan became public.

RELATED: How Civica helped under-the-radar Phlow nab a $354M COVID-19 manufacturing deal

Kodak said in a July 29 securities filing that the options grant to Continenza was “generally designed to put Mr. Continenza in the same economic position he would have been” in the face of potential dilution if investors convert debt into common stock.

The company has defended the move, saying that Continenza hasn’t sold any shares and has no intention of doing so, and therefore didn’t realize the stock price gains, according to WSJ. Kodak’s shares surged on the news of the loan.

In a separate letter to DFC CEO Adam Boehler, the lawmakers requested all communications related to the Kodak deal, plus all communications the agency had with other private entities for potential financing.

RELATED: Did insiders trade illegally ahead of Kodak's manufacturing deal? Sen. Warren wants to know

The probe follows on the heels of a call for investigation into the Kodak insider stock trades by Democratic Sen. Elizabeth Warren to the Securities and Exchange Commission. The WSJ later reported that the SEC has launched an investigation.

The $765 million grant would be the agency’s first under the Defense Production Act in response to the COVID-19 pandemic. For now, the deal’s still in the form of a letter of interest and will only be finalized after standard due diligence by the agency, according to DFC.

The Trump administration has been pushing for onshoring of drug manufacturing as its animosity grows against China, the world’s major producer of drug ingredients. Business disruptions caused by the ongoing COVID-19 pandemic only highlighted the U.S.’ dependence on foreign supplies of drugs. The president is said to be readying an executive order on domestic drug manufacturing, with plans to sign it Thursday afternoon.

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