Kodak execs didn't illegally trade stock while touting big move into pharma: report

Eastman Kodak's pharma ambitions took a hit when insider trading accusations put $765 million in U.S. funding on the skids. But a special committee hired by Kodak's board has now cleared its top brass of wrongdoing—a decision that could clear its path into drug manufacturing.

The board-appointed committee cleared (PDF) Kodak's executives and shareholders of insider trading after a series of questionable stock moves that followed a government loan agreement. That $765 million loan has since been suspended.

The committee's report said precleared stock trades for CEO Jim Continenza and board member Philippe Katz did not break the law or violate Kodak's internal rules because the status of the loan at the time of preclearance was "highly uncertain."

The committee also determined that two investors who dumped millions of shares soon after the loan announcement weren't tipped off ahead of time. And incentive grants for Kodak executives were also appropriate given the uncertain status of the payment, the committee said.

The $765 million outlay, which Kodak dubbed "Project Tiger" in its working stages, was set to be awarded by the U.S. International Development Finance Corporation (DFC). The DFC halted those plans in early August after the Securities and Exchange Commission (SEC) and House Democrats launched their own investigations into Kodak's behavior.

While effectively clearing Kodak's upper ranks of wrongdoing, the committee recommended the company strengthen its legal department and insider trading rules to avoid moves that would attract government scrutiny.

In a statement, Kodak said it would "expeditiously" pursue those recommendations.

Kodak was an unlikely choice for the government's investment, which was announced in late July.

However, Kodak isn't a novice in the pharmaceutical industry; the company for years has produced key materials used to make active pharmaceutical ingredients and for a short time operated a pharma unit, Sterling Drug, that was sold in 1992.

In its report, the committee noted Kodak's history in pharma and its 2012 bankruptcy—which the committee attributed mostly to the company's former "scatter-shot approach."

That sketchy record was a key concern for House Democrats and Sen. Elizabeth Warren, D-Massachusetts, who called the company's actions—and its selection by the Trump administration for funding—"questionable."

The DFC loan as envisioned would cover the cost to repurpose two Kodak facilities in Rochester, New York, and St. Paul, Minnesota, Kodak previously said.

The revamped plants would have brought 360 new jobs online and indirectly employed another 1,200. The DFC said Kodak would be capable of producing "up to 25% of active pharmaceutical ingredients used in non-biologic, non-antibacterial, generic pharmaceuticals" when running at full speed.

Kodak's planned entry into the drug industry came as the Trump administration worked to flesh out a network of "onshore" manufacturing for API and finished drugs amid the COVID-19 pandemic.

In May, the administration floated a four-year, $354 million contract with a fledgling company, Phlow Corporation, to build a generic medicine and API plant in Richmond, Virginia, and supply COVID-19 treatments produced there.

Sep 16, 2020

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