Kodak to produce pharmaceutical ingredients with U.S. government loan
The planned investment, reported earlier by the Wall Street Journal, will create about 350 jobs at Kodak’s home base in Rochester, N.Y., and in St. Paul, Minn., the company said.
DFC normally funds infrastructure and other projects in the developing world. But in an executive order signed in May, President Trump gave DFC new powers under the Defense Production Act to finance domestic health-care manufacturing needed to respond to the coronavirus crisis.
Shortages of face masks and other protective equipment for doctors and nurses have raised concerns in recent months about U.S. reliance on China and India for pharmaceutical ingredients and finished medicines. About 40 percent of the world’s supply of drug ingredients is used to produce generic medicines for Americans, but only 10 percent these materials are manufactured in the United States, according to DFC.
The aim is “to re-shore critical industries so if we ever end up in a situation like this again we are not relying on China or others,” DFC chief executive Adam Boehler said in an interview.
“It’s a breakthrough in bringing pharmaceutical manufacturing back to the United States,” Trump said of the deal during a coronavirus briefing, calling it his administration’s 33rd use of the Defense Production Act.
Boehler signed a preliminary agreement with Kodak Executive Chairman Jim Continenza on Tuesday to provide the loan, which is still subject to final DFC due diligence, a Kodak spokeswoman said.
In an interview, Continenza said Kodak has more than 130 years of experience manufacturing chemicals, which the company has used to make film and other products. “We are truly doing this to help tighten and fix the supply chain of pharmaceuticals in America,” Continenza said, adding that U.S. reliance on imported ingredients is worrying. “I have kids, and they’re going to have kids. … We cannot have this,” he said.
Kodak plans to produce two types of chemicals used to make pills and tablets: the initial building blocks, known as key starting materials and more refined substances called active pharmaceutical ingredients, known as API.
In recent years, Kodak has been making key starting materials for a few pharmaceutical companies upon request, Continenza said. Kodak plans to repurpose and expand some of its manufacturing lines to carry out the work, he said.
Susan Capie, managing director of PharmaVantage, a consultancy in Babylon, N.Y., said she sees several challenges.
When drug companies ask the Food and Drug Administration for permission to sell a new medicine in the United States, they must specify which API suppliers they plan to use. It can take 10 months or more for the FDA to approve a new supplier, meaning Kodak might not have immediate API buyers, she said.
Kodak also will face tough price competition from overseas suppliers, she said, although she added that tougher environmental regulation in China in recent years has driven up prices there. U.S. companies might prefer to deal with a domestic supplier, but it “would depend on the price differential,” she said.
Continenza said Kodak would provide “the highest value for the lowest cost.”
Peter Navarro, a White House adviser who has long pushed to boost manufacturing in the United States, was involved in the Kodak deal and attended the signing ceremony on Tuesday.
In an interview, Navarro said the federal government will help bolster Kodak’s business by buying some API for a strategic stockpile. Navarro and Boehler also said some drug companies plan to sign advance purchase orders for Kodak’s ingredients.
Kodak founder George Eastman began selling some of the first cameras to consumers in 1888, but the switch to digital and then smartphone cameras left the company in the lurch, forcing it to file for bankruptcy in 2012. It later emerged from bankruptcy and tried to focus on a few businesses, including printing machines and specialty film for motion pictures and other industries.
Kodak’s stock more than tripled after news of the deal broke Tuesday.
Deputy Defense Secretary David Norquist also attended the signing ceremony. Because DFC is lending the money under the Defense Production Act, the Defense Department bears the cost of the loan, DFC said.
DFC said it has invited other companies to apply for financing under the Defense Production Act for projects supporting domestic production of drugs, personal protective equipment and other medical supplies such as vaccines or virus testing materials.