Breakingviews – Drugs are the new bitcoin for stock hype

DALLAS (Reuters Breakingviews) – Eastman Kodak knows how to paint a pretty picture. The company’s stock price at one point had more than tripled on Tuesday after it received a $765 million loan from a U.S. government agency to help produce chemicals used to produce generic drugs. One on the list according to the Wall Street Journal is hydroxychloroquine, touted by U.S. President Donald Trump for use in fighting Covid-19. It’s promising, but has limits.

The Rochester, New York-based company has struggled ever since digital images started to overtake dark rooms and film negatives. It filed for bankruptcy in 2012 and its shares have more than halved since emerging a year later. The company’s 2019 sales of $1.2 billion were just a sliver of their 2000 figure.

Tuesday’s share-price spike isn’t the first in recent years tied to a foray away from photos. It also shot up in January 2018 when Kodak jumped on the cryptocurrency bandwagon, announcing a bizarre new initiative that was meant to give photographers a system to monetize their work. The bump was short-lived. Within roughly eight months the stock price had lost all of its blockchain pop.

Kodak’s new initiative has more hope of developing. It already has a division that produces chemicals – part of a group that includes motion-picture and industrial film that made up 14% of its revenue last year. It has infrastructure, too, like reactors and labs that are expensive for others to simply build. The loan from the U.S. International Development Finance Corporation will help fund the launch of Kodak Pharmaceuticals, part of the Trump administration’s push to reduce the country’s overreliance on overseas markets for medicines.

But the returns Kodak could reap might not match shareholders’ exuberance. Producing chemicals for drugs is the less lucrative end of the business, with net margins often in the single digits. There’s also rampant competition to find cures for and ways to alleviate Covid-19, which will impact how much suppliers can charge. Kodak can at least add scale to one of its growing businesses. But for shareholders, drugs have become the new bitcoin for the picture-perfect stock hype.