Incorporated: 1981
NAIC: 325413 In-Vitro Diagnostic Substance Manufacturing
SIC: 2835 Diagnostic Substances
Neogen Corporation is a Lansing, Michigan-based manufacturer of products designed to protect human and animal health. The company's food safety division markets a wide range of test kits to detect the presence of bacteria, toxins, pathogens, and allergens for the bakery and cereal, beverage, dairy, feed and grain, foodservice, meat and poultry, nutraceuticals, pet food, prepared food, produce, sauces, and seafood industries. Neogen's animal safety products include diagnostics, veterinary instruments, pharmaceuticals, nutritional supplements, disinfectants, and rodenticides. Subsidiary Acumedia Manufacturers, Inc., offers dehydrated culture media for industrial, pharmaceutical, biotech, food safety, and life science uses. Neogen's life sciences unit markets forensic drug detection kits for a wide variety of prescription and illegal drugs, and research test kits to detect levels of hormones, steroids, prostaglandins, leukotrienes, thromboxanes, cyclic nucleotides, lipoxins, and histamine. Some of the tests, for example, are used to detect performance-enhancing drugs in racehorses and greyhounds. Another subsidiary, Hacco, Inc., provides contract and private-label formulation and packaging of rodenticides and other bait formulations. In addition to its corporate headquarters, Neogen maintains operations in Lexington, Kentucky; Randolph, Wisconsin; and in Europe through a Scotland office.
Neogen Founded 1981
Neogen was incorporated in Lansing, Michigan, in June 1981, with the goal of expanding the state's economy beyond the confines of the automotive industry. During this time the automobile industry in the United States was struggling, leading to a shrinking tax base in Michigan, which was heavily dependent on the industry. A special task force sponsored by the state had identified two areas of possible growth: automated manufacturing and biotechnology. Around the same time, the nonprofit fund-raising arm of Michigan State University, the Michigan State University Foundation, formed Neogen as a vehicle to raise venture capital for limited partnerships to exploit the innovations emanating from research conducted at the school. Not only would such a company help retain faculty members who would have a way to pursue business ventures without leaving the school, it could help diversify the area's economy. Serving as Neogen's founder was James L. Herbert, a vice-president of agricultural genetics company DeKalb AgResearch.
First Research Funded
The foundation purchased the first $100,000 in stock and soon invested another $130,000. Dow Chemical's former chief executive, Herbert Doan, supplied a further $250,000 and became Neogen's chairman. Looking to become involved in the emerging biotechnology field, Doan's strategy, as he explained to Michigan Business in 1989, was to "develop and market products designed to measure and control agricultural residues that might affect animals feeds, agricultural foods intended for human consumption or the environment."
After setting up shop in a 400-square-foot facility with just a pair of employees and some used desks, Neogen began to move beyond the concept stage in 1984 when it provided $1 million in funding to a pair of Michigan State professors to develop a simple, inexpensive diagnostic kit to screen grain used in animal feed for a carcinogen called aflatoxin. The work resulted in Neogen's first product, Agri-Screen.
Michigan State University research also led to a second product line, one that was predictive in nature. Called EnviroCaster, the battery-powered device could be installed in a field or orchard, as well as a golf course, to record environmental conditions every 15 minutes. Using this data, computer models could determine the likelihood and severity of insect infestation and fungal infection, and determine the time and amount of plant chemicals that should be applied.
In May 1985 Neogen also grew through external means, acquiring the Ideal Instruments Division of Immunogenetics Inc. The Chicago-based company had been in business for about 60 years, manufacturing veterinary instruments. While at first blush the addition of Ideal appeared unconnected to Neogen's other product lines, the company in fact shared the same overarching mission as Neogen because the accurate delivery of animal drug product is an important way to control residues of drugs that could invade the meat or milk supply. Moreover, Ideal provided a predictable revenue stream that could help support the launch of Neogen's more advanced products. In fiscal 1989, Neogen was generating about $7 million in annual sales, $4 million of which came from Ideal, $2 million from EnviroCaster, and $1 million from Agri-Screen.
Farming Morel Mushrooms
One Neogen-backed venture clearly deviated from the company's mission: the year-round commercial growing of morel mushrooms, which in the wild were harvested in North America only in May and June. It grew out of the work of Michigan State scientists, Gary Mills and James Malachowski, who built on the finding of Ronald Ower, the first person to grow the morel in captivity. The resulting Morel Mountain Mushroom Company found a partner in another Michigan-based company, Domino's Pizza Inc., which in 1989 paid $1 million for a 25 percent interest. In the early 1990s the start-up company began selling morels to gourmet shops, for about $300 a pound, although not to Domino's. In 1994 the two partners sold the business to Terry Farms, a major grower and supplier of fresh button mushrooms.
Initial Public Stock Offering
Neogen was taken public in 1989 at $5 a share. Convincing customers that its tests, which could be conducted by almost anyone with a little training, were as reliable as the time-consuming tests conducted by professionals took some time. By the early 1990s, however, the company was established enough to accelerate the growth of its food safety business. Early in 1991 Neogen signed an agreement to provide ConAgra Inc. with kits to detect nitrates in water. A year later the company added to its capabilities by acquiring Lexington, Kentucky-based WTT Incorporated, maker of test kits used to detect performance-enhancing drugs used in horse and greyhound racing. This business was subsequently renamed ELISA Technologies.
More acquisitions followed between 1993 and 1995. In 1993 the plant diagnostics product lines of Agri-Diagnostics Associates was purchased. Later in the year the acquisition of Kansas City, Missouri-based Enzytec, Incorporated, added products and technology used to detect pesticides in food and in the environment. Camden, New Jersey-based AMPCOR, Incorporated, was purchased in 1994, adding detection products for foodborne bacteria. Finally, in June 1995 Neogen acquired St. Joseph, Michigan-based International Diagnostic Systems Corp., whose three-dozen diagnostic tests to detect drugs of abuse in animals were folded into the ELISA unit.
Although the focus was on building up its food safety and animal safety businesses, Neogen continued to invest in veterinary instruments. In 1991 the Dynax division of Aries Manufacturing Co., was acquired and the electronic instruments it manufactured for use in small animal and equine veterinary medicine became part of Ideal Instruments. As part of a restructuring in 1996, however, electronic instruments would be phased out.
Given certain events that took place in the mid-1990s it was understandable why Neogen would want to focus more of its resources on food and animal safety. In late 1995 the U.S. Food and Drug Administration outlined new safety rules for seafood that would go into effect later in the decade, and the U.S. Department of Agriculture established a new inspection system. There were also an increasing number of foodborne illness cases reported, leading to global concerns about food safety. In July 1996, for example, Japan suffered a severe outbreak of infections from the bacteria E. coli, leading to an opportunity for the sale of diagnostic tests to this market. Later in 1996 Neogen's salmonella test kit received approval from a key third-party test validation organization, the Association of Official Analytical Chemists.
Neogen's First Profitable Years
Neogen became profitable in fiscal 1994, netting $856,000 on total revenues of $10.7 million. Sales enjoyed steady growth, reaching $15.3 million in fiscal 1997 while profits exceeded $1.8 million. As a result, the value of Neogen approached $15 a share. Record results continued in fiscal 1998, when Neogen recorded revenues of $18.5 million and net income of $2.2 million. The company also completed two more acquisitions: Triple Crown Company, maker of pharmaceutical products for the professional equine market, and the ImmunoVet operations of France's Vetiquinak S.A., which brought a biologics production facility in Tampa, Florida.
Neogen also introduced a number of successful products in fiscal 1998, helping to grow revenues to $22.2 million in fiscal 1999, while earnings improved slightly. Nevertheless, the price of its stock began to slide in 1998 and continue to decline until reaching $7 in October 1999, about half of what the company believed it was worth. Neogen was not alone. Many small cap companies were being overlooked at the time, and management took advantage of available cash to buy back a large number of shares. It also earmarked some of the $11 million cash it had on hand and $10 million in credits to make further acquisitions in order to grow larger and command more attention from Wall Street.
Acumedia Manufacturers, Inc., was acquired in February 2000, bringing a line of media used to grow bacteria to testable levels that complemented Neogen's foodborne bacteria testing segment. Shortly after fiscal 2000 closed, Neogen bought AmVet Pharmaceuticals, adding 25 veterinary products to its portfolio of animal safety products, including a liquid antibiotic, dewormer, and a vitamin deficiency treatment. Two months later another acquisition was made, Revere, Massachusetts-based Squire Laboratories, which developed pharmaceuticals and other health products for performance horses.
Neogen's stock price rose steadily, approaching the $20 mark, while revenues increased to $23.5 million in fiscal 2000 and jumped to nearly $35 million in fiscal 2001; net income improved from $3.1 million to $3.2 million. As a result, Neogen gained even greater visibility and was named to Forbes magazine's Top 200 Small Companies in America.
Expanding Domestically and Overseas
Neogen still had more than $7 million in cash and its lines of bank credit totaled another $10 million, allowing the company to make further acquisitions to maintain its expansion. Early in fiscal 2002, San Diego, California-based QA Life Sciences was added in a stock deal, providing Neogen with a filter membrane system. Later in the year, Neogen acquired Gene-Trak Systems of Hopkinton, Massachusetts, a maker of foodborne pathogen detection test kits that relied on DNA probe technology, giving Neogen another platform on which to build. The markets for the company's food and animal safety products were also expanding, as worries mounted about mad cow disease, foot and mouth disease, antibiotic residues in food, and bioterrorism. Revenues increased to more than $42 million in fiscal 2002, and net income improved to nearly $4 million.
Those numbers grew to $46.5 million and $4.8 million in fiscal 2003, when Neogen completed another acquisition, Adgen Ltd. of Ayr, Scotland, a manufacturer of agricultural diagnostic testing products that had also acted as Neogen's European distributor. Its name was subsequently changed to Neogen Europe Ltd., and was used to build Neogen's European sales. The company also positioned itself for growth in Asia by establishing a sales and distribution center in Shanghai, China, to tap into the emerging food safety market in that vast country. With only 20 percent of the company's sales coming from overseas, the international marketplace offered a great deal of promise for the future.
Neogen added to its roster of intervention products in fiscal 2004, spending $12 million to acquire two ConAgra companies, Hacco, Inc., and Hess & Clark, Inc. The former gave Neogen entry into the rodenticide market while the latter positioned Neogen in the disinfectant market. The following year Neogen beefed up its European operation by acquiring Germany's Biologische Analysensysteme GmbH, the distributor of its food safety test products in Germany. Its operations were folded into Neogen Europe.
Positioned for a Strong Future
Revenues grew from $55.5 million in fiscal 2004 to $62.8 million in fiscal 2005, with animal safety sales enjoying especially strong growth. Net income increased from $5.1 million to more than $5.9 million. Those numbers continued to grow at a strong pace in fiscal 2006 and fiscal 2007, increasing from $72.4 million to $86.1 million, while net income improve from $7.4 million to $9.1 million. The company was also able to make a secondary offering of stock in June 2006, netting $12.2 million in cash that was used to retire all bank debt.
Now a quarter-of-a-century old, Neogen was well positioned to achieve even greater growth. With the United States importing an increasing amount of its foods, the need for test products was growing domestically, while at the same time Neogen had barely scratched the surface of its international sales potential. The company's stock was also receiving the kind of attention management believed it deserved. In September 2007 the company repaid loyal investors with a dividend in the form of a 3-for-2 stock split that also served to make more shares available for trade and improve liquidity.
Principal Subsidiaries
Acumedia Manufacturers, Inc.; Centrus International, Inc.; Ideal Instruments, Inc.; Neogen Europe Limited; Hacco, Inc.; Hess & Clark, Inc.
Principal Competitors
Inverness Medicals Innovations, Inc.; Quidel Corp.; Abaxis, Inc.
Further Reading
Banas, Teri, "'Concept' Firm Grows into Leader," Lansing State Journal, March 26, 1999, p. 5B.
Berg, Steve, Christine Caswell, and Ann Kammerer, "Fifth Annual Event Honors Entrepreneurs," Greater Lansing Business Monthly, May 1999.
Commercial Biotechnology: An International Analysis, Washington, D.C.: U.S. Congress Office of Technology Assessment, January 1984.
Evenson, A. J., "Neogen's Revenue, Profits Up," Lansing State Journal, October 31, 1999, p. 1C.
Smith, Rod, "Neogen Reports Company-Wide Growth," Feedstuffs, January 17, 2005, p. 6.
Whisenhunt, Eric, "Testing Food Source for a Worried Nation," Michigan Business, May 1, 1989, p. 41.
— Ed Dinger
