“A Mission that Matters” chronicles the story of Neogen Corporation’s road to success citing Michigan State University Foundation’s early stage funding to biotech startup

The book, A Mission That Matters, Neogen’s Journey to $400 Million in Revenues, tells the story of Neogen’s success as told by founder and former CEO James Herbert and other key company contributors, including former Michigan State University administrators and professors. Neogen was founded in 1982 by Michigan State University administrators to commercialize biotechnology inventions coming from the university’s faculty at the time. To help launch the company, the Michigan State University Foundation was one of the very first investors in the corporation and made multiple investments in the company from 1982 through 1992. Neogen went public in 1990 and today has over $525M in annual revenue and over 1,800 employees.

The following “In The Beginning” is an excerpt from the new book, and is used by permission.

IN THE BEGINNING

Neogen Corporation began as a shared vision of clear-eyed professionals of prominence who likely were initially unknown to each other. The professionals included the unlikely combination of the inventor of the first polio vaccine, nuclear scientists who worked on the Manhattan Project that developed the atom bombs used to effectively end World War II, grandson of the founder of Dow Chemical Co., grandson of the founder of the Oldsmobile automobile company, and an executive of a major seed company seeking his next challenge.

These visionaries brought complementary skills, experience, assets, and motives to the idea for the company. They included pioneers in the field of biotechnology, venture capitalists seeking to profit from the burgeoning biotechnological innovations, and academics working to commercialize breakthroughs coming out of their research laboratories.

Though the major breakthroughs in biotechnology had been discovered more than a generation earlier, including the characterization of the DNA molecule by Crick and Watson in 1953, it was not until the late 1970s that the necessary funding came to join science and research ideas. It’s not difficult to understand why those might have taken place in what is now considered an incubator for innovation — the Silicon Valley area of California. A lot of venture capital had already been drawn to that area as a result of the early speculative investments in the computer and software industries.

One of those early companies was San Francisco Bay-based Cetus, which was founded in 1971 and whose initial work involved developing automated methods to select for industrial microorganisms that could produce greater amounts of chemical feedstocks, antibiotics, or vaccine components.

One of the driving forces behind Cetus was Uruguayan Alejandro Zaffaroni, who had worked with University of California staff to commercialize some of the early DNA activities. Also a principal in that group was American physicist and neurobiologist Donald Glaser, who was the winner of the 1960 Nobel Prize in Physics.

There was no established model at that point in time upon which one could fashion a new biotechnology company, but some bright investment bankers had begun to appear to help financially support and guide the new industry. One of those was Frederick Frank, who at the time was with the Lehman Brothers operations headquartered in New York. Zaffaroni contacted Frank seeking advice on how Cetus might progress and obtain financing.

Simultaneous to the biotechnological advancements occurring on the West Coast, interest in the future for applied biotechnology was developing in numerous other places, including in the American Midwest. At about this time future Neogen CEO Jim Herbert was a vice president of corporate development for DeKalb Ag Research, and was able to learn from those early founders in the field of biotechnology. Herbert had worked his way through the organizational chart at DeKalb over the prior 12 years and was given opportunities to manage several areas of the company under his corporate development responsibilities.

One opportunity Herbert was given was to make investments in the outside biotechnology areas as a “window to the technology” that DeKalb might use in the future. One of those investments was with a venture capital firm in California that had made an early small investment in Cetus. Because of his agricultural background, Herbert was given a position on the board of directors of that venture fund, along with investment banker Frank. In time Frank became known as the first life science specialist in investment banking, and certainly its most prolific, during his career. He’s given credit as the lead underwriter in more than 125 initial public offerings and negotiations of more than 75 mergers and acquisitions — a large percentage of these have been in the biotechnology and life sciences area.

The early growth in biotechnology also extended down the road from the Silicon Valley to La Jolla, California, where the Salk Institute was beginning to consider how it might fit biotechnology into its total research mission. The institute had been established in 1960 by Dr. Jonas Salk using funds from his famous discovery of the first polio vaccine. Salk saw early on that he needed professional research and a financial manager to head the institute, and selected Dr. Frederic de Hoffmann. De Hoffmann is widely credited for providing the leadership that enabled the institute to grow and prosper.

De Hoffmann’s earlier work connected him with Dr. Julius Tabin, whose law firm had an opportunity to do a lot of patent work early on in biotechnology. Tabin and de Hoffmann had known each other from earlier in their careers, when as young engineering graduates they were assigned to work on the delivery mechanism for the first atomic bomb dropped on Japan. It is thought that the association with that event likely pushed de Hoffmann into managing science for positive human health outcomes.

Interest in the emerging field of biotechnology extended to Michigan State University, which had become interested in how to commercialize the biotechnology inventions that were coming from its faculty. This interest was in no small part driven by a desire to keep their professors and researchers from leaving academia to more lucrative careers in private enterprise, as the university had already lost a couple of key faculty members to start their own firms.

Dr. John Cantlon, Michigan State’s vice president of research and graduate studies at the time, began to look for a way to provide commercialization for these scientists without leaving the university. He was joined by Dr. Willis Wood, a professor of biochemistry at MSU. The pair approached the MSU Foundation with the goal of obtaining initial funding to get a new company underway. The MSU Foundation was founded in 1973 to do just that — to help fund and drive research, innovation, and entrepreneurship at the university. (Cantlon and Wood were the ones to choose the company name Neogen as it was intended to be Greek for “new genetics” or the “new generation” of products that it would produce.)

The MSU Foundation provided a $50,000 investment in Neogen’s first stock, which was the only initial funding. One of the members of the Foundation’s Board of Directors was Bill Caldwell, a former senior officer at Dow Chemical Company. Caldwell had joined Ted Doan and Ian Bund in the formation of Doan Associates, a venture capital fund aimed at supporting new companies from technologies developed in the Midwest. Interestingly, Doan was the grandson of Herbert Dow, who started Dow Chemical Company. Doan served as Dow’s president from 1962 through 1971, and is credited with restructuring the company so that it could more effectively function on a global scale.

Doan was of the opinion that the saltwater air of the West and East Coast was not a necessary component of successful startup companies.

Herbert had earlier become connected with Doan through another business venture. Eventually Doan’s group provided a second $50,000 into the capitalization of then Neogen Corporation, alongside the MSU Foundation. At about this time the forces began to be drawn together that would form Neogen.

In late 1981 Herbert exited from DeKalb Ag Research, which at that point was not ready to make a major commitment to the tools of biotechnology. Herbert, having listened to investment banker Frank and others on the West Coast, and see companies begin to form, saw it being an opportunity for him to become more closely involved with biotechnology using his experience in agriculture and the food industry.

Herbert hung up his shingle as NorthAmerican Technology to specialize in business and marketing aspects of startup to middle-size companies whose products or services were based on scientific technologies — notably biotechnology. He almost immediately became involved with two such firms, one of them being the Salk Institute. De Hoffmann had already formed a biotechnology company named Sibia Neurosciences, which was owned by the Salk Institute, and was looking for scientists. De Hoffman’s colleague Tabin had already become acquainted with Herbert, and suggested that Herbert might be involved in helping Sibia get started. The inspiring enthusiasm from Frank and the California entrepreneurs resulted in Herbert having “been bitten by the bug.” He also formed a client relationship with the Salk Institute.

Wood continued in his position in biochemistry at Michigan State, but also served as a part-time president of the newly formed Neogen Corporation.

Interestingly, as de Hoffmann was searching for someone to lead biochemistry research efforts at Sibia, Wood was presented as a possible candidate. But he considered himself to be the interim president of Neogen until he could build enough business to become a real company. With that in mind, Caldwell, who was on the board, suggested that Herbert might be interested in aiding newly formed Neogen.

After several months of conversations, Bund of Doan Associates reminded Herbert that if he ever wanted to start a company of his own that he was now 42 — and he had better get started.

In June 1982, Wood left Michigan State and Neogen to head up an important part of research for the Salk Institute in La Jolla. Herbert became the president of Neogen Corporation and Doan agreed to serve on the Board of Directors. With Caldwell’s assistance, Neogen claimed as another of its board members Olds Anderson, the grandson of Ransom Olds, who began Oldsmobile Corporation.

At this point, Neogen used $25,000 of its initial $100,000 capitalization to do all the legal work to be properly established. In the first board meeting Olds Anderson said, “Seems like we got everything resolved here except what kind of salary are we going to pay Herbert?” Herbert responded that with only $75,000 in a bank account that was probably something that ought to be discussed further down the road.