Neogen Corporation: Legal Storms and Governance Gaps Threaten Shareholder Value – What Investors Must Know

The biotech sector is no stranger to volatility, but Neogen Corporation (NASDAQ: NEOG) has become a cautionary tale for investors who overlook governance risks. With a stock price that has plummeted 79% in 2025 and a class-action lawsuit alleging securities fraud, Neogen's story is a masterclass in how poor corporate stewardship can erode shareholder value. Let's dissect the legal and governance challenges that have turned this once-promising food safety innovator into a high-risk proposition—and what investors can do to protect themselves.

The Legal Quagmire: A House of Cards Built on Misrepresentation

Neogen's legal troubles stem from its 2022 acquisition of the 3M Food Safety Division, a $5.3 billion bet that has backfired spectacularly. The lawsuit Operating Engineers Construction Industry and Miscellaneous Pension Fund v. Neogen Corporation (No. 25-cv-00802) accuses the company of misleading investors about the integration process. For months, Neogen and its executives painted an overly optimistic picture, claiming the integration was “off to a great start” while downplaying inefficiencies.

The truth emerged in a series of gut-punch disclosures:
- January 2025: A $461 million goodwill impairment charge and material weaknesses in internal controls sent the stock down 5%.
- April 2025: A 3.4% revenue drop, CEO John Adent's resignation, and a 28% stock collapse.
- June 2025: EBITDA margins fell to the “high-teens” from 22%, triggering another 17% selloff.

These events have left investors reeling. The lawsuit argues that Neogen's leadership knew about these issues long before they were disclosed, artificially inflating the stock price. With the lead plaintiff deadline set for September 16, 2025, the legal storm shows no sign of abating.

Governance Failures: A Leadership Crisis in Plain Sight

Neogen's governance structure, once touted as a model of transparency, has crumbled under scrutiny. The company's “Pillars of Trust”—Openness, Honesty, Credibility, Respect, and Service—now feel like hollow slogans. The board's response to the crisis has been reactive rather than proactive:
- CEO Turnover: Adent's abrupt exit and replacement by Mike Nassif, a Siemens Healthineers veteran, signals a lack of continuity.
- Board Overhaul: New appointments like Andrea Wainer (healthcare diagnostics expert) aim to restore credibility, but the board's interim chair, James Borel, is juggling multiple roles, raising concerns about oversight capacity.
- Shareholder Engagement: While Neogen's proxy voting system allows for director accountability, the recent 28% stock drop suggests investors are losing faith in the board's ability to steer the company.

The material weaknesses in internal controls are particularly damning. For a company in the diagnostics and food safety space, where regulatory compliance is non-negotiable, these gaps expose Neogen to further reputational and financial risks.

Financial Implications: A Company in Freefall

The numbers tell a bleak story. Neogen's Q3 2025 earnings report revealed a 3.4% revenue decline and a $100 million spike in capital expenditures tied to integration. By June 2025, EBITDA margins had cratered to the high-teens, far below the 22% reported in the prior quarter. The company's market cap has shrunk by over $4 billion since the start of 2025, erasing years of gains.

This chart starkly illustrates the divergence between Neogen and the broader market. While the S&P 500 has trended upward, Neogen's stock has spiraled downward, reflecting a loss of confidence in its management and strategy.

Investment Protection Strategies: Navigating the Risks

For investors still holding Neogen, the priority is damage control. Here's how to approach this volatile situation:

1. Diversify and Hedge: Given the legal and governance risks, investors should consider hedging their Neogen exposure with options or reducing their position. Biotech stocks are inherently volatile, but Neogen's unique challenges amplify the risk.

2. Monitor Governance Reforms: Keep a close eye on Neogen's upcoming Q3 2025 earnings and any updates on internal control improvements. A credible governance overhaul could stabilize the stock, but until then, caution is warranted.

3. Compare to Peers: Look at how Neogen stacks up against competitors like 3M (which spun off its food safety division) or Thermo Fisher Scientific. These companies have stronger balance sheets and more transparent governance structures.

4. Legal Updates Matter: The outcome of the class-action lawsuit will be a critical inflection point. If Neogen settles, it could face hefty fines and reputational damage. A favorable ruling might provide a short-term bounce, but long-term recovery will depend on operational fixes.

5. Rebalance Portfolios: Biotech investors should ensure Neogen doesn't dominate their holdings. Allocate more to companies with proven governance frameworks and consistent financial performance.

Conclusion: A Lesson in Governance and Accountability

Neogen's saga is a stark reminder that even companies with strong market potential can falter when governance fails. The legal challenges and leadership turmoil have created a perfect storm for shareholders. While the food safety market remains robust, Neogen's current trajectory is unsustainable without a fundamental reset in transparency and accountability.

For now, investors should treat Neogen as a high-risk, high-reward bet. Those with a long-term horizon might consider waiting for a governance-driven turnaround, but for most, the priority is to protect capital and avoid further losses. In the biotech sector, as in life, trust is earned—Neogen has a long way to go to rebuild it.