Neogen's Safety Play Still Is Not a Safe Play

The food safety diagnostics sector, poised for robust growth amid rising concerns over foodborne illnesses and regulatory demands, has become a battleground for innovation and market dominance. Neogen Corporation, a key player in this space, has long positioned itself as a leader in pathogen detection and animal health diagnostics. Yet, for investors, the company's recent financial struggles and competitive pressures underscore a critical question: Can Neogen sustain profitability in an industry increasingly dominated by giants like Eurofins Scientific and Thermo Fisher Scientific?

Operational Turmoil and Integration Woes

Neogen's financial performance since 2023 has been marred by the challenges of integrating the former 3M Food Safety business. In Q2 2025, its core Food Safety segment saw operating income plummet by 60% year-over-year to $7.1 million, while gross margins contracted by 3.0 percentage points to 45.4% due to manufacturing inefficiencies and production line relocations. By Q4 2025, Food Safety segment revenue had declined 3.0% year-over-year to $161.8 million, with core revenue dropping 1.3% amid softness in key product categories. These figures highlight a stark disconnect between the company's strategic ambitions and its operational execution.

While Neogen has taken steps to reduce debt-using $122 million from the divestiture of its Cleaners & Disinfectors business to cut total debt by over $100 million-such measures come at the cost of divesting revenue streams. The Animal Safety segment, though resilient (73% operating income growth in Q2 2025), represents a smaller portion of the company's overall business and cannot offset the Food Safety segment's struggles.

Competitive Pressures: R&D and Market Share

Neogen's long-term profitability hinges on its ability to innovate and compete with industry heavyweights. The company allocates 9.5% of revenue to R&D (e.g., $41.2 million in Q1 2025), focusing on platforms like Petrifilm and molecular diagnostics. However, this pales in comparison to the scale of investments by rivals. Eurofins Scientific, for instance, leverages 40 acquisitions in 2023 alone to expand its bioanalytical testing capabilities, while Thermo Fisher Scientific's acquisition of The Binding Site Group in 2023 underscores its strategy to dominate through diversified portfolios and global reach.

Market share data further complicates Neogen's outlook. Thermo Fisher Scientific holds a staggering 97.68% market share in the Scientific & Technical Instruments Industry, a sector that overlaps significantly with food safety diagnostics. Eurofins, meanwhile, dominates contract lab testing with an extensive global laboratory network. Neogen's lack of comparable scale and its reliance on niche products leave it vulnerable to pricing pressures and margin compression.

Strategic Reassurance or Illusion?

Neogen's leadership has outlined ambitious goals, including $15 million in cost synergies from the 3M integration by year-end 2025 and a beta version of a data analytics platform for top customers. These initiatives aim to position Neogen as a "data-driven partner" in food safety. However, the company's recent history of material weaknesses in internal controls and two ongoing class-action lawsuits casts doubt on its ability to execute complex strategies without further setbacks.

Moreover, while Neogen's global presence in 100+ countries offers growth potential, its focus on international expansion must contend with the logistical and regulatory challenges of scaling operations. Competitors like Thermo Fisher Scientific, with their established global networks, are better positioned to capitalize on these opportunities.

Conclusion: A High-Risk Bet in a High-Growth Sector

The global food safety diagnostics market is projected to grow at a 7.9% CAGR through 2032, driven by rapid testing technologies and regulatory demands. Yet, Neogen's operational inefficiencies, integration challenges, and weaker competitive positioning against better-capitalized rivals create significant headwinds. While the company's R&D focus on innovations like the MDA2QSAL96 assay is commendable, these efforts must translate into sustainable revenue growth and margin stability to justify long-term investment. For now, Neogen's "safety play" remains anything but safe.