Homespun biotech company has lessons for others

BRIDGEVILLE | Nearly a decade ago, when Edwin Naylor launched Neo Gen Screening, there was no ready-made wet-lab incubator for biomedical startups, little if any state money to help them get off the ground, and no Pittsburgh Life Sciences Greenhouse to coddle them along. He didn't let those things stop him. Even today, his ''wet-lab'' consists of stock kitchen cabinets and sinks. Standard lab benches are too expensive by his reckoning. As for venture capital, he was offered some, but turned it down, opting instead to use leased equipment, a second mortgage on his modest Mt. Lebanon house and the money he had banked for retirement. Sure, venture capital might have helped the company grow faster. But in retrospect, Naylor, 62, has no regrets about turning it down. After all, with outside financial backers, he and his family wouldn't have been the sole owners of a company that fetched $34 million in May when it was acquired by Pediatrix Medical Group of Fort Lauderdale, Fla. Surprisingly, before the sale, Neo Gen's name didn't ring many bells among younger biotech entrepreneurs whose companies economic developers are lavishing with attention in hopes of jump-starting an industry in the region. Naylor thinks that's probably because the company has no outside investors, but he is anything but smug about how things played out. Unassuming and, by his own admission, happier in scientific circles than financial ones, Naylor acknowledged he had a couple of huge advantages over many local biotech entrepreneurs who are just beginning their companies. Specifically, Neo Gen, now known as Pediatrix Screening, of which Naylor is now the chief executive officer, started in business with a proven lineup of products and services — comprehensive screening tests for genetic and metabolic disorders in infants — and an already established base of customers. Naylor built the company from a base of business he established as a researcher at Magee Women's Hospital. He was recruited there in 1984 after nearly a decade of work under Dr. Robert Guthrie, the Buffalo, N.Y., Children's Hospital scientist regarded as the prime mover behind infant screening programs and the founder of a test for identifying infants with Phenylketonuria, or PKU. The genetic disorder prevents normal use of proteins from food and results in mental retardation unless detected and treated with dietary adjustments soon after birth. Guthrie, father of a retarded child, crusaded to make the test mandatory. When Naylor came to Magee Women's Hospital, Pennsylvania had implemented mandatory screening for PKU. Naylor expanded the hospital's screening program, adding tests that weren't mandated but that could help babies born with other uncommon genetic or metabolic problems develop normally if the conditions were detected at birth. As time went on, more tests were added, and the hospital gained outside customers for its lab analysis services. By 1992, the number of tests Magee was analyzing had reached 45,000, including about 35,000 from other hospitals. Because of the volume and new tests that were becoming available, Naylor requested a tandem mass spectrometer for the lab, whose $350,000 cost was the largest single capital outlay at Magee that year, he said. By 1994, when the volume reached 65,000 and Naylor needed another of the expensive machines, the hospital was in the midst of a major expansion and couldn't afford it. So with Magee's blessing, Naylor turned the laboratory's infant screening services into a free-standing business. His aim was to expand the list of hospitals using nonmandated tests, contract to perform mandated testing in Pennsylvania and other states, and develop new tests and techniques for discovering treatable genetic and metabolic diseases. Although there was not yet a Life Sciences Greenhouse to help startups such as Neo Gen, Naylor took his business plan to the Enterprise Corp., one of the region's early economic development agencies. The review he received was ''very valuable in helping me assess the issues and problems and just what we were getting into,'' he said. Through contacts developed there, some would-be investors approached him. But with customers already in place and an equipment lease for the tandem mass spectrometer, Naylor was less wary of putting his own money at risk than of giving up total control. ''I knew I had a revenue stream, and the question was how long it would take to build that revenue stream.'' he said. All told, ''I think we put about $150,000 of our own in cash on the line and we had a $100,000 line of credit.'' Naylor brought five people with him from Magee. His wife, Judith, formerly a legal secretary, took on the company's billing, bookkeeping and other office tasks. One of his two sons, Grant, also joined the business and now serves as its president. With a tiny, 1,400-square-foot office and lab, the company lost $150,000 in its first year that ended in 1995. A year later it broke even, and it has been profitable since, said Naylor. Neo Gen's Bridgeville lab and offices now take up 18,000 square feet, and the company's sales have grown an average of 20 percent annually, to about $10.8 million last year and a projected $13 million in 2003. The early years required long hours and careful use of cash. Having his wife and son in the business made the hours less of a burden. And thriftiness poses few problems when your family's nest egg is at stake, Naylor said. ''Too often, startup businesses, particularly if they have venture capital, go out and buy state-of-the-art labs,'' fancy office furniture and other things they don't necessarily need, he said. When Neo Gen moved to Bridgeville three years ago, he and his son went to Office Depot, purchased most of the desks the company needed and did the assembly themselves. The only formal office furniture in Neo Gen's new home is a mahogany-stained conference table, an amenity his son thought they needed, Naylor said. Nor did Naylor start Neo Gen with visions of public stock offerings or sale opportunities in his head. ''My motivation starting out in 1994 was not to set out to be an entrepreneur to become wealthy,'' he said. ''It was to provide newer and better newborn screening…and to provide an alternative to the public health model.'' Public health departments have long done the lab analysis for mandatory newborn screening tests in many states, though private labs such as Neo Gen also often compete for state contracts. Expansion of the number of tests available and new methodologies for analyzing them have been important contributions from the private sector, said Naylor. ''What we've been able to mix is the routine service component with innovative biotechnology,'' he said. Neo Gen, which employs DNA analysis as well as tandem mass spectrometry and other analytical techniques, has four patents pending on new molecular diagnostic methods, he noted. Naylor, who had turned down a couple of earlier unsolicited offers, said he decided to merge with Pediatrix — whose 625-member physician network provides services to 200 newborn intensive care units in 30 states — because the Florida company seemed to share his goals. By teaming up, Naylor said he believed that Neo Gen and Pediatrix would be able to ensure more testing for more infants and do so more quick