Waksman was able to supply the Mayo Clinic with sufficient samples because of a prior agreement he had reached with Merck & Company in late 1939 under which the giant pharmaceutical company gave Waksman's laboratory a grant for the study of antibiotics. An agreement was drawn up with Merck whereby the company provided chemical assistance, experimental animals for pharmacological evaluation of antibiotics, and large-scale equipment for producing any promising discoveries. In return, Waksman assigned Merck any patents resulting from research in his laboratory. Should any of the patents prove commercially successful, Merck was to pay The Rutgers Foundation a small royalty.²

Armed with samples supplied by Merck, Feldman and Hinshaw began in vivo tests and within two months reported to Waksman that two animals receiving streptomycin "look exceedingly well."³ Throughout 1944, the Mayo Clinic team performed tests on tubercular guinea pigs, tinkering with the dosage to minimize side effects. For example, weight loss in the test animals seemed a problem, but Feldman could report to Waksman in July that "results appear to be satisfactory" when the dosage was reduced.⁴ In September, when a 60-day in vivo test of a large sample was completed, Feldman wrote that "definite signs of tuberculosis were absent in almost every instance."⁵ In 1945, clinical trials confirmed the animal results, with Hinshaw reporting in August that thirty-three patients had been treated "and [we] continue to be quite optimistic."⁶

The tests proved that streptomycin was the first effective chemotherapeutic treatment for tuberculosis. It was also effective against a host of other diseases: typhoid fever, cholera, bubonic plague, tularemia, urinary tract infections, and others. As early as 1945, Waksman, realizing that streptomycin would be an important antibiotic, became uncomfortable with the agreement giving Merck exclusive rights to the drug, especially since Rutgers had become the State University of New Jersey the previous year. Waksman believed that prices could be reduced if several companies could manufacture the drug. He also wondered whether Merck alone could meet the demand for streptomycin. Accordingly, Waksman approached Merck requesting abrogation of the 1939 agreement. Merck was "willing to accede to this request," provided a new agreement could be reached.⁷

Merck was generous: the company agreed to assign the patent rights to Rutgers and to accept a non-exclusive license for the production of streptomycin. Merck also requested, and was granted, a rebate on royalties to compensate the company for money spent in the development of streptomycin. Initially, this agreement appeared to satisfy all parties involved in the development of the antibiotic. Merck was praised for its generosity and Rutgers made licensing agreements with other drug companies.⁸

Because it attacked a wide spectrum of diseases, including tuberculosis, streptomycin almost immediately began generating huge profits. Originally, The Rutgers Foundation turned over about half the royalties it received from Merck to Waksman. When it became clear that this was a lot of money, Waksman had his share reduced to a fifth. In 1946, when Merck turned over the patents to Rutgers, the foundation was reorganized as The Rutgers Research and Endowment Foundation. By about 1950 Waksman's share was again reduced to ten percent, but since that was still a considerable sum of money, he arranged for half of it to be used to create the Foundation for Microbiology.⁹

In addition to money, Waksman was being recognized as "the discoverer" of streptomycin. In early 1949, for example, Time ran a story that began: "People are always asking greying [sic] Microbiologist Selman Abraham Waksman, 60, how he discovered the wonder drug streptomycin in 1943."¹⁰ Later that year, Waksman's picture graced the cover of Time.¹¹ Awards, plaudits, and recognition from many quarters came Waksman's way.

Given all the money and fame attached to the discovery of streptomycin, it is no surprise that there would be some ruffled feathers. Nonetheless, it came as a shock when Albert Schatz sued Waksman and The Rutgers Research and Endowment Foundation in March 1950. The lawsuit requested Waksman to cease claiming he was the sole discoverer of streptomycin and asked for an accounting of the royalties earned from licenses granted by Waksman and the Foundation. Schatz also sought a substantial amount of the funds received so far.¹²

Schatz clearly believed he was co-discoverer of the drug as he had performed the basic laboratory work in its isolation and since his name was listed first on the original paper reporting the antibiotic's discovery and second on the patent.¹³ In addition, his doctoral thesis, which he defended in 1945, was on streptomycin. Initially, however, Schatz appeared content with his public role in the discovery, writing Waksman "to express my appreciation for all that you have done for me both in my undergraduate, graduate and post-graduate work."¹⁴ In 1946 a colleague asked Schatz why his name was listed first on the paper announcing streptomycin, and Schatz said that Waksman was "thoughtful and concerned" about his students and did them the honor of putting their names first.¹⁵ Nor did money appear to be an issue for Schatz at first, since as late as 1948 he was returning royalty checks to Waksman, writing "I simply would not know what to do with more money if I had it."¹⁶ At about the same time Schatz said "I have not the slightest desire for fame, glory, popular acclamation, or a lot of money."¹⁷

But just a few months later, Schatz would write Waksman a long letter expressing concern that his contribution to the discovery of streptomycin was being forgotten.¹⁸ Waksman replied, in a tone Schatz must have found arrogant and condescending, that "you know very well that you had nothing whatever to do" with the discovery. "Further," Waksman wrote, "you know quite well that we gave you all the credit that any student can ever hope to obtain for the contribution that you have made to the discovery of streptomycin. You know quite well that the methods for the isolation of streptomycin had been worked out in our laboratory completely long before your return from the army, namely for streptothricin. I am sure that your memory does not fail in the fact that the very name streptomycin existed before your return."¹⁹ A little later Waksman told Schatz that "you must, therefore, be fully aware of the fact that your own share in the solution of the streptomycin problem was only a small one. You were one of many cogs in a great wheel in the study of antibiotics in this laboratory. There were a large number of graduate students and assistants who helped me in this work; they were my tools, my hands, if you please."²⁰

Clearly Waksman, and others who worked in the laboratory, believed Schatz had made only a minor contribution to the discovery of streptomycin. Schatz was in the laboratory for only three months in 1943; he performed a routine screen according to protocols worked out by Waksman years earlier; and Waksman, based on the success of streptothricin, was clearly looking for an antibiotic with similar properties but less toxicity.²¹ "Not only did we know the nature of the organism," Waksman wrote in 1950, "but we developed all the methods for its isolation and had the name already available so that it was merely a question of screening a certain number of forms before we had the right organism… It just happened that Schatz was concerned with some of the early isolations and tests, but… Miss Elizabeth Bugie and Miss H. Christine Reilly have made as important contributions, if not more so, in the discovery and development of streptomycin than Schatz has done."²²

The scientific community, for the most part, rallied to Waksman's side. Still, there were some misgivings expressed by Waksman supporters over the disposition of royalties. Waksman's colleague at Rutgers, Robert Starkey, told him that "I am sure that your friends have no feeling that you are justified in having any amount of money from the patents that you might wish but they feel hurt that they had been misled with regard to the disposition of the funds."²³ Others said that they understood that all money was to go to the Foundation and were "quite surprised that a considerable sum had been diverted to Dr. Waksman. We feel that it is very proper that Dr. Waksman should be rewarded in a material way for his long years of work, but it rather unfortunate in the way the rewarding has worked out."²⁴

In December 1950 the case was settled. The President of Rutgers issued a statement explaining that all parties recognized that Schatz was co-discoverer of streptomycin. Under the agreement Schatz was to receive three percent of the royalties paid to the Foundation, with ten percent going to Waksman and another seven percent split among all who participated in the early work leading to the development of streptomycin. (Waksman later reduced his share to five percent.) Although he agreed to the settlement, Waksman always considered 1950 the "darkest" year in his life.²⁵