Scripps Research is in financial trouble
Fabled institute in La Jolla might shrink its faculty after a fifth consecutive year of deficit spending.
The fabled Scripps Research Institute in La Jolla might shrink its faculty because of deepening financial problems, according to a new independent audit.
For decades, the center has commanded international prestige for its groundbreaking studies of cancer, dementia, HIV and various addictions. But in recent years, it has also become known for money troubles that at one point led to the resignation of its president after he tried to negotiate a takeover by USC.
The nonprofit institute is expected to finish the fiscal year Sept. 30 with a $20-million operating deficit, which is $3.4 million higher than projected, according to Fitch Ratings, a major credit-rating company.
This is the fifth consecutive year of deficit spending at Scripps Research, which has been struggling to obtain federal funding and secure substantial donations from the private sector. The institute also is suffering from the expiration of a research contract with a pharmaceutical company that was bringing in $20 million a year, Fitch said.
“On the expense side, there may be a gradual reduction of faculty in California, by attrition and retirement,” Fitch said in a statement. The institute — which has a satellite campus in Jupiter, Fla. — has 190 principal scientists.
Fitch said the center’s rating fell from AA- to A+, and that the financial challenges and leadership turnover prompted it to downgrade $40 million in Scripps Research bonds. The money would be repaid with a $146.9-million bond the institute plans to float this summer for a range of projects.
Fitch listed the institute’s credit status as stable, partly because it has a decent endowment. The rating agency also praised Scripps Research’s decision last fall to hire two highly respected scientists to run the institute: Steve Kay and Peter Schultz.
Kay, who is president, and Schultz, who is chief executive, said they’ll restore the institute’s financial health by having scientists focus on rapidly turning basic lab discoveries into new drugs and therapies, a field called translational medicine. Such discoveries can be worth millions in royalties and licensing fees.
“If this strategy works, there could be a lot of upside to it,” Fitch analyst Emily Wong said in an interview Friday.
On the same day, Schultz said: “We are quite optimistic regarding both the financial stability of [Scripps Research] and its long-term growth. This optimism stems from a combination of operational efficiencies, an increased focus on philanthropy and several impending royalty streams.
“Moreover, we are developing a new self-sustaining model for nonprofit research that not only continues the [Scripps Research] tradition of outstanding biomedical research, but also effectively couples new research discoveries to translational research capabilities that will both accelerate their benefit to the public as well as provide additional funds for future research.”
The financial difficulties at Scripps Research came to light in 2014 when the faculty learned that Michael Marletta, then the institute’s president, was discussing a sale or merger with USC.
Faculty members were outraged that those talks were occurring without their input. Many of them also didn’t want to become part of USC because the university doesn’t enjoy the level of renown that Scripps Research has built in the life sciences. In the end, the envisioned tie-up was called off.
For its part, USC has said it wants to become a biomedical powerhouse.
“The 20th century was dominated by physics. The 21st will be dominated by biomedical sciences. We have to be at places where the conversations [in life sciences] are the best, and San Diego is one of those places,” USC Provost Michael Quick said last July.
Scripps Research has helped to develop drugs such as Humira, which is used to treat rheumatoid arthritis and other autoimmune diseases; Benlysta for lupus; and Surfaxin for respiratory distress syndrome affecting infants. The institute also has been a leading player in the global quest to create an HIV vaccine.
Research excellence hasn’t solved the institute’s financial problems, which resulted in operating deficits of $1.7 million in 2012, $25.5 million in 2013, $14.3 million in 2014 and $13.8 million last year.
Scripps Research also has experienced a sizable drop in funding from the National Institutes of Health, the largest government underwriter of biomedical research. Such funding has fallen by more than $55.2 million a year since 2012.
The institute has blamed the drop on increased competition for NIH money. But many institutions, including UC San Diego, fared reasonably well or experienced smaller losses during that same period.
In addition, Scripps Research hasn’t managed to raise much in the way of private contributions. The opposite has been true at the nearby Salk Institute for Biological Studies and the Sanford Burnham Prebys Medical Discovery Institute.