Scripps Research struggling with deficit but eyeing potential royalties

The Scripps Research Institute in La Jolla continues to operate at a deficit. But Fitch Ratings says the center is financially stable. And relief may be on the way; the institute could earn large royalties if an experimental drug that it helped to develop makes it to the marketplace.

The institute’s financial troubles surfaced last summer when it was disclosed that the University of Southern California was quietly trying to buy or merge with Scripps Research, one of the world’s foremost biomedical research centers.

The deal fell apart after faculty members revolted, saying they didn’t want to surrender control of the nonprofit institute to USC. At the time, Scripps Research was reporting an annual operating deficit of $21 million.

Fitch Ratings recently affirmed Scripps Research’s AA- rating on $43.5 million of revenue bonds, keeping the institute’s ratings outlook at stable.

The company didn’t state the current size of the operating deficit. But Fitch noted that the institute (like others) struggles at times to secure National Institutes of Health grants, and that it no longer receives $20 million a year in backing from a pharmaceutical company. It’s also had problems raising private donations.

All three issues are creating financial pressures. And Scripps Research has been operating without a permanent president for almost a year.

The institute’s “plans to balance operations with a combination of strict cost controls and fundraising efforts at the time of Fitch’s prior rating in 2013 have not materialized,” Fitch said in a statement.

Scripps Research has helped to cover its deficit by drawing from its endowment, which fell from $430 million in 2012 to $397 million in 2014.

James Paulson, acting president and chief executive of Scripps Research, said on Tuesday night that the institute had braced for bad news before Fitch issued its latest rating. He added in an email on Wednesday, “I’m pleased that Fitch has affirmed our ‘AA-’ bond rating. We look toward our future with confidence as we continue our exceptional progress expanding biomedical knowledge and advancing new therapies to combat disease.”

Paulson also said that Scripps Research could receive significant royalties from ozanimod, a drug that San Diego-based Receptos has been developing to treat multiple sclerosis and ulcerative colitis.

The drug is still in Phase 3 clinical trials for multiple sclerosis. But the outlook is so promising it led New Jersey-based Celgene to purchase Receptos for $7.32 billion in a deal announced last week. It’s possible that the drug could hit the market later this decade.

Royalties “could solve some of our problems,” Paulson told the San Diego Union-Tribune.

The institute also is exploring the idea of constructing two laboratory buildings at a cost of $111 million. The complex would enable the institute to eliminate 369,000 square feet of leased space, saving Scripps Research $12 million a year in rent and utilities.

metrodesk@latimes.com