Florida Trend | Florida's Business Authority

Turning point: What Sanford Burnham Prebys' exit means

A research institute retreats from central Florida. Some see a failure of public incentives. Others point to evidence that the deal has helped create a healthy and growing life sciences landscape in the state.

The Sanford Burnham Prebys Medical Discovery Institute formally opened its $79-million campus in Orlando under a bright blue sky in October 2009 — the institute’s first out-of-state expansion from its main campus in La Jolla, Calif.

Clouds soon moved in, however.

A $300-million public-incentive package had funded the construction of the new campus and would pay for equipment, salaries and other operational expenses for its first decade. Longer-term, however, making the campus viable meant it would have to generate research grants, scientific successes, financial partnerships and private philanthropy.

Raising private donations in central Florida proved more difficult than the institute’s leaders had expected. As the campus opened, the recession had taken hold, and there was intense competition for local philanthropy from other big projects — including a $500-million performing arts center downtown, along with a $65-million University of Central Florida medical school and a $400-million Nemours Children’s Hospital, both of which would soon join the institute in the Tavistock Group’s burgeoning “Medical City” development in Orlando’s Lake Nona community.

“We were in a situation where it was a huge startup scenario at the Medical City with a fair amount of fundraising activities going on at a time when the economy was hit very hard,” says Dr. Daniel Kelly, scientific director at the Lake Nona campus.

Meanwhile, overall funding from the National Institutes of Health, the federal agency that’s the main funder of scientific research in the U.S., remained stagnant. And the competition for what remained grew, as public universities in Florida and elsewhere, their own budgets pinched, began competing more aggressively for federal grants.

Between fiscal 2011 and fiscal 2015, the Lake Nona facility and the main campus in California collectively saw NIH grants and other federal funding shrink by nearly a quarter, falling from $96.7 million to $73.5 million, according to analysts at ratings house Fitch.

Viewed by itself, the Lake Nona campus actually increased the grants it received from $4.6 million to $9.5 million. But those grants didn’t come close to covering the costs of operating the campus. And the $300 million in funding from taxpayers was running out.

As scheduled, the annual payments from the incentive agreement declined over the 10-year period from $30 million in 2011 to less than $19 million in 2015. They were scheduled to end with a $1.5 million payment in 2016.

Bond documents indicate that once the payments stopped, the Lake Nona campus would generate operating losses of $12 million annually. Reserve funds would enable the campus to operate “for at least the next three years without using funds generated from outside Florida,” according to a bond document, but the operating losses were expected to continue.

Sometime in 2015, the institute’s leaders conducted a study to “explore what needs to be done to achieve financial sustainability for the Lake Nona facility and its operations.” Their plan: Turn over the whole Lake Nona operation to the University of Florida. The building, equipment, researchers, programs and partnerships will remain in Florida, but the institute will no longer be involved.

Universities “can run research institutes with incredible economies of scale,” Kelly says. “They have a much greater reserve, so that the ups and downs of the economy that can affect a small business can be dampened out with this partnership.”

The proposal, negotiated primarily between the institute and UF, caught state leaders — Gov. Rick Scott among them — off-guard. Scott’s office began questioning the merits of the deal; the institute’s goal of completing the handoff by June 30 sailed by.

Critics of public incentives seized on the news as another example of an economic development deal gone bad. Incoming House Speaker Richard Corcoran (R-Land O’ Lakes), the lawmaker most responsible for denying Enterprise Florida new incentive money this year, began citing the institute as he argued against incentives.

The institute and its allies say Corcoran and others miss the point. Unlike most incentive packages for companies, the deal given to the institute, a non-profit, was never intended to be measured solely by the number of jobs it created. Instead, the institute’s presence was meant to catalyze the development of a much broader life-sciences cluster.

And that, the institute insists, has happened.

On the most visible level, several major tenants have joined the institute at the Medical City complex. Much has been publicly funded development — the UCF med school, a University of Florida research building and a federal VA hospital. But there has been private investment as well, including non-profit Nemours and a 92,000-sq.-ft. GuideWell UST Global Innovation Center, a complex equipped with offices and wet labs for use by companies developing health care diagnostic, treatment and monitoring solutions. GuideWell is the parent company of health insurer Florida Blue.

The institute has also developed partnerships with several pharmaceutical companies and also has partnered with Florida Hospital on a Translational Research Institute for Metabolism and Diabetes on Florida Hospital’s main Orlando campus, which is designed to combine the institute’s basic research with Florida Hospital’s large patient base and clinical trial ability. That facility is an anchor of a broader, 172-acre “Health Village” Florida Hospital is constructing.

Kelly says the institute also has helped attract top talent to central Florida. When Nemours was wooing Dr. Terri Finkel from the University of Pennsylvania to be pediatrics chair and chief scientific officer, the institute offered her lab space at its facility.

When the institute brought in Dr. Peter Crawford as director of its cardiovascular metabolism program, his wife, Dr. Jane Chen, became a top cardiologist at the Orlando VA Medical Center. And the institute helped recruit Dr. Steven Smith from Louisiana State University’s Pennington Biomedical Research Center to the institute and Florida Hospital, where he became the hospital system’s first chief scientific officer.

Since the institute opened in 2009, Kelly says researchers at its Orlando campus have produced more than 425 research publications and brought in grants and contracts worth more than $125 million.

Over the past eight years, “there have been a number of incredible strides that have been made and a number of things that weren’t envisioned by the original architects” of the deal, Kelly says. “It’s still growing. It hasn’t completely matured. But my point is that, out of the blocks, things are going very well.”

When state leaders began using incentives to create a life sciences industry in the mid-2000s, some argued Florida would have done better by investing directly into universities rather than doling it out to private foundations and companies.

The institute’s plan to hand its Lake Nona campus to the University of Florida may make some of those warnings look prescient. But Kelly insists that Florida’s life sciences industry wouldn’t have developed the same way without the private actors, which have different cultures than big universities.

Unlike large universities, the Lake Nona campus focuses its science on a niche — diabetes and obesity — which has helped focus the region’s broader life sciences growth. Kelly says the institute has also taken a “Manhattan Project-like” approach by bringing together scientists from a variety of disciplines, such as biochemists, physiologists and physicians, without the bureaucratic resistance that often occurs at large institutions. Kelly says the institute, as a private entity, has encouraged an entrepreneurial culture, partnering with industry giants such as Pfizer and Takeda and pushing its researchers to search for cures that can be brought to market and monetized.

“We have created a very unusual and unique culture,” Kelly says. “This never could have happened just as part of a university at the beginning.”

If he’s right, the trick will be preserving those advantages once Burnham’s Orlando operation is, in fact, part of a university.


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