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Research Business Models Subcommittee Workshop University of North Carolina November 17, 2003 Randy Main Vice President and Chief Financial Officer Fred Hutchinson Cancer Research Center

Characteristics of Independent Research Institutes Single mission institutions – Research Generally small in size, average research budget of $28 million Awarded 10% of total NIH budget Very competitive, NIH success rate much higher than national average Subject to OMB Circular A-122

General Reimbursement Observations Non-profit institutions are not reimbursed full costs, thus are expected to lose money on sponsored research awards Commercial contractors are awarded full costs plus a profit What gives here? It’s all about attitude

Additional Consequences of the Attitude Non-profit institutions can’t be trusted to make responsible business decisions Particularly decisions to construct new facilities – Lease Purchase Analysis But we are putting our own capital at risk Or the capital markets weigh in and will only finance projects of reasonable risk

Other Common Misperceptions Indirect costs are not real costs Indirect cost reimbursement provides a profit margin or slush fund Non-profit institutions have no incentive to manage costs

Our Reality Facilities and Administrative costs are part of the real costs of conducting research and must be reimbursed We cannot shift costs to other lines of business, we only do research Discretionary funds come from fund raising and investment income and are the only sources available to fund new initiatives and pilot projects

Other Inequities Inconsistent cost policy interpretation between regional offices Lack of central office efforts to eliminate inconsistencies between regions

One Size Will Not Fit All Funding agencies and recipient institutions must be flexible Models must be flexible Developing cooperative working relationships with agencies does yield results

The Issue and Solution The federal government wants us to be good stewards of the tax payers dollars, and we are They want us to comply with the growing mountain of regulations, and we do Now they must uphold their end of the bargain and reimburse our full costs of stewarding the research dollars and complying with regulations