Tuesday, July 28, 2009

Skins game

The last part of Bret Giroir's presentation was about the administrative structure of the Institute for Innovative Therapeutics. Giroir talked about how the participating components - TAMU, TAMUHSC, TEES, and AgriLife would each have primary responsibility for one of the components. In the current plan, TAMU will run TIPS, TAMUHSC will run TIGM, and TEES will run the NCTM. AgriLife will eventually have responsibility for another component, as the Institute expands into a "One Health Plus" mission, and becomes a campus bridging space between the university and the site of the planned new medical center.

The idea is that each of the System components will have "skin in the game" for all of the Institute components, with a larger share of the responsibility and revenue for the piece they run. A preliminary version of how this would work is in the strategic plan (pdf) posted on the CPI website.
The Chancellor and the CEO constituency committee should develop a model for sharing shortfalls and excess revenues across the Institution and participating components

A recommended strategy would be to have the institutional shortfalls and excess revenues assumed according to the following type of structure, using TIPS as an example. The percentage allocation should be decided upon by the Chancellor and the CEO Constituency Committee but should adhere to the principle of shared "skin in the game":
  • 60% assumed by the primary owner (e.g. TAMU as primary owner of TIPS
  • 20% assumed by the Institutional Partners (e.g. HSC and TEES)
  • 20% assumed by TAMUS
The percentages presented by Giroir yesterday were different. The primary owner shares where reduced to 40%. Vision 1920 did not catch how the exact percentages were adjusted for the other components, but the plan included a way for AgriLife to have significant skin in the game even before it becomes a primary owner of a component.

The story in today's Eagle touches on the question of how much exposure is involved
"We would like to understand much better where the money is coming from and what the risks are," said Tim Hall, a professor in the College of Science.
"I would say the risks are incredibly* minimal," he said in an interview after the meeting. "Anything you do has risks. I can only say that we have done more financial due diligence and have more [backup] plans that I have seen at any university in my experience."
The fiscal risks are hard to estimate, as they require assumptions about the income streams of TIGM, TIPS, and NCTM. Interestingly, Giroir said he expected TIGM to continue to lose money; as a core facility it is designed to subsidize other research (currently that subsidy is to other institutions outside TAMUS). This makes the outdated technology of the TIGM knockout collection a feature, not a bug; if more labs ordered TIGM mice, it would have an even bigger deficit!

The documents posted by the CPI include a couple of different sets of fiscal estimates. In the strategic plan, which projects out to 2013, TIGM is projected to lose $2-3M/year. TIPS has two projections based on how fast imaging equipment is purchased. These show a $5M profit from a "Governor's loan" and two ETF projects in FY2009, followed by losses ranging from $2-6M/year. This does not include a hoped-for $65M deal with Xerion. The strategic plan does not have a projection for NCTM. The CPI has also posted a best/worst case analysis by Greg Anderson, the System treasurer. This shows a best case of rising profits of 1-3M/year for TIPS and $7-8M/year for NCTM by 2017. TIGM is projected to lose money in the best case scenario. The worst case scenario still shows NCTM making a $4M profit by 2014. In this scenario, long-term NCTM profits almost offset losses by TIGM and TIPS by 2017. The basis for the income projections is not clear.

*Incredibly = in(not)+credibly.

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