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As the century draws to a close, there is a growing sense among the public that biologists are making real progress in the War on Cancer, the Human Genome Project, and the great promise of biotech. The renewed public confidence in science is reflected in Congress, which now seems likely to vote substantial increases in federal funding for basic research. Here at Cold Spring Harbor Laboratory, it is exciting to know that many of our research and education programs have been at the heart of the discoveries and strategies that now seem likely to usher in a new golden age for biology.
From an administrative viewpoint, 1997 was a good year for the Laboratory. Financial results were positive with operating revenues reaching a new high of nearly $50 million. There was a surplus from operations of $317,000 after fully allowing for depreciation of $3,370,000. The operating budget for the year had been conservatively stated and was bettered by some $870,000. There was a positive cash flow from operations of $3,688,000. Sustaining a positive cash flow of this magnitude is extremely important if we are to maintain and modernize facilities, and to purchase the ever more expensive scientific equipment that has become a necessity for any world-class research center.
The better-than-anticipated financial results for the year were driven by the success of our scientists in obtaining grants, increased corporate sponsorship of our research, good attendance at meetings and courses, higher income from tech transfer and investments, and careful departmental control of costs. There were also substantial savings in electricity costs which are providing a rapid return on the major capital investment made in energy-saving programs in recent years.
The year 1997 was not without challenges, however. Early in the year, it became clear that a reorganization of the CSHL Press was needed, which required some painful reductions in staff. The result has been positive, with a much-improved ability to meet production schedules for new books. As in past years, book sales from the back list were very strong, and journal subscriptions and advertising revenues increased nicely. By year-end, the Press had published 18 important and beautifully produced new books, most notably Mutants of Maize, Cells, and Retroviruses, and it had achieved a small surplus before the reorganization expense.
During 1997, several relatively senior members of the scientific staff made transitions to other institutions. Such departures are a sad but sometimes unavoidable result of the efforts of other institutions to recruit from the exceptional scientific talent at the Laboratory. We have come to realize from experience that such turnover constantly refreshes our research programs with new young scientists who will make the next series of unexpected discoveries. On a practical basis, however, the departure of senior scientists also means the departure of grants that must be replaced from scarce internal Laboratory resources while newly recruited scientists begin the research that will ultimately enable them to compete effectively for federal funding. In addition, the Laboratory must pay for the expensive redesign and equipping of the new scientists' labs.
A further challenge has been the escalating cost of providing the data-processing infrastructure that in recent years has become so important to biologists. Gene sequencing, protein studies, and other new high-tech methodologies are triggering an enormous flood of new data that must be managed and analyzed to be useful. The Laboratory has made major investments to provide a high-speed Internet connection and a campus-wide, fiber-optic local area network that is supported by a professional Information Services Department. It will be a continuing challenge to keep up with the growing demand for these services.
In 1997, The Laboratory's endowment once again achieved handsome gains as a result of good market returns and new additions. The endowment consists collectively of the Robertson Research and Cold Spring Harbor Funds and is our primary source of internal funding for research. At year end, the market value of the endowment was $144,098,000, a 12-month increase of over $14 million. The funds are invested in a balanced mix of equities, fixed-income securities, and short-term instruments. The endowment is managed by a team of investment professionals-Essex Investment Management Company, Inc., Miller Anderson & Sherrerd (a subsidiary of Morgan Stanley Dean Witter), U.S. Trust Company, and the Vanguard Prime Cap Fund. Over the years, all segments of the funds have achieved very competitive returns when compared with benchmark indices. The growth of the endowment has been enhanced by a conservative Laboratory drawdown policy of 4% per annum, based on a 3-year moving average of previous year-end market value. In very strong markets such as those of recent years, the drawdown has been held to less than targeted levels. In 1997, it was 3.7%. As a result, the endowment has more than kept up with inflation and has made it possible to expand the overall science program and react positively and quickly to opportunities created by new discoveries.
A very important component of the endowment is the Science Fund, which was established by the Board of Trustees in 1992. On December 31, 1997, it totaled $5,452,000. The fund holds a portion of royalties and all of the equity positions received by the Laboratory in return for the transfer of intellectual property to various biotech companies based in whole or in part on CSHL technology. There are now 13 such companies, 4 of which have public markets. The estimated value of these equity positions on December 31, 1997, was $3,748,000, which is believed to be very conservatively stated. The Trustees have designated the Science Fund to be used for the support of future science, and it is hoped that as some of these ventures mature, their value will become an important source of funding for the Laboratory research. In this manner, the value of intellectual property created today may be recycled in the years ahead as future support for science.
The development of a strategy to manage intellectual property at the Laboratory has been primarily the responsibility of John Maroney, Director of Technology Transfer. John and his associate Carol Dempster interact with the scientists, patent attorneys, and venture capitalists to make viable commercial ventures of the Laboratory's discoveries; the very good results of their efforts speak for themselves. The Laboratory is now thought of as a leader in the management of intellectual property and its practices are being emulated by many other research centers.
The Buildings and Grounds Department, led by Art Brings, had another very productive year marked by the dedications in June and October, respectively, of the Mary D. Lindsay Child Care Center and the Richards Building and facilities complex. A high point of the latter was the marvelous music provided by the Corinthians, led by Bill Grover of Centerbrook Architects, of Essex, Connecticut, who played a mean saxophone. Bill's presence reminded us all of the enormous contributions that he, Jim Childress, and so many of the other Centerbrook architects and technicians have made to the style and beauty of our campus. So it was with great pleasure that we heard early this year that Centerbrook had been named the recipient of the 1998 Architecture Firm of the Year Award by the American Institute of Architects.
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