On March 9, the U.S. Senate Small Business and Entrepreneurship Committee voted 18-1 to pass the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Reauthorization Act of 2011 (S. 493). The bill includes provisions that would allow 25 percent of these grants to go to companies that are primarily backed by venture capital. The bill now goes to the full Senate.
Small Business Innovation Research (SBIR) grants help advance R&D at the earliest development stages. The Small Business Innovation Research Program (SBIR) was established in 1983 to encourage and support continued scientific innovation in America, by helping to fund innovative research that has a focus toward commercialization of a product or service.
In the last five months, at least 25 U.S. public biotech companies have either placed drug development programs on hold or cut programs all together. These programs include therapies for HIV, cervical cancer, Multiple Sclerosis, and diabetes. The importance of advancing science has never been more important than it is right now as companies are weathering the economic crisis and getting back on their feet, the program is important to accelerating growth, hiring and research.
The role of the SBIR program in bringing breakthrough therapies to the American people is a matter of record - biotechnology companies responsible for more than 160 marketed treatments and therapies were assisted in their early stages of development by SBIR grants.
“Despite its noble past, the ability of the SBIR program to provide critical funding for medical research projects will remain hampered unless SBIR reauthorization updates the program to address the current realities facing small, innovative American companies,” said Jim Greenwood, president and CEO of BIO.
For twenty years small, domestic biotechnology companies competed for SBIR grants. In addition to providing funding, these grants were a powerful signal to the private sector that a company’s research was compelling and possessed scientific and technical merit. However, in 2003 the Small Business Administration’s Office of Hearings and Appeals (OHA) ruled that a biotechnology company, Cognetix, did not meet the SBIR size standard because multiple venture capital investors, in the aggregate, owned more than 50 percent of the company’s stock.
The ruling, which is not based on the SBIR statutory language, ignores the realities of the marketplace where small biotechnology firms must raise tens of millions of dollars to conduct incredibly capital-intensive research. Small biotech firms typically have fewer than 50 employees, no products on the market and must raise considerable funds through a combination of angel investors and venture capital firms to make a therapeutic commercially available to patients.
The importance of restoring eligibility to small biotechnology companies has never been more clear.
Despite the extensive fundraising a biotechnology company undertakes for its lead product, these funds are tied to very specific milestones to support the lead product’s development. As such, in order to develop secondary or tertiary candidates/therapies a company has to find secondary sources of fundraising capital. At the very earliest stages of development other sources of financing, such as SBIR grants, have been instrumental in advancing research and development in biotechnology.
Increasing competition for SBIR grants and, as such, fostering innovation and commercialization by small companies with the most promise.
Second, clarifying SBIR eligibility rules to make them easier to understand and increasing transparency regarding the program’s operation.
Third, maintaining agency flexibility to make certain the SBIR program continues to serve the needs of individual agencies.
Congress can continue to support the U.S. biotech community by allowing the government to partner with small biotech companies that have promising science but need additional resources at key stages of development not readily available in the private capital markets. SBIR should be an aggressively competitive program that fulfills federal research and development goals of bringing breakthrough public health discoveries to the public.
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