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Background
The Small Business Administration (SBA) helps small businesses in a variety of ways. One program is the Small Business Innovation Research (SBIR) program, through which a specific percentage of all federal research and development grant monies are reserved for small business applicants. These funds provide critical seed money to new business innovators, including biotechnology companies.
To qualify for SBIR grants, a small business applicant must meet certain eligibility requirements. The size and ownership requirements - or "size standard" - limit eligibility to those companies that:
- are at least 51 percent owned and controlled by one or more individuals who are citizens of, or permanent resident aliens in, the United States; and
- have no more than 500 employees, including any affiliates.
However, on January 10, 2001, the SBA Office of Hearings and Appeals ruled in CBR Laboratories, Inc. /1 that the definition of "individuals" no longer included venture capital (VC)-backed companies. This new interpretation of "individuals" resulted in the denial of an SBIR grant to CBR Laboratories, Inc., of Boston, Massachusetts, because the company was venture capital-backed in excess of 51%. Many biotech companies have since been denied grant money or have opted to delay SBIR submissions in the hope that this issue will be resolved. As a result, work on life-saving and life-enhancing technology is being postponed.
In addition to SBIR grant money, venture capital (VC) investment is a prominent source of funding for biotechnology R&D. VC funding is not a luxury; it's a necessity, given the 10 to 15 years of work and hundreds of millions of dollars it takes to complete testing and gain approval of a biotechnology therapy. Very few biotechnology companies are able to commercialize their technologies without significant VC backing. Such investments in the biotechnology and medical device industry totaled $4.7 billion in 2002 /2.
BIO Position:
BIO strongly believes the SBA's new interpretation of the SBIR law threatens an important funding source for start-up and emerging biotechnology companies across America. We urge the Administration and Congress to restore eligibility for SBIR grants to venture capital-backed small biotechnology companies.
Discussion Points:
- As the world's leader in biotechnology, this country has benefited greatly from the SBIR program, which has been an essential component in the commercialization and economic development of the biotech industry. However, this re-interpretation is preventing some of the most innovative biotech companies from participating in the SBIR program. If this policy continues, the results could be devastating for the biotech industry and the patients we serve.
- As a result of the re-interpretation, the SBIR applicant pool is shrinking and work on life-saving and life-enhancing technology is being postponed. In fact, many companies are not applying for these grants or are delaying SBIR submissions in the hope that this issue will be resolved. According to a recent (informal) poll of BIO member companies who had previously received SBIR grants,exactly half of those who applied have now been denied grants due to the SBA's new interpretation of eligibility requirements. Even more alarming, over 60% of privately owned companies chose not to apply for SBIR grants due to perceived eligibility concerns.
- Life sciences start-up companies require far more capital investment than companies in any other industry. Biotechnology companies, the future drivers of our economy, suffer disproportionately from SBIR policy that links grant restrictions to venture capital funding.
- SBIR grants can catalyze venture capital investment in an SBIR-awarded company. When the legislation that created the program passed in the early 1980's, Congress recognized the relationship between venture capital and the SBIR program, and intended to strengthen that connection. Because the SBIR program is a peer-review process, a company whose ideas are validated with an SBIR grant has an increased chance of attracting the venture capital investment that can accelerate progress toward commercialization.
- We urge you to support Congressional action restoring SBIR grant eligibility to majority venture capital-backed biotechnology companies. During the 108th Congress, legislation was introduced to restore eligibility (S. 2384/H.R. 4149), and we urge you to support similar legislation during the 109th Congress.
Contact:
The Biotechnology Industry Organization (BIO) represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers and related organizations in all 50 states. BIO members are involved in the research and development of health-care, agriculture, industrial and environmental biotechnology products.
For more information and any questions, contact Libby Solon, Director for Federal Government Relations, or Susie Ahn, Manager for Federal Government Relations, at (202) 962-9200 or lsolon@bio.org and sahn@bio.org.
Footnotes
1/ Appeal No. 4423 (2001)
2/ Money Tree Survey -Price Waterhouse Coopers, www.pwcmoneytree.com
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