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Changes in the SBIR Program Threaten Biotechnology Company Funding
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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 supports H.R. 2943 & S.1263, "Save America's Biotechnology Innovative Research (SABIR) Act." These bills will 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 biotechnology firms, 61% of the respondents chose not to apply for SBIR grants due to perceived eligibility concerns, and 44% have delayed or cancelled research projects. These projects include therapies for diabetes, Alzheimer's Disease, lupus and leukemia.
- 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.
- 49 of the 151 firms (32.45%) associated with successfully bringing the 230 FDA-approved biotech therapies to market from 1982-2005 received SBIR funding. This figure only reflects FDA-approved therapeutics, not the numerous diagnostic and tool companies that have benefited from the SBIR program.
We urge you to support H.R. 2943 & S.1263, "Save America's Biotechnology Innovative Research (SABIR) Act." This legislation will restore SBIR grant eligibility to majority venture capital-backed biotechnology companies.
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.
1/ Appeal No. 4423 (2001)
2/ Money Tree Survey -Price Waterhouse Coopers, www.pwcmoneytree.com
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