Friday, May 9, 2008

Venture-backed firms deserve SBIR grants

Washington Business Journal

Your article “House opens SBIR awards to VC-owned firms” (May 5-11) does an excellent job of discussing the technical aspects of the bill to reauthorize the Small Business Innovation Research program, but it does not say enough about the real-life opportunities it poses — for companies or for patients.

Because of a 2003 ruling that companies with more than 51 percent venture capital funding would no longer be deemed “small,” my former company, Intronn, was deemed ineligible for an SBIR grant that we had previously been awarded. Our firm of 23 employees was forced to shut down a promising line of research to develop a new treatment for people suffering from cystic fibrosis because we were judged not to be a small business. The impact was real for our company, our workers, and potentially for the CF patient community.

The point of the SBIR program is to reward advances and support the most promising science, not to punish successful innovation by small businesses that have been able to attract private venture capital investment to support their work. My current company, Virxsys, is eligible for SBIR grants under the existing rules, so we have nothing to gain from a change in the rules. However, the American public and the taxpayers will profit from the additional innovation.

I am heartened by the House’s passage of the SBIR reauthorization legislation and hope that the Senate will follow its lead to restore funding for the nation’s most innovative small businesses.

Gerard J. McGarrity, executive vice president, scientific and clinical affairs of Virxsys Corp., Gaithersburg.

Washington Business Journal

The House passed legislation that would make small businesses majority-owned by venture capital firms eligible for Small Business Innovation Research awards.

Through the SBIR program, 2.5 percent of the outside research budgets of 11 federal agencies — including the Department of Defense and the National Institutes of Health — is allocated for small businesses. The program, which funds around $2.3 billion in research every year, has helped thousands of small firms turn promising ideas into real-world applications.

Since 2003, however, the SBIR program has been dogged by controversy over what constitutes a small business. That is when the SBA ruled that a company no longer qualifies as a small business if venture capital firms have an equity stake of 50 percent of more in the company.

The Biotechnology Industry Organization (BIO) and the National Venture Capital Association have been lobbying Congress to overturn this ruling ever since. They contend the high cost of bringing new drugs and other new technologies to the market force many companies to turn to venture capital firms for money. These small businesses shouldn’t be penalized just because of their capital structure, they argue.

Plus, they contend promising research isn’t being funded as a result of the restrictions on SBIR awards. A coalition of advocacy groups fighting diseases ranging from juvenile diabetes to Alzheimer’s also has urged Congress to change the SBIR eligibility rules.

By a 368-43 vote, the House did so April 23. The SBIR/STTR Reauthorization Act (H.R. 5819) also would increase the size of the awards.

After the vote, BIO President Jim Greenwood said, “Congress has recognized the the capital-intensive needs of emerging biotechnology companies, whose development of a single new therapy often costs hundreds of millions of dollars and takes more than a decade to reach patients.”

The House, however, rejected a proposal to increase the 2.5 percent SBIR set-aside to 3 percent, due to opposition from universities, which feared they would lose research dollars as a result.

The Bush administration also opposed increasing the SBIR set-aside, contending it would reduce funds “available for priority agency research activities at universities and federal laboratories in order to provide subsidies for business development.”

Some small firms oppose change

The House-passed bill faces a tougher battle in the Senate, because of opposition from small businesses that aren’t owned by venture capital firms. They claim the bill would enable VC-owned firms to dominate the SBIR program, crowding out early-stage businesses.

“It potentially has a very dramatic impact on early-stage biotech,” said Casey Eitner, president and CEO of Expression Pathology Inc. in Gaithersburg, Md.

Only about 5 percent of venture capital investments in biotechnology go to seed or startup-stage companies, he said. SBIR awards have been a critical source of funding for companies like Expression Pathology, an eight-employee business that has developed technology to discover and analyze proteins in patient tissue, he said.

The bill’s changes to the SBIR program would “basically further concentrate the sources of funding to fewer, larger companies,” Eitner said.

The National Small Business Association estimates the number of SBIR contracts awarded each year would be cut in half under the House bill because it would triple the size of allowable awards without increasing the program’s overall size. Plus, a provision allowing firms to apply for phase II awards without first proving their idea’s worth in phase I would “make the program vulnerable to influence peddling and abuse,” said Kyle Kempf, an NSBA lobbyist.

Kempf also noted that SBIR recipients can get venture capital under the current rules, as long as VC firms don’t own a majority stake. A 2006 study by the Government Accountability Office found that NIH awarded 249 SBIR grants to VC-backed companies in 2004.

To NSBA, ownership of a company equals control. When venture capitalists own more than 50 percent of a company, “they’re not investing, they’re buying,” Kempf said.

The White House, in its statement opposing the House bill, said it “could lead to inappropriate subsidization of well-capitalized businesses.”

‘Middle ground’ sought in Senate

Kempf also criticized the House Small Business Committee for not hearing testimony from businesses who were against changing the VC rules at any of the three hearings it held on the bill this year.

In the Senate, he said, “we’re very confident the process will be a little more open than it was in the House.”

A spokeswoman for Sen. John Kerry, D-Mass., who chairs the Senate Small Business and Entrepreneurship Committee, said the senator “understands the concerns from both sides of the venture capital issue” and is “working to see if there’s a middle ground that will ensure the SBIR program remains strong for small businesses while still encouraging investment in our smallest, most innovative firms.”

The National Dialogue on Entrepreneurship is following the SBIR Debate:

SBIR Bill Advances

A new proposal to reauthorize and modernize the Small Business Innovation Research (SBIR) program is making fast progress through Congress. Late last month, the House of Representatives overwhelmingly passed H.R. 5819, a bill to reauthorize the SBIR program—which directs federal research funds to small firms—for another two years. The bill makes some big changes in the program. First, it expands the maximum size of research grants, up to $300,000 for early stage research (Phase I) and $2.2 million for pre-commercialization work (Phase II). This move will likely lead to a smaller total number of SBIR awards each year, but bill supporters hope that fewer and larger grants will generate bigger impacts. Second, the bill directs Federal agencies to give priority to grant applications from historically underserved areas, such as rural communities. Finally, the bill also reauthorizes the Small Business Technology Transfer program, and a new Federal and State Technology Partnership (FAST) program to support expanded outreach to help new firms access SBIR funds. The bill now awaits Senate action.

Learn more about H.R. 5819, the SBIR/STTR Reauthorization Act of 2008 at the Library of Congress’ THOMAS website.

 

My name is Mark Leahey, and I am the Executive Director of the Medical Device Manufacturers Association (MDMA).  MDMA is a national trade association representing innovative, entrepreneurial medical technology companies across the country.  Our mission is to ensure that patients have timely access to the latest advancements in medical technology, most of which are developed by small, research-driven medical companies.

With advancements in science, increasing regulatory requirements and market access challenges, significant investments from the government and venture capital are often needed to develop these life enhancing and life sustaining technologies. 

The majority of the most innovative advances in medical technology over the past twenty years have been developed by small, entrepreneurial medical companies.  These technologies are continually advancing and improving the health care for many Americans every day. At the same time, these innovative products are reducing long-term health care costs by improving outcomes, reducing hospitalization time and increasing productivity.

One of the cornerstones of government investments in small medical technology companies has been the SBIR program.  However, as you are aware, the Small Business Administration (SBA) implemented a change that significantly worsened the landscape of the public-private partnership envisioned by the SBIR program.  As a result, many promising technologies from smaller companies did not receive SBIR support, and patients suffered as a result.   The Medical Device Manufacturers Association would like offer the following recommendations that will help reestablish the program’s success.

1)  Reauthorization should include language — similar to that passed in H.R. 3567 — to restore the participation of venture-backed companies.  This will serve to provide SBIR grants to the most promising technologies which are likely to provide more patients with access to life-saving medical devices.

2)  Increase the dollar amounts of the Phase I and Phase II awards, given increasing development costs and to provide a greater incentive for companies to participate in the program.

3)  Provide agencies with more flexibility in administering the SBIR program.  Specifically, we believe it would be helpful to agencies if a small percentage of the SBIR set-aside could be used for activities such as conferences aimed at helping small businesses to compete successfully; commercialization assistance programs to help companies transition to the marketplace; and improved systems for assessing program effectiveness

Alzheimer’s Drug Discovery Foundation

A new way to look at funding

The Alzheimer’s Drug Discovery Foundation (ADDF) raises money and awards grants to academic and biotechnology industry scientists who are conducting drug discovery research for Alzheimer’s Disease, related dementias and cognitive aging.

The way research is funded is evolving and by employing a venture capital model, we are able to take risks and fill the funding gap. We can do this because we are a philanthropic organization and are focused on disease-specific research.  The ADDF funds biotech companies —  startups from universities, and early stage companies. We prefer to fund alongside or before venture capital investors take action, and we often fund alongside SBIR (Small Business Innovation Research grants).  We see our role as a way to fill the funding “valley of death” for companies.  We are proactive and entrepreneurial in what we choose to fund.

Our Successes

To date, we have awarded $28.7M for 195 research programs and conferences in 12 countries.  Our Academic Drug Discovery Program has provided $22.5M to 148 international academic scientists, who have created entirely new classes of drugs in development for AD, screened millions of compounds, identified hundreds of new leads, executed many patents and licenses, and are approaching or entering clinical trials with several new drugs.

In the case of Allon Therapeutics, we had been funding the scientist for several years in her academic laboratory, and we were then able to provide the first funding of $252,000 in 2002 for the creation of a biotechnology company. Recently, Allon announced the results of a successful phase 2 clinical trial showing that its new drug has a positive impact on memory function in patients with amnestic mild cognitive impairment. When the company went public (TSX:NPC), we got our investment back.  More importantly, this is a drug will help a number of people.

Comentis was originally spun out of the Oklahoma Medical Research Foundation.  We gave this biotechnology company the seed money to start as well. The company is engaged in the discovery and development of small-molecule drugs to treat Alzheimer’s disease, age-related macular degeneration (AMD) and cognitive disorders.

Our approach

There are 18 million cases of Alzheimer’s worldwide, and this number is expected to increase to 34 million by 2025. It is our goal to try to find relief any and every way we can; we look for the best way forward.  When therapies cost roughly $1.3 billion and take 12-15 years to develop, we have to promote innovation. 

 We support reauthorizing SBIR funding.  Our country should not be siloed in terms of its approach to developing new therapies.  All segments of society – government, business, academic, nonprofit — need to work together to find cures for diseases like AD, otherwise, it is counterproductive to society’s goals.

Howard Fillit, MD, is the Executive Director of the Alzheimer’s Drug Discovery Foundation.  The ADDF is an affiliated public charity of the Institute for the Study of Aging (ISOA), a private foundation founded by the Estèe Lauder family in 1998. The charity was established in 2004 to enable the public to work with us in advancing our common mission of supporting scientists pursuing drug discovery research for Alzheimer’s disease, related dementias and cognitive aging.

Yesterday, the House voted overwhelmingly (368-43), to reauthorize the Small Business Innovation Research (SBIR) program.  This bill will allow more biotechnology companies to compete for research funding.

This act will increase access to early-stage funding for treatments and cures for debilitating diseases.  Congress has recognized the capital-intensive needs of emerging biotechnology companies, whose development of a single new therapy often costs hundreds of millions of dollars and takes more than a decade to reach patients. 

The Washington Post quoted Science Committee Chair Bart Gordon (D-Tenn.):

“Innovation is crucial for maintaining America’s competitive lead in this global economy.  SBIR and STTR are good economic stimulus programs that support research and innovation among our country’s leading job creators - small businesses.” 

The Biotechnology Industry Organization (BIO) believes it is sound public policy for the Federal Government to continue to encourage and support scientific innovation, an area where American researchers have historically been at the global forefront. 

From their statement, issued today:

“BIO and patient advocacy groups around the world are especially pleased that the House reinstated the eligibility of small biotechnology companies with majority venture capital investment to compete for SBIR funding.  Both venture capitalists and the government’s SBIR program intend to fund the most promising science.  These two sources of funding should work in a complementary manner to bring new therapies and innovations to the marketplace, ultimately to benefit patients and consumers.

“BIO is also delighted to express its strong support for the inclusion of language in the reauthorization of the SBIR program that identifies rare disease research as an area that is deserving of special attention.  We appreciate the House’s efforts to stimulate research in orphan diseases such as ALS and provide much needed resources to small businesses, which are so critical to advancing the fight for a treatment and cure for such crippling diseases.”

This act will increase access to early-stage funding for treatments and cures of debilitating diseases.  Congress has recognized the capital-intensive needs of emerging biotechnology companies, whose development of a single new therapy often costs hundreds of millions of dollars and takes more than a decade to reach patients.” 

This is good news for our patient groups who rely on biotech solutions for their life threatening illnesses.  We anxiously look forward to action from the Senate.  Stay tuned!

We chatted with Virginia Ladd, President and Executive Director of the American Autoimmune Related Disease Association.

What is the scope of your work?

There are over 100 types of autoimmune related diseases, including lupus, type I diabetes, scleroderma, celiac, multiple sclerosis, Crohn’s disease, autoimmune hepatitis, rheumatoid arthritis, Graves’ disease, and Sjogren’s syndrome. The NIH estimates that 23.5 million people are affected by these diseases. The diseases can be diagnosed at any age, but most people affected fall between the ages of 15 to 50. Significantly, women make up 75% of the people with autoimmune diseases. We don’t know the reason for this; it could be genetic, environmental, have to do with the hormonal system, or perhaps be something else all together.

Autoimmune diseases all share a common disease pathway and genetic background. In this case, the body attacks its own tissues, instead of the bad bacteria or viruses. Only recently have they been included as a “disease category.”

Tell us about the research for new therapies.

For the most part, there has not been a new therapy for these diseases in 45 years. We’ve been relying on the same therapies: hormone replacement, such as insulin for type I diabetes, steroids, or IVIG treatments. There are a few new biologics, but they are only indicated for about 5 of these diseases. The biologics tend to be used off label (Please note: BIO does not support off-label use of biologics). They are very expensive and may not be covered by insurance.

We would love to raise the level of research for autoimmune diseases. It lags way behind other types of research. Our current “pipeline” includes 311 drugs for 38 of 100+ autoimmune diseases. Of these, 62% are for the seven most well known autoimmune diseases. This is the major problem. About 92% of the diseases depend on steroids or older therapies.

What position does the American Autoimmune Related Diseases Association take on SBIR legislation?

We are supportive of SBIR. These grants are very important for innovation. It encourages small biotechs to get their ideas out there to build a platform for this research. Right now, our pipeline is too thin for the majority of the autoimmune diseases. It’s the little biotech companies that understand what we are talking about.

How can others join your cause?

People often have a difficult time being diagnosed. Patients are not asked about autoimmune related diseases on their medical histories. Just by asking this simple question, doctors would be able to see if there is a history or a family cluster of these illnesses. But right now, it is not thought of as a disease category by the public. If the public were more aware of the importance of the family connection, they could volunteer this information to their doctors. Also, we are working to have May recognized as “Autoimmune Diseases” month. Of course, people can always write to their elected officials or get involved with our group.

The American Autoimmune Related Diseases Association is dedicated to the eradication of autoimmune diseases and the alleviation of suffering and the socioeconomic impact of autoimmunity through fostering and facilitating collaboration in the areas of education, public awareness, research, and patient services in an effective, ethical and efficient manner.

It’s been a busy and productive week for SBIR reform advocates. The House Science Subcommittee on Technology and Innovation and the House Small Business Committee both marked up SBIR reauthorization legislation this week and expect to take a bill to the floor mid to late next week (week of 4/21). This is very positive news as the bill recognizes the capital intensive needs of emerging biotechnology companies and, if passed, will reinstate small biotechnology firms that have significant venture capital investment back into the program. Reinstating these companies will fulfill the mission of the SBIR program, help to bridge the funding gap that exists for early stage research, and in turn increase the innovation pipeline for breakthrough therapies and treatments. The bill also takes care to establish controls to ensure that these small companies are not some type of subsidiary for big companies, thus protecting the integrity of the SBIR program. All advocates of small biotechnology firms being able to compete for grant funding in the SBIR program and supporters of the notion that these awards should be given to projects based on scientific merit and potential to improve the public health should urge their Members of Congress to support H.R. 5819 next week!

Read hr-5819-support BIO’s letter supporting reauthorization of SBIR.

Fortune Small Business Volume 18; Issue 3

Funding research to develop cures for life-saving diseases is not a laughing matter, and we shouldn’t be making public policy based on cartoons. Small biotechnology companies, like the innovative and fast-thinking Jerry of the Tom & Jerry cartoon, deserve to succeed, but it’s the Small Business Administration that is holding back some of the best small businesses – those that have earned the confidence of venture capitalists.

 At issue in the Reauthorization Act being proposed is the SBA’s 2003 ruling, which changed the definition of what was included in a “small business.” When determining the size of a company, the SBA considers the number of direct employees at the company, as well as affiliated businesses’ employees.  As a result of these rules, a small company with 50 employees could be deemed to be affiliated with hundreds of other employees of companies with which the small company has no relationship whatsoever, just because the companies share a common investor. 

 If the SBA’s logic applied to homeownership, then all people with mortgages held by the same bank would be deemed affiliated for purposes of making decisions about individual household spending.  It is not that large companies want to be considered small, but that actual small companies are now being considered much larger than they are.

 The Fortune piece states: But Jere Glover, an architect of the SBIR program who now directs the Small Business Technology Coalition, disagrees. He argues that SBIR grants resemble the early “angel” funding that helps a promising business get started, before the stage at which the more risk-averse VCs are ready to invest.

 SBIR does provide ‘angel,’ or more accurately, gap funding, so these ideas can be further developed to the point that the private sector will become engaged.  A small business that been able to attract VC funding in one area, a sign of credibility for their work, should not be punished by being prohibited from competing for  SBIR gap funding in a different area , one that also has the potential to benefit public health.  

The article provides misleading information: SBIR offers about $2 billion each year in small grants to high-tech firms, in three phases. The first two rounds, with grants as large as $750,000, are reserved for small businesses. In the third round, applications from entrepreneurs funded by large VCs and other corporations are accepted.

 NIH SBIR grants do not go to projects in phase III, which is why at this stage VC funds become critical. As it is, NIH grants have declined by 21% since the implementation of the 2003 SBA ruling and the number of new businesses applying is the lowest it has been in a decade.

 Everyone involved in this debate believes that SBIR should work to assist small businesses working to bring novel therapies to the market, which is clearly the program’s intent.  Unfortunately, the SBA’s logic doesn’t make sense, and it’s the patients and consumers relying on cures for life-threatening diseases who are being punished.  Our public policy priority needs to be squarely on the side of patients.