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Molecular Insight Inc., like many small biotechnology companies, had to make some tough choices in the downturn.
“We had to focus our efforts on just two drug targets because of the economy,” said James Kronauge, Molecular Insight’s vice president of process development.
Then the National Institutes of Health stepped in.
Running short on financing options, the Cambridge-based technology company received two Small Business Innovation Research grants from the NIH totaling $1.2 million to develop a drug target that otherwise would be sitting on the shelf. Now the potential diagnostic for neuroblastoma, a pediatric cancer, is the company’s lead compound. The small public company has since won another two SBIR grants for drug programs targeting prostate cancer and melanoma and plans to apply for more so-called SBIR grants.
It’s the kind of impact the NIH is courting, as it seeks to transform itself from a musty bureaucracy into a business-savvy benefactor and mentor to young biotechnology companies.
“We’re not selling science projects here. We’re selling companies,” said Michael Weingarten, director of the two major grant programs for the NIH’s National Cancer Institute. He said the NIH’s goal is to leverage its most valuable asset, its reputation, to catapult companies over what he calls “the valley of death” to win outside funding and eventually get drugs to patients.
Boston became the backdrop for the NIH’s quiet evolution this week when the National Cancer Institute was represented at the annual MassBio Investor Forum for the first time. Now NCI plans to hold its first national investor conference on Nov. 5 at Boston University.
The NCI, considered the test agency for some new pilot programs, recently launched a bridge funding program to give later-stage companies a three-year grant worth $3 million. It’s also launching a regulatory assistance program to help companies who can’t afford consultants to navigate FDA requirements.
The dollar amounts of most SBIR grants are much smaller than typical venture capital rounds — rarely larger than $1.5 million per award — but there are advantages. Companies find out if a grant proposal has been successful after six months, while putting together a VC round in this economy can take much longer. The NIH also never owns a part of the company, and funding capabilities don’t depend on Wall Street. The National Cancer Institute, for instance, has had a steady budget of about $108 million for each of the past several years and was unaffected by the recent economic tumult.
The relatively small size of the grants, the time-consuming application process and the competitive odds — only 25 percent to 30 percent of applications are successful — haven‘t deterred cash-starved companies.
“Applications are up 60 (percent) to 70 percent since the economy tanked. We are seeing a new class of more mature companies we wouldn’t have seen in the past,” Weingarten said.
Many of the companies who attended Weingarten’s seminar at the MassBio forum were exploring NIH funding opportunities for the first time. Carolyn Green, president and COO of Waltham-based Logical Therapeutics, attended the session even though her company is not currently eligible for a grant, because it is more than 50 percent funded by venture capital.
“Luckily we’ve been well-funded so far, but biotech has an insatiable appetite for cash. So it’s disappointing that the opportunity to use government funding is closed to us,” she said. Green and representatives from other VC-backed firms said they are hopeful that bills in Congress loosening that restriction on funding eligibility will pass soon.
Venture capital funds themselves would also like to see the legislative change, as they seek to help portfolio companies diversify their funding base. But Neil Exter from Third Rock Ventures said deciding whether to go after an NIH grant is a balancing act, particularly for companies without grant writing expertise.
“At $3 million, the dollar amount becomes interesting ... but a company has to weigh the overhead costs of the application process,” he said.
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