Friday, November 4, 2011

Feds to speed up R&D to market; SBIR decision due

By Kent Hoover, ACBJ Washington Bureau Chief

President Barack Obama directed federal agencies to step up efforts to commercialize more of the federal government’s $147 billion annual investment in research and development.

The president asked agencies with federal laboratories to develop five-year plans – with goals and metrics – for increasing the number of industry partnerships, new products and spinoff companies based on their research. The president also directed agencies to streamline their licensing procedures for technology transfer and cut in half the time it takes to award Small Business Innovation Research grants.

Rebecca Blank, acting deputy secretary of Commerce, said the actions ordered by the president “are among the most important steps taken to improve technology transfer” in 30 years.

For small businesses, however, the most important decisions related to federal research will be made on Capitol Hill, not the White House. The SBIR program is scheduled to expire Nov. 18, and the House and Senate are still trying to resolve their differences on legislation to reauthorize it.

Through the SBIR program, the 11 federal agencies with the biggest outside research budgets are required to spend at least 2.5 percent of this money with small businesses. Legislation pending in the Senate would gradually increase that percentage to 3.5 percent by 2023. The House’s SBIR reauthorization bill would keep that percentage at 2.5 percent.

VC-owned firms seek access
The biggest difference between the two bills, however, is whether small companies majority-owned by venture capital firms should be eligible for SBIR awards. In 2003, an administrative law judge ruled that these types of companies don’t qualify as small businesses since they aren’t independently owned. This meant more than half of all small biotechnology companies in the U.S. could no longer compete for SBIR awards, according to the Biotechnology Industry Organization.

BIO and the National Venture Capital Association have been trying to regain SBIR access for VC-owned firms ever since. They have been opposed by current SBIR recipients and the National Small Business Association, which feared that firms without venture capital would be squeezed out of the SBIR program if deep-pocketed VC-owned firms were allowed in.

In the past, the House has favored opening SBIR awards to VC-owned companies, while the Senate opposed this change. Failure to resolve this issue has kept the SBIR program from being reauthorized since 2008, and the program has survived through short-term extensions since then.

This year, however, the Senate Small Business and Entrepreneurship Committee approved legislation that would allow the National Institutes of Health, the Department of Energy and the National Science Foundation to award up to 25 percent of their SBIR funds to small businesses that are majority-owned by multiple venture capital firms. Other agencies could award 15 percent of their SBIR funds to VC-owned firms.

That didn’t go far enough for the House Small Business Committee, however. Its bill would allow NIH, Energy and NSF to award 45 percent of their SBIR awards to VC-owned firms. These companies could receive up to 35 percent of SBIR awards at other agencies.

“The importance of restoring eligibility to small biotechnology companies has never been more clear,” said BIO spokeswoman Tracy Cooley. “The ability of the SBIR program to provide critical funding for medical research projects will remain hampered unless the SBIR program is updated to address the current realities facing small, innovative American companies.”

Deal unlikely by deadline
The House and Senate committees have been sending each other offers and counteroffers on this issue and other sections of the SBIR reauthorization bill in recent weeks. It’s unclear whether they can reach an agreement by Nov. 18, however. If they can’t, then Congress will have to pass another short-term extension of the program in order for agencies to keep making SBIR awards.

“It’s still a huge struggle getting the House to back down from their support of giving VCs unfettered access to the program, so while we’re always hoping for a breakthrough, I think it would be difficult to achieve that by the Nov. 18 deadline,” said NSBA Vice President Molly Brogan.

A bipartisan group of 11 senators urged congressional leaders to reach a compromise on SBIR reauthorization, but expressed concern about some of the provisions in the House bill.

Besides opening up more SBIR awards to VC-owned firms, the House bill also would allow agencies, in certain instances, to skip the first phase of the SBIR program -- where a proposal is tested -- and proceed immediately to a larger, second-phase award. This could be a waste of taxpayer dollars, wrote the senators, who were led by Sen. Jeanne Shaheen, D-N.H., and Sen. Scott Brown, R-Mass.

In addition, the House bill would limit the number of awards that SBIR participants could receive. This would “redistribute SBIR funds to firms that scored lower on the scientific merits of their proposals,” the letter said.

“The SBIR program has been successful because it it a merit-based competition, and the participating agencies are forced to go through a series of investment steps that ensures they are making smart investments in small businesses that have proven themselves viable over time,” Brown said.