While the economic recession has affected and stifled almost every sector of the US economy, the biotechnology and healthcare sectors appeared to be affected the least. One major criticism of the American Recovery and Reinvestment Act (also known as the 2009 Economic Stimulus Package) is the tepid and lackluster support to small businesses; whether in the form of tax cuts, loans, grants or credit. However, there are a few pieces of the stimulus package that have been slated towards revamping economic aid for small businesses: the Business Stabilization Program, a federal initiative offerin.jpg)
g emergency loans to small businesses struggling to pay off debt, and Challenge Grants, two year National Institute of Health (NIH) grants designed to fund highly innovative ideas that may result in productive collaborations between small pharmaceutical/biotech companies and academic institutions. In addition, the House Committee on Small Business Administration unanimously approved extending the small business innovative research and the small business technology transfer (SBIR/STTR) program (H.R. 2965) until 2011. The House-approved bill allows access of funds to venture- capital supported small businesses with one condition; as long as venture capitalists do not own more than 50% of the applicant organization. This bill resets the levels of funding for venture capital supported companies back to Clinton administration era standards, making it easier for businesses that participate in SBIR to raise capital. Just last week (June 25), the Senate also passed its own version of the bill. The Senate Committee for Small Business and Entrepreneurship unanimously passed a bill which extends the SBIR/STTR program until 2020 but allows venture backed companies greater access to the program but with higher limitations in order to aid more small businesses in bootstrap mode (about 18% of SBIR/STTR funds). On the positive side, both versions of the bill will significantly increase the amount of funding available for both phase I and phase II awards which is necessary to offset the pace of inflation (please see below for a detailed description of the awards).
The SBIR/STTR program was created in 1982 through the congressional approval of the Small Business Innovation Development Act. The small business technology transfer programs (SBIR/STTR) were created with the goal of providing funds to small tech businesses in the United States that have highly innovative ideas but that are too risky for venture capitalists to invest. The ultimate goal of the SBIR/STTR program is to support deas that may lead to the marketing of a novel medical or biotech product, induce economic growth, create jobs and improve human health. There are over eleven federal departments including the NIH that participate in the SBIR program, while only five departments participate in the STTR program. Overall, these federal programs award upto $2 billion to small high-tech businesses in the form of highly competitive grants.
If there is anything to be learned in 2009 is that the myth that the pharmaceutical-biotech industry is recession-proof has been debunked since all sectors of the economy are loosing jobs and the majority of companies are posting losses. Nevertheless, the healthcare and the biotech sectors have been affected much less compared to the automobile and construction industries. Defying the odds, some large biotech companies have been able to rebound from the recession just recently. Indeed, biomedical manufacturing companies such as Sigma, Promega, Clonetech, Fisher Scientific (a multinational company headquartered in Pittsburgh) manufacture biochemical reagents, laboratory glassware, electrophoresis and large laboratory equipment in the United States and export a significant portion of their inventory worldwide. Amazingly, these companies are even posting gains in the stock market. For instance, the value of Sigma’s shares has increased 20% while the value of Fisher’s Scientific's shares has increased by 30% over the last month. Others such as Life technologies corporation (Invitrogen) has enjoyed over a 12 fold jump in the value of its shares, an event that occurred in the span of three months. However, the recession should not deter small companies from seeking external funding even though venture capital will be much harder to get. It is for these reasons that the SBIR/STTR program is a lifeline for small start-up companies who are seeking to survive in the middle of a recession. While some small companies may atrophy, many mid-size companies will probably be acquired by larger companies; buying out mid-size companies may be an attractive alternative for large companies especially since the value of stocks of many smaller biotech companies have plummeted.
So why help the biotech/ med tech industries? It is important to note that the medical technology industry is a critical component of the U.S. health sector and the economy overall. As reported in 2006, the medical technology industry employed over 300,000 workers with combined salaries of $21.5 billion and exported about $24 billion worth of products including a variety of medical devices.
In order to help promote innovative research ideas for small biotech/med tech companies, several funding mechanisms are offered by the National Institute of Health, the Center for Disease Control, Food and Drug Administration and the Administration for Children and Families in the form of highly competitive omnibus solicitations. These grants are renewable and range from $100,000 to upto $750,000 per year. Phase I awards are $100,000 with a duration of 6 months which were designed to provide a fast infusion of money necessary to catapult an innovative idea into a workable prototype. On the other hand, phase II awards are two year grants that may not exceed more than $750,000 and may be renewed on a competitive basis.
So what are the requirements and merits that applicant companies must meet in order to apply for SBIR/STTR funding?
1) Venture capital supported companies cannot own more than 50% of the applicant organization/company (however, only 10-15% of funds have been allocated for these companies).
2) Startup technology companies cannot employ more than 500 employees and must have their operating headquarters in the US.
3) The owners (principal investigators) of the company must be American citizens or permanent resident aliens.
However, the main controversy in the bill has not been resolved. Should non-dilutive federal funding be available only to start-up companies? Is it a good idea to leave out venture capital backed companies out of the pool? Of course, many venture capitalists will like to reduce funding of portfolio companies that successfully acquire SBIR/STTR funding in order to gain profits. However, increasing the number of venture capital back companies that can apply for SBIR/STTR funding may defeat the same purpose that the program was created: the funding of an innovative, seed-stage but high-risk scientific ideas from small financially disadvantaged biotech companies.
For more information:
Original press release on the passage of the SBIT/STTR 2009 renewal bill: www.sbirga.com/2009/06/house-passes-controversial-bill.html#comments
NIH program announcements regarding omnibus solicitations for small tech businesses:
1) grants.nih.gov/grants/guide/pa-files/PA-09-080.html
2) www.sbir.gov/solicitations/
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