Hopes and Cures

California Biotech Law Blog posted a summary of recent House hearings on reauthorizing the Small Business Innovation Research Program (SBIR). 

In the world of biotechnology, the principle at stake is the United States’s claim to be an innovation engine in the global economy.  Our members and their scientists are developing disease treatments and cures at a rapid rate, but because these cutting-edge treatments are so new, it takes 10-15 years before they reach the market.  In the meantime, they thrive on traditional venture capital and the government’s version of VC:  the SBIR program.

If Congress wants to perpetuate the image – and reality – of the US as the center of innovation, they must adapt the criteria for SBIR grants to match the reality for these budding treatments and burgeoning companies. 

Quoted is Susan Reiss:

One Hill observer says that the venture-capital issue will boil down to whether Congress wants to emphasize the “S” or the “B” in SBIR.

While Reiss offers an interesting perspective, it is one I disagree with.  The biotech companies that have lost out on SBIR grants easily meet the definition of a small business, and they comprise the vast majority of BIO’s membership.    Most of them have fewer than 100 employees and only a few have yet to have a product on the market. 

I don’t see how Reiss can reconcile her claim that the investment of venture capital somehow makes these companies ‘not small’ – and therefore disqualified for the SBIR program - with the fact that these very companies have absolutely no market income. In fact, it can take up to $1billion for a single product to become available to the people who need it most – those suffering from MS, Parkinson’s, HIV/AIDS and the like.

The second fallacy Reiss tries to perpetuate is that biotech companies should apply for the other 97.5% of funding at NIH.  This is a fiction.  SBIR grants are not awarded to businesses (0.4% of these grants were awarded to businesses – small and large – in 2006).  That’s because this money is preserved for proof of concept/hypothetical research, which is traditionally carried out by university and research institutions.  This is the way it should be – funding proof of concept projects is an essential part of the continuum discussed above – these funds are used to discover the new genes and new cellular mechanisms that are then explored to determine potential development into drug therapies and treatments.  

The Dallas Business Journal, also quoted, suggests not all biotech companies are supportive of including VC backed companies into the SBIR program.  If there are some companies with concerns they should know the National Research Council found no indication that companies with majority financial backing (not operational control) from VCs had crowded out other small companies.  The awards should be given to small U.S. companies based on scientific merit not capital structure. I would be curious to know if these are companies that are involved in health care or kinds of technology development (high tech computers/machines etc) where the industry has completely different capital needs and timelines of development (8-10 years for 1 drug therapy).

BIO, as well as patient organizations and the venture capital community, has supported numerous proposals that would include ownership limitations to ensure these small companies are not controlled by VCs such as limitations to board control and prohibiting majority ownership by 1 VC company. 

This is not a big pharma issue – this is an issue important to small, emerging biotechnology companies in the health care space – a sentiment that has strong support from the patient advocacy community such as the Cystic Fibrosis Foundation and the Parkinson’s Action Network. 

The questions we should all be asking of those that oppose these changes are:

• Are they mainly companies competing in the DoD technology space where there are real differences in capital needs and length of time for development of discoveries?

• Do they fear competition, or is there just an assumption that if you have VCs investing in one of your research projects (even though you have no revenue from a product and fit into a 2 lab space on 1 floor) you are not a small business?

I anxiously await the answers.