NIH, Biotech Firms Oppose Grant Rules

Elias A. Zerhouni, National Institutes of Health director, has asked the Small Business Administration to change the rules on research grants.
Elias A. Zerhouni, National Institutes of Health director, has asked the Small Business Administration to change the rules on research grants. (By Tony Gutierrez -- Associated Press)
By Anjali Athavaley
Washington Post Staff Writer
Thursday, July 28, 2005

Biotechnology firms lobbying for access to Small Business Administration funding have gained support from the National Institutes of Health.

In a letter written last month and released yesterday by a biotech organization, NIH director Elias A. Zerhouni asked SBA chief Hector V. Barreto to waive restrictions on awarding SBA research grants to firms owned by venture capital investors.

Under rules in place since 2003, firms that are owned 51 percent or more by venture capital companies are ineligible for research grants awarded through the Small Business Innovation Research Program. The program requires federal agencies such as the NIH to put aside 2.5 percent of their research and development budgets to fund research grants for businesses with 500 or fewer employees.

With heavy capital requirements and long product development times, biotech companies are particularly dependent on venture investors, and thus likely to be excluded from the SBA program.

The current regulation "disqualifies many highly deserving entities," Zerhouni said in the letter dated June 28. "Perversely, this rule dries up Federal funding for early-stage ideas from small concerns that, by attracting substantial [venture capital company] funding, show strong signs of likely success."

He asked the Small Business Administration to waive the 51-percent ownership rule.

Legislation introduced in Congress last month would require the SBA to extend grant eligibility to venture-owned companies. On Tuesday, chief executive officers and senior executives at 281 biotechnology firms sent a letter backing the bill.

"Our industry and the companies we represent under the current rules are excluded from participation in the program," said Morrie Ruffin, vice president for business development for the Biotechnology Industry Organization, which represents more than 1,100 biotechnology companies, academic institutions, and organizations. "At the time, these are the companies the NIH most wants to work with in the program."

The Small Business Administration said it will independently decide at the end of this year whether to change the rule it issued two years ago mandating that research grants only go to companies owned by individuals. The rule was issued out of concern that small-business grants could otherwise go to firms with well-funded financial backers.

However one local biotechnology entrepreneur said that overturning current regulations could squeeze out small biotechnology firms that are not venture-owned.

"Biotech companies of all size that engage in high-risk research and development should be eligible for government funding," said Jonathan Cohen, president and chief executive of Rockville-based 20/20 GeneSystems Inc. "I just don't think it should come out of the 2.5 percent pie set aside for small businesses."

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