Start-Ups Say Innovation Doesn't Grow on Trees

By Kim Hart
Monday, July 6, 2009

Biotechnology start-ups have long relied on grants from the National Institutes of Health to fund the research-and-development process for new drugs, medical devices and disease treatments. Every year, the agency is required by law to set aside 2.8 percent of its research budget -- $650 million in 2009 -- for small businesses and the commercialization of technologies developed at universities.

But when nearly $10 billion in stimulus funds went to the NIH, a last-minute change in the legislation exempted the agency from the requirement. That means the NIH does not have an obligation to reserve a portion of the money to small businesses.

This has created a stir in the area's biotech community. The companies say that without the requirement to set aside money for the Small Business Innovation Research program, they have a tougher time securing funding that could help them develop new products and survive the recession.

"It has just been a slap in the face to small businesses, especially because it's been a lifeline to biotech," said Aprile Pilon of Clarassance, a Rockville-based biopharmaceutical company that develops treatments for respiratory diseases. "We don't have access to institutional investors. We're going to lose a lot."

The SBIR program has been a key part of the grant-giving process for many agencies that support research and development, including the Energy Department and the Agriculture Department. For biotech companies, the NIH grants typically help companies pay for clinical trials or move their products through the regulatory process. Universities and other academic institutions also receive a large number of grants for scientific research.

In February, executives from 20 companies sent a letter to Maryland's senators, Democrats Barbara A. Mikulski and Benjamin L Cardin, asking for help in applying the small-business set-aside to the stimulus funds. Two weeks ago, Cardin, Rep. Chris Van Hollen (D-Md.) and Rep. Donna F. Edwards (D-Md.) held a hearing in Rockville on the issue. Jonathan Cohen, chief executive of 20/20 Gene Systems, Joe Hernandez, chief executive of Innovative Biosensors, and Pilon testified before the panel. Raynard Kington, acting NIH director, did not attend the hearing. Instead, Sally J. Rockey, director of extramural research, sent written testimony outlining alternative funding programs that did not reach the members of Congress until after the hearing.

Cardin, Van Hollen and Edwards sent a pointed letter to Kington after the hearing, saying that his "absence sent a message of indifference."

In an interview Friday, Rockey said no one was available to appear at the hearing. She also said that, although the NIH is not required to provide a set amount of funds for small businesses, the agency has encouraged them to apply for several other funding opportunities supported by stimulus money. These programs, she said, have received a lot of interest from biotech firms.

"When the Recovery Act was first being discussed, we were concerned, because the number of [small-business] applications had dropped dramatically," she said. "And we were concerned we wouldn't have enough applications to distribute funds expeditiously."

Pilon argues that small-business applications get tougher scrutiny than those from academic institutions, and she claims that the board reviewing the applications is largely made up of university representatives.

"Small businesses are at a disadvantage in terms of preparing grants," she said. "We don't have the resources that universities do. We have to think hard if we have the time and money to write a grant, and if we don't get grant funding, the penalty is much greater than if a university doesn't get funding."

Cha-Mei Tang, chief executive of Potomac-based Creatv MicroTech, said she submitted a grant application last week to help hire more employees to gather patient samples and statistics in the development of a tool to detect chronic lymphocytic leukemia. She said past efforts to compete for funds that are not reserved for small businesses have been unsuccessful, so she is concerned that companies will not have much of a shot at stimulus money.

"Everything we sell is based on SBIR funding," Tang said. She said she plans to visit lawmakers on Capitol Hill this week. The House is scheduled this week to take action to reauthorize the SBIR program, which expires at the end of July. The biggest issue in question is whether venture-backed firms should have access to SBIR grants.

Allen Cunningham, chief executive of Charlottesville-based Gencia, said his company received an NIH grant that is not tied to stimulus funding for the pre-clinical development of a therapy for Alzheimer's disease, so his company is not in dire need of additional money at the moment.

But he said he agrees that setting aside some portion of the stimulus funding would be invaluable for small firms.

"There's no doubt that if the exemption wasn't there, that more money would be available for applicants and in line with the goals of the stimulus," he said.

Kim Hart writes about the Washington technology scene every Monday. Contact her at

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