WASHINGTON - On the eve of its annual convention, the Biotechnology Industry Organization went to bat on behalf of numerous companies that face federal funding restrictions because of a relatively new interpretation of eligibility requirements for Small Business Innovation Research (SBIR) grants.
"Over the past two years," said Morrie Ruffin, BIO's executive vice president for capital formation and emerging companies, "we have been contacted by hundreds of companies, members and non-members, who are looking for guidance on how they should determine their size for the purpose of qualifying for SBIR grants."
His testimony was heard Friday by the Small Business Administration, which is in the process of evaluating size standards in determining qualifications for the monetary awards. BIO is opposing an interpretation of existing requirements that restrict such grants for companies that are more than half owned by venture capital firms, limits that have come into play over the past couple of years.
"Venture capital financing is all but required for this industry to continue doing quality research," Ruffin said, noting that 70 percent of companies that responded to a recent BIO survey were majority owned by venture capitalists. "The current rule interpretation eliminates many small biotech firms from taking advantage of the SBIR program."
He added that since most venture capital firms are constructed as limited partnerships, their management of biotech companies should not be misconstrued as controlled by a single corporate entity, which are precluded from receiving SBIR grants. Ruffin also said SBIR funding often is used for secondary research programs, while venture money goes toward lead programs.
The trade association has been fighting the restriction for a couple of years now, and also is receiving support on Capitol Hill, where legislation has been introduced in both chambers to exempt venture-backed firms from the limitation. Specifically, Sen. Kit Bond (R-Mo.) and Rep. Sam Graves (R-Mo.) are advancing sister bills to ensure access to SBIR grants for venture-backed biotech companies. Bond's bill also has the backing of Sen. Olympia Snowe (R-Maine), who chairs the Senate Committee on Small Business, as well as Sen. Edward Kennedy (D-Mass.).
Phase I SBIR grants total $100,000; Phase II grants used to be capped at $750,000, though some now exceed $2 million.
"The SBIR program is a very valuable way to establish the viability of a technology or proof of concept as you are going out and raising venture capital," Ruffin told BioWorld Today. "The problem right now, under the current [restrictive] interpretation, is that companies have to delay getting venture money."
And even among opponents, there is support for a relaxation of the exemption for biotech companies. Lloyd Chapman, the president of the American Small Business League, told BioWorld Today that he does not oppose an exemption to the rule for this particular industry. He was at the meeting to oppose a complete dismissal of the requirements, as he pointed to a number of large companies that take advantage of the SBIR grant system.
Other opponents aren't as forgiving, noting that venture-backed businesses undercut the spirit of the SBIR program and would serve as competition for biotech companies that have little to no other funding.
"Once venture capitalists say, We're going to run it, we're going to pick the management, pick the technology and control the budget,' it's no longer a small business," Jere Glover, the executive director of the Small Business Technology Coalition, told BioWorld Today. "Once they're 51 percent [venture capital-owned], they're saying Yes sir, Mr. VC, whatever you tell me to do.' "
Adding that countless small biotech companies without venture backing should continue to receive SBIR assistance, he noted that BIO's legislative support isn't across the board. Among lawmakers who oppose a reinterpretation of the restrictions is Don Manzullo (R-Ill.), the chair of the House Committee on Small Business, Glover said.