By Randall Osborne


Beggars on San Francisco street corners are known for nickel-and-diming passers-by with inventive ploys, such as a box full of kittens that need feeding, or jokes ready for the paid-for telling. Mediocre jokes, usually.

Compare the pleadings of these bedraggled, poverty-stricken souls with pitches made by small biotechnology firms (also rife in the Bay Area) to the National Institutes of Health for Small Business Innovation Research grants.

No, don't. The companies - bush league as serious players in the industry might consider them - are pursuing work important enough that the feds find it worthwhile, even promising.

In the multibillion-dollar universe of biotechnology, the comparatively pocket-change size of SBIR grants is undeniable. But the grants, described by one public-relations agent as a "compelling source of funding during times of economic downturn," are just what some struggling firms need until they can find a partner and break into the big time.

"It can be a bridge," said Monica Medina, attorney with the law firm Heller Ehrman in Washington. "It doesn't require you to give up any equity, and you don't dilute your other investors." Medina helps companies get their hands on the funds, filling out the complicated forms and negotiating, when necessary, with the government.

During fiscal year 2000 (Oct. 1, 1999, to Sept. 30, 2000), the NIH made SBIR grant and contract awards totaling $352 million, and the amount estimated for fiscal year 2001 is $410 million.

The list of recipient names won't ring any bells for most investors, nor are the amounts staggering - although included in the companies to win SBIR grants during the past several months is the familiar name of VaxGen Inc., which got the second part of a $1.1 million grant to develop a vaccine against HIV subtype C. Another somewhat well known firm is Progenics Pharmaceuticals Inc., to which the NIH awarded about $300,000 to develop dehydroascorbic acid for ischemic stroke.

But what about Bioqual Inc., given $738,847 to study Alzheimer's disease genes? Or Ixion Biotechnology Inc., investigating the prevention of kidney stones with a $786,633 grant? Or ProQuest Pharmaceuticals Inc., out on the prairie of Lawrence, Kan., awarded $99,921 to study the relative bioavailability and bioconversion of four cyclic prodrugs of RGD-peptidomimetics?

Just last week, making the "A" list for SBIR grants was Amarillo Biosciences Inc., which got $96,248 to help develop a vaccine to combat Helicobacter pylori, a major cause of gastric cancer. And Antex Biologics Inc. said its grant had borne fruit, with the company completing work on another bacterium, Campylobacter, against which the firm made an oral microbead vaccine for U.S. Army troops. The military is asking Antex to submit an application for a Phase II contract.

Also last week, Syrrx Inc. pulled down $100,000 to study the development of next-generation, high-throughput crystallization robotics. Specifically, the firm has a project to refine Agincourt, which uses approximately 100 times less protein than conventional crystallization approaches and is capable of producing one 96-well plate per minute, or up to about 140,000 conditions per day.

Not everyone has an idea what all this means, but 140,000 conditions seems like quite a few, and the government must have been sufficiently impressed.

The gist of it is that Syrrx's robotics can scan huge numbers of targets quickly by using bits of protein, and the next-generation system boosted by the SBIR grant is expected to make the system faster and cheaper, said Wendell Wierenga, president and CEO of Syrrx.

"If [SBIR] were the only source of funds available to try something that's in a growth phase, it would be insufficient," he said. "But it's a great way to move out on the risk curve a little, with something more iffy."

Wierenga said Syrrx "applied for this almost a year ago, and in the meantime, we utilized our own funds to explore the same area. So, in effect, we used it as a matching-funds kind of approach."

By way of matching funds is how Advanced Technology Program grants work. ATP money has helped larger, better-financed firms advance their projects.

Medina said the "key to ATP is commercialization potential. They're looking for a huge potential market, in a relatively short amount of time."

SBIR grants aren't quite so demanding, and come from 10 agencies, including not only the NIH and the military, but also the U.S. Department of Agriculture, the U.S. Department of Energy, NASA and the Small Business Administration.

It's the NIH/SBIR pot of gold into which many biotechnology firms hope to dip their cups - and many are dipping, though the application is hardly a simple matter. An instruction manual at the SBIR web site ( is 92 pages long.

"In our case, we didn't use a 'facilitator,' but there are people who can help, people with both technical and legal knowledge," Wierenga said. People such as Medina.

The procedure, she said, is "pretty complicated, although a lot of companies can do it themselves quite easily. The problem is, they're busy going full speed ahead on projects for which they've received private funding. This takes the load off them."

Facilitator or not, paperwork in exchange for cash can seem like a mighty fine bargain when venture capitalists and "angel" investors have turned the other way. And there are advantages to SBIR grants that go beyond cash. Wierenga noted to BioWorld Financial Watch that, with direct NIH grants, the feds have "march-in" rights.

"The government can utilize the technology without paying for it," he said. "Any agency owned and run by the government [can use it]." Not so with SBIRs, he said.

Medina, with an attorney's instinct for bargaining, said terms are negotiable even with a non-SBIR grant.

"You don't necessarily lose your rights, and if you do, the government will pay you for them," she told BioWorld Financial Watch. "It's a transaction. A lot of companies are afraid to even enter into negotiations, because they think the government is inflexible, and has an absolute right. That's not the case. This is what lawyers are for, and in most cases, both parties really want to work it out."

Threats of terrorism have only fueled that interest.

"Right now, there's a greater need than ever for the government to get its hands on these technologies," she said.

The SBIR web site offers "special announcements" of "opportunities" for would-be grantees. Applications are sought in such areas as "tools for insertional mutagenesis in the mouse" and "functional tissue engineering for heart, vascular, lung, blood and sleep disorders and diseases."

The former "opportunity" asks for "proposals for development of tools and techniques for the establishment of random and targeted sequence-tagged insertion libraries of embryonic stem cells that can be used to generate mutant mice in which the expression of the tagged gene could be controlled temporally and spatially."

The latter wants "new approaches, technologies, tools, methods, devices, cells, biomolecules and biomaterials that can be used to engineer functional tissues in vitro for implantation in vivo as a biological substitute for damaged or diseased tissues and organs or to foster tissue regeneration and remodeling in vivo for the purpose of repairing, replacing, maintaining or enhancing organ function."

Both scream "biotechnology." The names of sizeable, established firms doing work in both areas (or capable of it) may spring to mind, but what matters most is the benefit of such cash for start-ups and early stage companies.

What about confidentiality?

"The reports done on these [grants] become available under the Freedom of Information Act, and that's fine," Wierenga said. "The thrust is to try something risky and see if it works, and if it's viable, you seek patent protection. If it's going to be a trade secret, then an SBIR grant would not be the way to go."

Medina said, though, that companies give up on intellectual property rights with SBIR grants, and trade secrets are exempt under the FOIA.

"As long as you mark something as confidential, or a trade secret, the government has to protect that," she said, noting that the subject is covered by criminal law. "You just write that it's a trade secret on the pages that contain that type of information. Defense contractors do this as a matter of course."

What's more, companies can go to the SBIR well twice, Wierenga said. In the first grant phase, the amount is somewhere in the area of $100,000 or $150,000, he said. If the technology succeeds, then the firm may ask for a funding increase of "usually a factor of 10 or more," bringing the Phase II money up around $1 million.

"We could use this approach for another small business opportunity," Wierenga said. "Let's say we were doing some work on novel miniaturization hardware, but we had ideas tangential to that, but potentially synergistic. You could apply for an SBIR to [pursue] that."

Medina has an obvious interest in furthering the search for federal money by the companies who hire her for assistance, but she seemed sold on SBIRs independently of that.

"I honestly don't think there are any holes in this arrangement," she said. "It's a wonderful deal."

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