Special to BioWorld Financial Watch
Grants always have been a major source of funding for academic research institutions. For biotechnology companies, however, grants are not a primary money source. Still, grants can provide much-needed funds for early-stage projects funds that may not be available through any other source.
The National Institutes of Health's Small Business Innovation Research (SBIR) grants program awarded 1,390 grants totaling $307 million for fiscal 1999; that's an increase of more than $40 million over the previous year, when NIH awarded 1,313 grants totaling $265.6 million. SBIR grants essentially fall into two categories: Phase I grants, which generally provide $100,000 over a six-month period, and Phase II grants, which give $750,000 over a two-year period. The goal in many cases is to get to the Phase II grant; a company must first be awarded a Phase I grant before it can apply for a Phase II.
"For our company, Phase I is kind of the carrot," said Joseph Patti, chief scientific officer and vice president of preclinical development for Inhibitex Inc., of Alpharetta, Ga.
Inhibitex received a Phase I grant to develop a vaccine against antibiotic-resistant Staphylococcus aureus, using microbial surface component recognizing adhesive matrix molecules (MSCRAMM), or adhesins.
"The big money is the $750 [thousand]. That allows you to develop a project," Patti said. "We've only got 14 employees, so $750,000 is significant."
Palatin Technologies, of Princeton, N.J., received two SBIRs in February a Phase I grant for an obesity treatment, and a Phase II grant for an imaging technology. Christine Blood, Palatin's director of biological research, said "SBIRs are for early-stage research, and we would look for an SBIR at such an early stage [of product development] that it would be really risky this is before the stages of finding a corporate partner. The SBIR would be used to gather the information to take to venture capitalists and other possible investors."
Besides single applications for Phase I or Phase II money, there's a "fast-track" option a biotech company can request concurrent submission and review of Phase I and II projects with the same focus. This helps reduce the funding gap that can come between grant submissions.
The gap comes even with a single submission, Patti said. "One difficulty is the time frame, from sending it in to the time it's reviewed to the time it's awarded. It's lengthy." From the time of submission, he said, nine to 10 months can pass until funds are available.
"In the life span of a biotech company, that's a long time," Patti said. "You can't count on these grants for survival they're really additive to what you can get from venture capital and corporate partners."
Patti said obtaining NIH grants may make potential investors more comfortable, but he isn't sure it helps in attracting other funding sources.
"It's unclear if it helps attract other money," he said. "We've told people that we've gotten NIH grants, and they say, 'That's great,' but some people aren't familiar with the [grant application] process, the peer review, everything that happens."
To receive an SBIR grant, it's not as easy as applying in fiscal year 1998, only 28.3 percent of Phase I applications were approved. Of Phase II applications, 45 percent were approved.
"I don't know that [the system] is as stringent as the academic R01 system," Patti said, "but I think they look for more than just feasibility [in Phase I applications]. There needs to be good science, a good approach."
The government offers the money with few strings attached the rights to data remain with the grantee, and data are protected for four years. Similarly, the grantee retains patent rights, although the Bayh-Dole Act of 1980 requires that inventions made with federal funds be reported. This regulation is applicable to all agencies and applies to grants, contracts and cooperative agreements. The Bayh-Dole Act automatically grants first rights to a patent for an invention fully or partially funded by a federal agency to the grantee, as long as the grantee follows certain procedures.
However, Patti said, "The government has the ability to take [an invention] and use it for its own purpose if it was deemed to be something on par with the next smallpox vaccine."
NIH guidelines for applications hold that the business must be at least 51 percent U.S.-owned and operated, located in the United States, and have no more than 500 employees. The principal investigator on the grant must be primarily associated with the small business during the project.
Other federal agencies award SBIR grants the Association for Health Care Policy and Research, the Centers for Disease Control and Prevention, and the FDA all have SBIR grant programs, but NIH's is the largest by far. The NIH set-aside for 1999 was $307 million, compared with $1.5 million for AHCPR, $4 million for CDC and $500,000 for FDA.
Some private organizations also provide grants to biotech companies. The Cystic Fibrosis Foundation (CFF) currently has grants out to about a dozen biotech companies, in amounts up to $1.7 million.
"Our granting process is open to both biotechs and universities," said Preston Campbell, CFF's executive vice president. "We have purposely targeted biotech because it's been our experience in the past that there have been valuable products for cystic fibrosis patients that haven't been developed, either because companies didn't have expertise in cystic fibrosis, in designing a clinical trial, or they didn't have the financial resources needed for preclinical and early clinical costs."
Because cystic fibrosis affects only about 30,000 people, it is considered an "orphan condition," and drugs and biologicals treating cystic fibrosis receive special consideration from the FDA. Companies also receive tax breaks, under the Orphan Drug Act.
The Cystic Fibrosis Foundation is moving into a "therapeutics stage" of development, Campbell said, which also brings biotech more fully into the picture.
"We've been relatively successful in understanding what cystic fibrosis is," he said, "and now we're hoping to use that information to build a clinical armamentarium to benefit our patients."
CFF President and CEO Bob Beall devised the foundation's Therapeutics Development Program, which provides grants for drug discovery. The awards are milestone-driven, similar to many biotech agreements with pharmaceutical companies.
Under the program, CFF also has a drug evaluation arm, where the foundation will design and run clinical trials for companies through a specialized network of seven centers. "The centers are very experienced, have specialized equipment to measure outcomes, and we can monitor quality assurance," Campbell said. "Companies love the network it facilitates the business side of drug evaluation for them."
Campbell allowed that the grants are relatively small in the scheme of things: "Merck and Pfizer aren't going to be coming to us," he said. "For a small company, though, we look pretty good. And small companies often don't have the expertise to do these clinical trials and meet FDA regulations."
A larger company working under a CFF grant is Genzyme Corp., of Cambridge, Mass., which received a two-year, $1.05 million grant for research to identify small-molecule drugs against cystic fibrosis.
"When you talk about all the ways that biotech can obtain funding, it's important to distinguish between big biotech and small biotech," said Blaine McKee, associate director of corporate development at Genzyme. "We're certainly big biotech, and are not as cash constrained as small biotech, but we are very careful about how we spend our money."
Genzyme has a longstanding interest in cystic fibrosis, McKee said. "The Cystic Fibrosis Foundation has been very helpful to us and is a natural fit. It's been a mutually beneficial relationship, and the idea is to move forward to help the patients."
Other current CFF-funded research includes work on gene therapy, CF-associated lung infections, and research on drugs that target the underlying protein defect causing the disease. *