By Lisa Seachrist

Washington Editor

WASHINGTON * "If it ain't broke, don't fix it," was the sentiment among both National Institutes (NIH) of Health officials and biotech representatives who met in a public forum this week to address ways to strengthen the agency's Small Business Innovation Research (SBIR) grants program. Nevertheless, biotech representatives urged the agency to fine tune the current system by providing better outreach to small companies and to clarify issues surrounding intellectual property rights.

The meeting was the direct result of a request from Rep. John Porter (R-Ill.), chair of the House's Labor, Health and Human Services, and Education Subcommittee, who questioned the merit of the research supported by NIH's SBIR program last summer. During this meeting, biotech companies reiterated that the program provides vital research support to start-up companies.

"SBIR has been very important to us," said Kathleen Mullinix, president and CEO of Synaptic Pharmaceutical Corp., of Paramus, N.J. "The technologies supported by our SBIR grants have served as the basis for our four corporate collaborations and served as a leveraging strategy. It is exactly what was envisioned when the program was started in the early 1980s."

SBIR came into law in 1984 and required agencies that do research to set aside 2 percent of their research budget to provide grants to small research and development businesses which are located in the U.S. and employ fewer than 500 people. The grants are provided in two chunks: Phase I and Phase II, so companies can develop technology for eventual commercialization.

In 1992, the Development Enhancement Act increased the set aside to 2.5 percent and for the NIH; the typical Phase I grant is $100,000 and the typical Phase II grant is $750,000. Start-up biotech companies have made heavy use of these NIH funds to develop discoveries made through basic research.

"It is important to our industry that the NIH continues to provide resources for innovative research that is providing a new pipeline of drugs," said Pete Linsert, CEO for Martek Biosciences Corp., in Columbia, Md., whose company started with a Phase I SBIR grant in 1989 and has turned that into a potential nutritional supplement important for brain development and $75 million in equity investments.

Martek's experience was not unusual for NIH SBIR grantees according to Wendy Baldwin, deputy director for extramural research at NIH, who noted that the NIH has the highest success rate commercialization of SBIR grants of any agency.

Nevertheless, last summer, NIH SBIR grants came under intense scrutiny following lobbying by several academic research organizations. As a result, Porter attached a provision called section 211 to the appropriations bill that would prevent NIH from funding SBIR grants that did not receive priority scores similar to those for academic grants called RO1s.

"This was just part of the age old debate between basic and applied research," said Morrie Ruffin, director of the Biotechnology Industry Organization's (BIO) emerging company section. "BIO worked to educate Porter about how important these grants were to the biotech industry. We were able to have the language removed from the appropriations bill."

Baldwin called the whole incident a "dust-up" and pointed out the NIH doesn't make comparisons between RO1s and SBIR grants. "The comparison would be pointless because they are very different types of research," said Baldwin.

As a result of removing the language from the bill, Porter insisted that NIH ensure that the program was a strong as it possibly could be and requested that NIH hold a meeting between itself and industry to enhance the program. As a result, Baldwin instituted a 250 rule which requires any institute that wants to fund an SBIR application that received a poor priority score from its reviewers to get approval from her office.

Ruffin noted that the industry was concerned that the public meeting would degenerate into last summer's debate, however, critics of the program were notably absent. What did emerge was general support from within the NIH as well as from biotech and medical device companies.

However, the companies were generally concerned about the funding gap that necessarily takes place between the six month funding of Phase I and the initiation of Phase II funding. That gap can be as long as 18 months between applying for the grant, going through review and receiving the grant money.

"For the company, that means stopping research on the most promising research unless you have enough money in the bank to self-fund," Mullinix said.

Baldwin pointed out the fast-track program combines the review for both Phase I and Phase II as long as the company could make milestones, solving that problem.

Mullinix, however, argued that the requirement that the company have funds available for the commercialization of the product would force small companies to license their technology too soon forcing them to make bad business deals.

"I was impressed with the intensity of the concern for over the funding gap," said Baldwin, who suggested that companies seek alternative funding from state agencies for business development during the interim period. "Unfortunately, I don't think any single measure will solve the problem for all companies."

A Sticky Issue: Intellectual Rights

A stickier issue came with the discussion of intellectual property right. In return for the money, the U.S. government maintains non-exclusive rights to any products developed from the grants. While the government has never availed itself of their rights, it still remains a legal possibility which may make it difficult for companies to form collaborations.

"This is a problem with no easy answer," said Dan Hill, assistant administrator of the office of technology at the Small Business Administration which administers the SBIR program. "We may have to go to congress to get this changed and clarified."

The final plea from companies was that NIH perform more outreach to struggling start-ups who could avail themselves of the money if they knew about the program. Baldwin noted that the Office of Extramural Research maintains a web site with a large amount of information about the program and called on professional organizations to help as well.

"BIO is committed to helping with outreach for this program," Ruffin said. "For thousands of early stage companies this is a very important tool." *