NIH 'Reinventing' An Expanding SBIR Program

SIDEBAR: For More Information Supporters of the controversial funding category are fighting efforts to keep its budget from growing and trying to increase applications in an attempt to mollify critics. Funded by a growing "tax" on federal R&D funds that will total almost $1.2 billion in fiscal year 1997, Small Business Innovation Research (SBIR) grants are becoming increasingly controversial. Intended to help companies with fewer than 500 employees commercialize new technologies, the progr

Oct 28, 1996
Robert Finn

SIDEBAR: For More Information

Supporters of the controversial funding category are fighting efforts to keep its budget from growing and trying to increase applications in an attempt to mollify critics.
Funded by a growing "tax" on federal R&D funds that will total almost $1.2 billion in fiscal year 1997, Small Business Innovation Research (SBIR) grants are becoming increasingly controversial. Intended to help companies with fewer than 500 employees commercialize new technologies, the program has come under fire from academic researchers funded by the National Institutes of Health. NIH is one of several federal agencies reserving a portion of its R&D budget for SBIR-applied research conducted by private firms.

Some scientists are displeased that, as mandated in Congress's 1992 reauthorization of the SBIR program, the portion of NIH's R&D budget designated for SBIR is set to grow from 2 percent in 1996 to 2.5 percent in 1997. Critics charge that funded SBIR grants are of lower quality than funded grants for basic research, and that increasing the money reserved for applied science is inappropriate at a time when money for basic research is so hard to come by.

But the SBIR program has many supporters, and they have warded off efforts to keep its budget from increasing. In addition, supporters have foiled attempts that would have required priority scores earned by funded SBIR grants at NIH to be at least as good as the priority scores earned by funded investigator-initiated new research project (R01) awards. Meanwhile, SBIR boosters at NIH are looking for ways to "reinvent" the program, increasing the number and quality of the grant applications as ways of mollifying SBIR's critics and reducing delays between the two phases of SBIR funding. But some of these reinvention efforts are themselves controversial, even among SBIR supporters.

MORE IS BETTER: Stephen Dahms says the SBIR program can become more competitive by getting more proposals.
"You can appreciate the opinion of an R01 investigator who is putting in a proposal that ultimately maybe has an 8 [percent] to 9 percent chance of funding right now," notes SBIR supporter A. Stephen Dahms, a professor of chemistry at San Diego State University and director of the California State University Program for Education and Re-search in Biotechnology (CSUPERB). "And you can understand how that R01 investigator can become a little disenchanted knowing that if somebody in a company puts in a proposal to NIH, they're being funded at 33 percent. That's high. Let's get it down to where it's more competitive. Of course, the way one does that is to generate more proposals."

OUTREACH: Gregory Milman of NIAID hosts conferences in an effort to increase the number of SBIR applications.
Gregory Milman, chief of the pathogenesis and basic research branch in the Division of AIDS at the National Institute of Allergy and Infectious Diseases, has data that indicate that things are not as dismal for R01 investigators, nor as rosy for SBIR applicants, as Dahms suggests. According to Milman, in fiscal year 1995 NIH funded 17.8 percent of all R01 grant applications and 22.2 percent of all SBIR applications, success rates that he characterizes as "similar." Nevertheless, Milman agrees that more companies should be encouraged to apply.

Ann Eskesen, founder of the Innovation Development Institute Inc., a Swampscott, Mass.-based SBIR consulting firm, explains that the SBIR program was established in 1982 as a result of the recognition that large increases in government R&D spending had paradoxically left small businesses out in the cold. "The federal government was a huge component part of the creation of much of the technology-based industrial community in the period after the Second World War. As the scale of funding in the federal government went up-partly for the space program, partly for things like the Vietnam War buildup-the amount of money got to be so large that the tendency was to award it in much larger clumps than had previously been the case. . . . the consequences of that buildup in federal R&D was that small business became a nonrecipient of those dollars."

The Small Business Administration reports that by 1995, projects funded through the Department of Defense (DoD) accounted for 49 percent of $869 million in SBIR funds, NIH was second at 21 percent, and NASA was third at 14 percent. Seven other agencies, including the National Science Foundation and the Department of Energy, made up the remainder. Each agency administers its SBIR program independently, and they all have different policies and procedures.

According to a May 17, 1996, article in Science (J. Mervis, 272:942-4), the opposition to SBIR, at least as it is practiced at NIH, was spearheaded by the 40,000-member Federation of American Societies for Experimental Biology (FASEB), based in Bethesda, Md. Science reported that FASEB objected to the fact that, on a scale in which lower is better, the priority score for the average funded SBIR proposal is higher (that is, less well regarded) than that of the average funded R01 proposal. NIH figures indicate that most funded R01 proposals earn scores below 150, while most funded SBIR proposals earn scores between 150 and 250.

  • Gregory Milman, chief of the pathogenesis and basic research branch in the Division of AIDS at the National Institute of Allergy and Infectious Diseases, has written a lengthy document containing down-to-earth advice on applying for SBIR grants. It is available on the Web at

  • For more information about the SBIR conferences sponsored by the National Science Foundation, the Department of Defense, and the Small Business Administration, contact the SBIR Conference Center at P.O. Box 2890, Sequim, Wash. 98382;

  • For more information about the SBIR conference being planned for San Diego in the fall of 1997, contact BIOCOM San Diego, a regional trade organization for biotechnology and medical device companies, at 4940 Carroll Canyon Rd., Suite B, San Diego, Calif. 92121; (619) 455-0300. Fax: (619) 455-0022. E-mail: Web site:

American Cancer Society's Clark Heath: "It's a step in the right direction. It's been talked about for a good while about how the means for testing compounds . . . should be modernized."

In response to concerns about SBIR priority scores, the House Subcommittee on Labor, Health and Human Services, and Education, which oversees NIH, inserted a provision into its appropriations bill that would have forced equivalence between SBIR and R01 priority scores. SBIR supporters objected strongly, pointing out that this proposal would gut the program, and noting that the difference in scores could be accounted for by differing instructions to and composition of the study sections examining the grant applications.

The provision was eventually struck from the appropriations bill, but FASEB president John W. Suttie, a professor of biochemistry and nutritional sciences at the University of Wisconsin, Madison, denies that his organization ever wanted to see the SBIR program gutted.

QUALITY CONCERNS: FASEB's John Suttie wanted to see "issues addressed" before funding is increased.
"We certainly are on record as being concerned about quality," notes Suttie. "We were on record as hoping that funding would not be increased until that issue was discussed seriously. But specific language that tended to limit the funded proposals to the same median priority scores as R01 was not a proposal that was pushed by FASEB. In general, our stand was that we would have hoped that the funding for the SBIRs was not increased until some of the issues would have been addressed."

SBIR grants are awarded in two phases. Phase I awards are for feasibility studies lasting six months to a year, and the award amount cannot exceed $100,000. "We call it the rope by which you're going to hang yourself," explains Eskesen. SBIR Phase I grants give companies a small amount of money "so they can demonstrate that they indeed know what they're doing. Then the real work of the project and the more substantial funding comes in at Phase II."

Phase II awards can total $750,000 for projects lasting up to two years. They are intended to move the product as close to the marketplace as possible.

"SBIR is not about doing research," notes Eskesen. "It is fundamentally about translating that research into products and processes which would find actual commercial application." She notes that NIH is an unusual component of SBIR, since its primary goal is basic research. Agencies like DoD or NASA, in contrast, are much more amenable to highly applied research and are much more comfortable using SBIR for that purpose. Moreover, says Eskesen, while these agencies are often the ultimate customers for products developed with SBIR funding, "NIH and NSF, by contrast, are not the users of the research. Their mission is to push out the boundaries of knowledge."

This clearly creates a tension between basic and applied researchers. But even some basic researchers see the value of SBIR. "I have a research laboratory," explains Dahms. "I'm funded by the NIH. I know well the sensitivity of the academic arena to SBIRs. However, I've seen them work and work well."

Among the commercially available products that began their lives as SBIR-funded projects from NIH are a periodontal-disease screening device that was developed by Abiomed Inc. in Danvers, Mass.; a device to remove toxic agents from blood from Hemex Inc. in Buffalo; and CholesTrak, a device for home testing of cholesterol levels from Chemtrak Inc. in Sunnyvale, Calif.

'ENORMOUS DIFFERENCE': Sukhendu Dev notes SBIR's advantages over venture capital funding.
SBIR grants have proved vital to Genetronics Inc., a San Diego company working on electroporation-using briefly pulsed electric fields to open pores in cell membranes. According to Sukhendu Dev, director of research at the 50-person company, Genetronics has just received its seventh SBIR grant, a Phase I award for $95,468, to develop an electroporation catheter and pulse generator for delivering genes and drugs to cells forming blood vessel walls. The company has four more SBIR applications awaiting approval.

"That $100,000 can make an enormous difference," observes Dev. "One of the best things I like about SBIR is that sometimes a company consisting of four or five people can submit an SBIR grant and get funded. So for a start-up company, people who have new ideas and don't want to go to venture capitalists and have a large percentage of their company taken over, it's fantastic."

But the competition is fierce and getting fiercer, notes Dev. "The standard seems to be going up and up and up. Reviewers are expecting a lot more than they were even six years ago."

For instance, says Milman, "you don't need any preliminary data for a Phase I, but most applications come in with a fair amount of preliminary data. Therefore, the competition is such that there's pressure on all applications to have fairly good data from the beginning."

"One of the things we tried to do is to get the best results out of the funds that NIH puts into its SBIR program," explains Milman, who is the prime mover behind NIH's efforts to "reinvent" SBIR. "And that means finding out . . . what are some of the roadblocks or hurdles that prevent some of the best companies from applying for funds and getting involved in SBIR research."

One way NIH and other organizations and agencies are attempting to increase the number of SBIR applications is by preaching the gospel at regional conferences, many of which are organized by local biotechnology associations. Milman organized an NIH-sponsored conference in Boston in October 1995, and he spoke at another in San Francisco in last month. The September conference was sponsored by the Bay Area Bioscience Center. A third conference is being planned for San Diego in the fall of 1997. Meanwhile, NSF, together with DoD and the Small Business Administration, are running similar three-day conferences in Crystal City, Va., on October 28-30; Anaheim, Calif., on November 13-15; and Orlando, Fla., next April 2-4 (see accompanying list).

Milman finds that three types of people attend his SBIR conferences: company representatives, specialists in technology transfer, and a surprisingly large number of academics. Since there's no minimum size requirement for companies applying for SBIR grants, they appeal to academic scientists who are considering entrepreneurial ventures on the side.

"Everyone is a potential small-business applicant," explains Sonny Kreitman, NIH's coordinator of SBIR and STTR (Small Business Technology Transfer) programs. "But they may not be aware of the program in its entirety. They may not be aware of how the program has expanded. They may be focusing on one particular agency and be unaware of the breadth and depth of the opportunities available at NIH."

Dahms likens NIH's SBIR program to a giant chicken coop where a lot of the feed is piled into one corner, unnoticed by many of the chickens. "I'm not saying that the amount of food has to be increased, but attention has to be called to the food that's there if you want more eggs."

According to Milman, these conferences do more than teach participants how to apply for SBIR grants. They also allow those who administer SBIR programs to learn how the process can be improved. At the October 1995 meeting in Boston, for example, a complaint about the gap between Phase I and Phase II funding led to the creation of an important new pilot program.

"The delay in funding from Phase I to Phase II can be anywhere from nine months to maybe two years," notes Milman. "And that long delay was a deal-killer for any proj- ect that was of immense value to a company. They couldn't stop working on it during that time, and therefore some of the best companies decided [applying for SBIR grants] just wasn't worth the effort."

POINT OF VIEW: NIH-funded chemistry professor Stephen Dahms, a basic researcher, knows that SBIRs can work well.
In response, Milman helped to develop a Fast Track program in which companies meeting certain conditions can apply for Phase I and Phase II funding simultaneously. A Fast Track pilot program was in place in 10 of NIH's 19 institutes in time for the April 1996 application dates. The first group of Fast Track SBIR grants will be made next month.

But the conditions for Fast Track are fairly stringent, and not every applicant is eligible, explains Milman. "It's for companies that have good preliminary data and several other things: You need some sort of funds in addition to federal funds to push the project forward. The idea is that we're leveraging federal funds.

"The second thing we looked for is a business plan that would indicate that there was thought in terms of how the project is going to be developed," Milman adds. "A third thing that was critical is that companies set up a set of milestones along the way so they knew that if they achieved these milestones they were on track, and if they didn't, the project was likely not to succeed."

While the idea of closing the gap between Phase I and Phase II funding seems logical, Eskesen, one of SBIR's strongest proponents, thinks it's a bad idea. "I absolutely don't like Fast Track," she asserts. "I think it's a solution to a problem that will probably create more problems."

Referring to Milman, Eskesen observes, "He's missed the fundamental rope-to-hang-yourself concept on which depends the quality of the SBIR experience. We must have the ability to remove a project from the funding cycle. The assumption [about an R01 award] is that it is going to be a continuing project. You have to be doing very poor-quality work for your renewals not to occur. . . . SBIR starts from a fundamentally opposite assumption, and that's that the Phase I is the means by which to filter the projects, determining which are among the best, and only those go forward.

"My judgment," continues Eskesen, "is that with [Fast Track] you are giving a competitive advantage to the larger and more established firms, and you are taking out of the pool of potential respondents a lot of the guys who are some of the most exciting people. They need to be fostered. You don't throw them in with an $850,000 project," she says, referring to the sum of maximal Phase I and Phase II awards. Moreover, she remarks, "I think [the Fast Track mechanism will] lower the risk of projects that companies are willing to tackle," since review committees will likely give Fast Track grants only to projects whose success seems certain.

"I think the Phase I-Phase II funding gap is something of a red herring," comments Eskesen. "There are many other very effective ways by which that gap can be addressed." For example, she advocates that funding agencies include "options" for additional work in Phase I awards. "If the company and the agency think there's going to be a good prospect for Phase II, the agency would have the option to pick up a couple of additional tasks that would probably be worth $20,000 to $40,000-a relatively small amount of additional funding that would enable the company to keep working, to keep the team together, and to keep the momentum of the project continuing."

No matter how NIH chooses to change administrative procedures in its SBIR program, Eskesen believes that it's also important to change attitude. Speaking about the traditional antagonism between the SBIR community and the rest of NIH, she points out: "NIH has never quite gotten used to the idea that we are what they are. The relationship is still very much 'us and them.' It's a loss on both sides."

Eskesen adds: "I think that there should be less of the feeling that we are outside looking in, and more of a feeling that we have something to contribute, and we're sitting at the table. Obviously, we're going to be outnumbered, but at least we'll be there as a recognized part of the research community. We're talking about $1.2 billion of research funding, thousands of these small companies. Whether people like it or not, we are important players, and I think we should be treated accordingly."

Robert Finn, a freelance science writer based in Long Beach, Calif., is online at