[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
SUBCOMMITTEE HEARING ON SBIR:
ADVANCING MEDICAL BREAKTHROUGHS
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SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 13, 2008
__________
Serial Number 110-70
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Printed for the use of the Committee on Small Business
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
WILLIAM JEFFERSON, Louisiana STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas SAM GRAVES, Missouri
RICK LARSEN, Washington TODD AKIN, Missouri
RAUL GRIJALVA, Arizona BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois STEVE KING, Iowa
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania DEAN HELLER, Nevada
BRUCE BRALEY, Iowa DAVID DAVIS, Tennessee
YVETTE CLARKE, New York MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana VERN BUCHANAN, Florida
HANK JOHNSON, Georgia JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Kevin Fitzpatrick, Minority Staff Director
SUBCOMMITTEE ON INVESTIGATIONS & OVERSIGHT
JASON ALTMIRE, PENNSYLVANIA, Chairman
CHARLIE GONZALEZ, Texas VACANT, Ranking
RAUL GRIJALVA, Arizona LYNN WESTMORELAND, Georgia
.........................................................
(ii)
?
C O N T E N T S
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OPENING STATEMENTS
Page
Altmire, Hon. Jason.............................................. 1
Graves, Hon. Sam................................................. 3
WITNESSES
Goodnight, Ms. Jo Anne, National Institutes of Health............ 4
Rick, Ms. Amy Comstock, Parkinson's Action Network............... 6
Billingsley, Mr. Mel, Ph.D., Life Sciences Greenhouse, on behalf
of Pennsylvania BIO............................................ 9
Stefansic, Mr. James, Ph.D., M.B.A., Pathfinder Therapeutics, on
behalf of AdvaMed.............................................. 11
Franano, Mr. Nicholas, M.D., Proteon Therapeutics................ 14
APPENDIX
Prepared Statements:
Altmire, Hon. Jason.............................................. 26
Graves, Hon. Sam................................................. 28
Goodnight, Ms. Jo Anne, National Institutes of Health............ 29
Rick, Ms. Amy Comstock, Parkinson's Action Network............... 44
Billingsley, Mr. Mel, Ph.D., Life Sciences Greenhouse............ 48
Stefansic, Mr. James, Ph.D., M.B.A., Pathfinder Therapeutics..... 53
Franano, Mr. Nicholas, M.D., Proteon Therapeutics................ 59
Statements for the Record:
Franano, Mr. Nicholas, M.D., Proteon Therapeutics, referenced
testimony of Mr. Douglas A. Doerfler, President and Chief
Executive Officer, MaxCyte, Inc................................ 63
(iii)
SUBCOMMITTEE HEARING ON SBIR:
ADVANCING MEDICAL BREAKTHROUGHS
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Wednesday, February 13, 2008
U.S. House of Representatives,
Committee on Small Business,
Subcommittee on Investigations & Oversight
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360 Rayburn House Office Building, Hon. Jason Altmire
[chairman of the Subcommittee] presiding.
Present: Representatives Altmire and Graves.
OPENING STATEMENT OF CHAIRMAN ALTMIRE
Chairman Altmire. I call this hearing to order. Mr. Graves
is going to be joining us shortly, but I don't want to delay
the proceedings any more. If we start into the testimony and he
arrives, I'll halt it at the end of who is ever speaking and
we'll allow him to make his opening statement at that time.
I am calling this hearing this morning through the
Subcommittee on Investigations and Oversight and we will
continue to review the Committee on Small Business Investment
Research Program.
This hearing examines how SBIR is laying the foundation to
fight disease and advance medical breakthroughs. Through this
initiative to date nearly $600 million has gone to small firms
researching national health and wellness priorities. There are
many examples of health care therapies that have been developed
as a result of SBIR funding. These include vaccines for
biodefense and food safety, novel anesthesia delivery devices
to relax children during medical procedures and improved
monitors to control blood glucose levels.
SBIR has also spearheaded the discovery of safer methods
for laser vision correction, needle-less infusion patches to
deliver drugs such as insulin and improved research tools for
studying dementia. These examples make it clear that SBIR is on
the cutting edge of improving the quality of health care. We
must, however, take steps to make it more responsive to today's
medical challenges. This includes expanding the number of
companies replying to research solicitations. This is an
important issue for at least two reasons. First, the National
Institutes of Health reports an alarming decrease in SBIR
applications since 1994; and second, a recent National
Academies of Science study recommends that all federal agencies
increase their efforts to encourage women and minority-owned
businesses apply for SBIR awards.
This Subcommittee will also focus on initiatives that the
NIH has developed to support the successful commercialization
of SBIR-funded research. The Pipeline to Partnership database,
NIH's pilot program in conjunction with the manufacturing
extension partnership and the Agency's decision to support
promising projects with multiple SBIR awards are initiatives
that other participating agencies should consider as potential
avenues to encourage higher rates of commercialization.
Finally, we will consider how to further encourage research
in fields that suffer from chronic under-funding including
orphan diseases which are not receiving the capital they need
to advance new therapies.
Going forward, the Committee will look at ways to address
these funding shortfalls. The region I represent in western
Pennsylvania boasts some of the best medical research and
development in the nation and last year the State brought in
nearly $75 million in SBIR grants, ranking ninth nationally.
We have tools and infrastructure necessary to lay the
groundwork for the development of innovative medical
technology, equipment, and therapies. RedPath Integrated
Pathology, a small company based in Pittsburgh, Pennsylvania,
is a prime example of how the SBIR program can take an
innovative idea to corporate success. RedPath was awarded an
SBIR grant that enabled it to compete and validate key aspects
of the molecular-based tests that could facilitate earlier,
more personalized and more definitive cancer diagnosis.
The positive result of this research led RedPath to
introduce Pathfinder TG, a diagnostic tool that is now being
used to combat one of the leading diseases affecting the
American public. It also spawned an enterprise that created
more than 40 highly-skilled jobs in just four years with a goal
of doubling its growth this year. However, without the initial
grant from SBIR, RedPath may never have been able to survive
and grow into the successful company that it is today.
This is just one example of medical breakthrough technology
that is a result of SBIR illustrating the importance of the
program and all it has to offer. Should we fail to support our
innovative researchers and technological advancements we will
lose the technological edge that allows this nation and our
economy to expand, and in RedPath's case to improve patient
care.
With the Committee working to reauthorize SBIR this year
today's hearing will provide testimony central to the SBIR
program's on-going effectiveness. During this time, it's
important that we modernize the program so that it can create
the medical breakthroughs of tomorrow, while still promoting
job creation in our local communities.
Over the last 25 years, the SBIR program has contributed to
the emergence of some of the world's most innovative and
successful life science companies: Amgen, Biogen, and Chiron
are all graduates of the SBIR program. At it's most effective,
the SBIR program provides seed funding that will provide the
next decade's Amgen with its start, while also incorporating
America's small life science research firms to help reduce the
burden of illness on the American public.
So I thank the witnesses for being here today and look
forward to all of your testimony.
And at this time, if he's ready, I recognize Mr. Graves for
his testimony.
OPENING STATEMENT OF MR. GRAVES
Mr. Graves. Thank you, Mr. Chairman. Thank you very much.
Good morning, everyone. I'd like to welcome all of you to this
hearing on the Small Business Innovative Research Program or
SBIR, and its role in the development and commercialization of
innovative health care technologies.
I'd also like to extend a special thanks to each of our
witnesses who have taken the time to provide this Subcommittee
with their testimony. I also especially would like to welcome
Dr. Nicholas Franano who is the Founder and Chief Scientific
Officer for Proteon Therapeutics, Incorporated, a biotech
company located in Kansas City, Missouri. Welcome, Doctor. I
appreciate you being here.
As part of the 2000 SBIR program reauthorization, Congress
required the National Academy of Sciences, the National
Research Council to conduct a comprehensive review and
assessment of the SBIR program. Using the NRC report as a
starting point last month, the House Small Business Committee
started its review of the SBIR program which was last fully
examined by this Committee in 1999 and reauthorized in 2000. It
should be noted that the core finding of the NRC report is that
the SBIR program is sound in concept and effective in practice.
Today's hearing represents a continuation of this
Committee's work to review and reauthorize the SBIR program and
we'll focus on how SBIR reauthorization can better structure
the program to address its role as a vehicle in the early stage
development of innovative medical technologies, therapies,
products and drugs.
Created in 1982, the development of the SBIR program is not
only critical to the unique needs of each of the participating
federal agencies, but also to our national economy. Small
biotech businesses play a key role in innovative research
resulting the commercialization of cutting edge medical
technologies. For the small business biotech entrepreneur, it
is a vehicle that provides essential early stage development
funding for promising biotech drugs with the added benefits of
ensuring there is no dilution of ownership and that no
repayment is needed like in traditional modes.
Agile investors, venture capital investors, and other early
stage investors rely on the data developed from this early
stage discovery and initial development to establish a
promising proof-of-concept in order to make investments to
support the further development of such technologies.
At last month's hearing, it was pointed out that the SBIR
program's current eligibility requirements effectively prevent
some small business biotech firms from participating in this
program. One of the structural barriers is based on the biotech
industry's need for access to large sums of capital. This and
other barriers can prevent pursuit of innovative medical
therapies, causing a good amount of these products never be
fully developed and marketed.
Today's hearing is part of the Committee's fact-finding
process to find ways of making the SBIR program more efficient
and effective in its role in innovative health care research
resulting in the commercialization of cutting edge biotech
technologies.
Mr. Chairman, I look forward to working with you on this
important issue. Again, thank you to each of you for being here
today. I know some of you traveled a fair distance and I
appreciate it.
Thanks, Mr. Chairman.
Chairman Altmire. Thank you, Mr. Graves. And I'm going to
recognize the witnesses one at a time. We'll give the
introduction and then the witness will speak and then we will
introduce the second witness and so forth.
So at this time I want to recognize--well, let me explain
the light system first. You'll have five minutes to give your
remarks when you see the green light. That means you're okay.
when you see the yellow light you have one minute left; if you
could start to sum up your remarks at that time and at the red
light, your five minutes would be up.
At this time I would like to introduce Ms. Jo Anne
Goodnight who serves as the Small Business Innovation Research
and Small Business Technology Transfer Program Coordinator at
the National Institutes of Health. NIH is the primary federal
agency for conducting in supporting medical research and
administers one of the federal government's largest SBIR
programs.
During her 25 years of service, in addition to her
positions at NIH, Ms. Goodnight has held positions at the USDA
and the Food and Drug Administration.
Welcome, Ms. Goodnight, and we look forward to your
testimony.
STATEMENT OF MS. JO ANNE GOODNIGHT, SBIR PROGRAM COORDINATOR,
NATIONAL INSTITUTES OF HEALTH, BETHESDA, MD
Ms. Goodnight. Thank you. Good morning, and thank you for
the opportunity to discuss the NIH SBIR program and its
contribution to the development of important medical advances.
Part of a complex innovation ecosystem, the SBIR program
provides dedicated funding for small businesses to conduct
early stage research and development on innovative projects
with commercial potential for medical solutions and
breakthroughs.
Overall, the SBIR program has complemented NIH's mission to
advance science while reducing the burden of illness on public
health. However, NIH is committed to maintaining the integrity
of its SBIR program and ensuring continued development and
dissemination of technologies for the benefit of all.
The NIH SBIR program is ideally suited for stimulating
technological innovations funding early stage high-risk
research and advancing medical breakthroughs. As mentioned,
Altea Therapeutics is developing the passport system, a
needleless infusion patch for painless delivery of drugs such
as insulin and vaccines, such as Hepatitis B antigen through
the skin.
NIH-SBIR projects are stories of discovery. We've all read
headlines such as these: a three-year-old grabs a frying pan of
boiling hot oil off the stove. The tip of an 80-year-old
woman's housecoat catches on fire as she reaches for a tea
kettle. Twenty years ago, second and third-degree burn injuries
from such situations were routinely fatal. With NIH support,
Integra Life Sciences Corporation developed an artificial skin
system called Integra Matrix Wound Dressing, a wound care
product that helps create a scaffold for damaged cells to
regenerate and capillaries to grow. This product is saving and
improving lives of millions of affected Americans.
Also, as already mentioned in your opening statement,
RedPath Integrated Pathology is focused on early detection of
cancer, using a technology that will result in an important
advancement in personalized medicine for resolving diagnostic
dilemmas.
It is important to note that the NIH SBIR program funds a
wide diversity of promising ideas and companies beyond drug
development and therapeutics. Examples include medical devices,
assistive technologies and research tools which are described
in more detail in my written statement.
Many of these scientific advances have focused on more
common diseases: cancer, diabetes, heart. Let me now focus on
the less common diseases often called orphan diseases. An
orphan disease may be a rare disease defined in general as any
disease, syndrome, or disorder affecting fewer than 200,000
people in the United States. NIH supports research in rare
diseases and related conditions and awards to SBIR and STTR
recipients help facilitate NIH's research mission in regard to
these rare diseases.
Since 1983, the NIH, SBIR, and STTR programs awarded about
$630 million for orphan or rare disease projects. This is
nearly 10 percent of the $6.5 billion awarded for those
projects during that period.
Some projects underway include the development of a malaria
vaccine, a potential treatment for amyotrophic lateral
sclerosis, commonly known as Lou Gehrig's Disease and potential
treatments of patients of autism of Tourette's Syndrome.
Although the NIH SBIR program remains a vibrant and robust
program, over the past few years the number of new small
business concerns participating in the program has been
deceasing and the number of applications declining. There are
outreach efforts and program enhancements. We are aiming to
recruit more SBIR applicants that have innovative research
ideas that could improve human health.
We participate in national, regional and state conferences
all around the country, especially those focused on increasing
the participation of small firms owned by women or socially-
disadvantaged individuals. Our participation in Maryland's
Minority Research and Development Initiative, SBIR from
Awareness to Awards and Commercialization, and Alabama A&M
University's 2008 SBIR Conference are just two recent examples.
We're also very excited about our tenth annual NIH SBIR
Conference to be held in Atlanta on July 22nd and 23rd. To
reach a broader audience, we've started using other outreach
avenues, including interactive video conferencing and webinars.
And we find the NIH small business research funding
opportunities web site to be key in communicating information
such as programs, procedures, technical assistance and
partnering opportunities such as NIH pipeline to partnerships.
Recruitment efforts may be impacted if incentive
opportunities and program enhancements are not clearly
identified or understood. One major challenge for small
businesses is the long gap between the end of Phase 1 and the
beginning of Phase 2, so to address this challenge we offer
several gap funding programs and the opportunity for applicants
who are unfunded to resubmit their application twice. We're
continually assessing new avenues to recruit more applicants
and make them more aware of our programs.
Turning now to the topic of programs aimed at helped SBIR
awardees cross the proverbial commercialization ``Valley of
Death'', currently we offer three programs, a technology Niche
Assessment Program for Phase I awardees; and for Phase II
awardees, a commercialization assistance program and a
manufacturing assistance program. Under CAP, just one example
is a company developing a technology for creating living blood
vessels, a medical advancement that holds promise for coronary
bypass and lower limb amputation candidates and hemodialysis
patients. This company has raised $17 million in private equity
financing to fund some of their clinical studies.
In conclusion, I want to re-emphasize that NIH is dedicated
to improving the health of Americans through medical research
and we're looking to small businesses to help us face new
challenges and to produce not only new knowledge, but also
products that will allow people to live longer and healthier
lives. We're confident that our continuing research outreach
efforts and actions to modernize the NIH SBIR and STTR programs
will be helpful in that regard.
This concludes my statement, Mr. Chairman. I will be
pleased to answer questions you may have.
[The prepared statement of Ms. Goodnight may be found in
the Appendix on page 29.]
Chairman Altmire. Thank you, Ms. Goodnight. I would now
like to introduce Ms. Amy Comstock Rick. She is the Chief
Executive Officer of the Parkinson's Action Network. Before
joining PAN in 2003, she served as the director of the U.S.
Office of Government Ethics, having accepted the nomination to
the Senate confirmed position in 1999. Prior to her appointment
to the Office of Government Ethics, Mrs. Rick was associate
counsel to the President in the White House Counsel's Office.
Welcome, Ms. Rick, and we look forward to your testimony.
MS. AMY COMSTOCK RICK, CHIEF EXECUTOR OFFICER, PARKINSON'S
ACTION NETWORK, WASHINGTON, D.C.
Ms. Rick. Thank you. Thank you, Chairman Altmire,
Congressman Graves for inviting me to testify on behalf of the
Parkinson's Action Network about the SBIR program.
The Parkinson's Action Network represents the entire
Parkinson's community on public policy issues, so I am here on
behalf of the Michael J. Fox Foundation, the Parkinson's
Alliance, the Parkinson's Disease Foundation, the National
Parkinson's Foundation, and the American Parkinson's Disease
Association.
Quite briefly, let me give you a picture of Parkinson's
disease. It is the second most common neurological disease. It
is a chronic, progressive disease that results from the death
of the dopamine-producing cells in the brain.
We don't really know the cause yet, although we think it's
a combination of genetic and environmental and there is no
cure. And in fact, the treatment that we currently have it's
quite sobering. The treatment that we currently have was
approved about 40 years ago. It is still the primary treatment
and it is only a symptomatic treatment. We have nothing that
slows the progression of the disease. And in fact, the
symptomatic treatment only tends to work well for five to eight
years.
I tell you this to get a picture of the Parkinson's
community and the want and sometimes desperation for better
therapies for Parkinson's disease.
Before I begin to discuss the SBIR program specifically, it
is helpful, I believe, for me to explain the context in which
the Parkinson's community views all NIH, National Institutes of
Health programs. As you know, I am sure, NIH is the largest
single source of Parkinson's disease research dollars in the
world. And the basic discoveries coming out of NIH, of course,
are very important. But it is our belief, as I've testified
before the House Appropriations Committee in the past, that NIH
should focus more of its resources on therapeutic outcomes
rather than basic research. And again, if you'll bear with me
for a second to talk a little bit, the drug development time
line can be phenomenally long. The fastest might be 15 years
depending on where you begin with your basic research idea. It
could be 40. And it begins with NIH funded research, and of
course ends with the pharmaceutical companies shepherding their
products through, hopefully through the door in approval by
FDA.
But that's a very long time-line and where there is a drop-
off after NIH funded research at academic institutions with
basic research, where the expectation in our country is that
the private market, the free market companies, would pick up
those bright, potentially bright ideas and move them through
the pipe line. But in fact, there is nobody who shepherds these
ideas through and it is very possible that a potentially
promising therapy or bright idea might drop off or languish for
some time before a company, private researcher, privately
funded researcher picks it up and then can move it through.
I tell you this because it is that potential drop off that
is referred to as the ``Valley of Death'', which is quite
sobering for the Parkinson's community. And in fact, the
Parkinson's Action Network's position for a number of years has
been to try and get the NIH to move more into that black hole,
that ``Valley of Death'' to translate more basic discoveries
into possible therapies. In fact, we have not seen that kind of
movement at NIH and with recent flat-funding for NIH, Dr.
Zerhouni has even testified that the cuts will have to come in
the area of translating discoveries from the laboratory to
patients.
In my position as the CEO of the Parkinson's Action
Network, I often will have to explain to people with
Parkinson's that in fact, in our country, there is no process
for shepherding drugs and bright ideas directly through and
that sometimes a potential therapy can languish while waiting
for a company to pick it up and run with it. So having said
this about our, the Parkinson's Action Community's vision of a
greater need to focus more resources on turning young and
bright ideas into therapies, it should be clear while the
Parkinson's communities is so strongly supportive of the SBIR
program. The SBIR program supports cutting edge research where
other sources of funding are difficult and if not impossible to
obtain.
But in fact, as we look at it, it is not just a question of
funding sources. It is actually for some of what we believe the
SBIR program funds, it is the difference between this research
happening and not happening. Having stated our strong support
for the NIH SBIR program, however, I do want to offer a
recommendation for the future. As this Committee is well aware
and as Ms. Goodnight referred, there was a 2003 SBA ruling
regarding SBIR eligibility based on majority ownership by
individuals and this has had, in our view, a negative impact on
the biomedical research community. It is my understanding that
since that ruling application have dropped precipitously, about
12 percent in 2005, 15 percent in 2006, and then 21 percent in
2007. And given the increase in most applications at NIH, it is
fair to assume that this drop is a direct result of the
eligibility ruling.
From a patient perspective, it does not seem logical and it
is in fact scary to eliminate from eligibility research
projects that otherwise merit funding because of the financial
structure of the company. And the reasoning, quite frankly,
even becomes more muddled to us when you talk about that fact
that we're focusing on the companies that are being excluded
are in fact the very same companies that are attracting venture
capital funding. So they are clearly considered to be
efficient, moving forward. They're doing something well if
they're attracting funding and then we eliminate them from
federal funding.
It is also scary because when we talk about high-risk
funding, that SBIR can fund, Parkinson's Disease, as I've said,
is a disease of one million people and that is not considered
to be a large market. Alzheimer's disease is four and a half
million, for example. So we are the population that is
sometimes considered high risk. Not the science, but we're not
a big market.
I do want to quickly before I wrap up give you a sense of
the impact of the SBIR program. There, as I've told you,
Parkinson's disease is still being treated very much as is it
was in 1967. That is kind of scary. But we have a clinical
trial right now going on Phase II. Spheramine actually takes
retinal cells that do have an impact on dopamine production and
injects them surgically into the brain and it promotes
additional dopamine production in the brain. It is still early,
but so far the results are promising and the community is
excited about it.
But the early research for this now Phase II clinical trial
was funded by an SBIR grant, the animal research as well as
Phase I. And we fear and it is our understanding, before 2003,
that this research would not now be funded and we fear then
that it would have languished as others do.
As PAN continues working towards better treatments and
cures for Americans, we respectfully seek the support of this
Committee for the SBIR program. SBIR is an essential program
for funding for patient-oriented research, currently
languishing in what we call the ``Valley of Death.'' We
respectfully request your support to include, however, revision
to not eliminate small companies simply based on their
financial structure.
Thank you again for this opportunity to testify and my more
complete written record has been submitted.
[The prepared statement of Ms. Rick may be found in the
Appendix on page 44.]
Chairman Altmire. Thank you, Ms. Rick.
I would now introduce Dr. Mel Billingsley from my home
state of Pennsylvania. He is President and CEO of the Life
Sciences Greenhouse. The Life Sciences Greenhouse of central
Pennsylvania has a goal to advance the life sciences within the
Commonwealth of Pennsylvania. The organization supports new and
expanding commercial entities in Pennsylvania through direct
investment and selective delivery of business development
services. Dr. Billingsley also serves as Professor of
Pharmacology at Pennsylvania State University's Milton S.
Hershey College of Medicine and Professor of Biotechnology and
Entrepreneurship at Penn State's Harrisburg Campus. Dr.
Billingsley is testifying on behalf of the Pennsylvania
Biotechnology Industry Organization and I welcome Dr.
Billingsley. We look forward to hearing you.
STATEMENT OF MR. MEL BILLINGSLEY, PH.D., PRESIDENT AND CEO,
LIFE SCIENCES GREENHOUSE, HARRISBURG, PA, ON BEHALF OF
PENNSYLVANIA BIO
Dr. Billingsley. Thank you Chairman Altmire, Ranking Member
Graves, and other Member of the Committee for giving us this
opportunity to address the importance of the SBIR program for
the development of medical innovations in our country and in
our state in specific.
I represent the Life Sciences Greenhouses of Pennsylvania,
my fellow CEOs John Manzetti of Pittsburgh, Barbara Schilberg
of BioAdvance, and also Pennsylvania Bio which is an
organization that represents over 300 companies involved in the
life sciences, medical devices and the like.
I also represent the State of Pennsylvania which is one of
the larger funded entities from the National Institutes of
Health representing the fifth highest state of NIH basic
research funding in the past year.
What I'd like to point out are the needs of the emerging
companies and how SBIRs help them, some of the issues that are
raised as mentioned in the ``Valley of Death'', some of the
issues raised by eligibility and possibilities of how to fix
them by being more flexible and allowing larger amounts that
are determined by individual programs which support the SBIR
program.
Emerging companies are incredibly fragile. It takes a large
sum of money and a lot of time and a lot of risk to bring a
drug or a therapeutic device to the market. Pennsylvania
Greenhouses were formed specifically to aid that process and we
have seen, as you can see in our written testimony, incredible
demand for our services. We've invested well over $35 million
into over 100 separate small companies, all of which have
leveraged over $500 million of follow-on investments in a range
of these companies. This is a leverage greater than 10 to 1,
and it has provided 2600 new, sustaining jobs in Pennsylvania.
Federal funding like the SBIR programs have been critical
to these developing companies by both validating their
technology and leading to additional investments from outside
sources such as ourselves and venture capital. We need venture
capital to advance therapeutics because of the incredible costs
and time. In addition to the time, the cost of bringing a
therapeutic, even in an orphan area, are in the tens of
millions of dollars to advance a clinical trial, far beyond
that which could be provided by an SBIR program.
Let me give you an example of three companies successfully
funded by SBIRs in the State of Pennsylvania. In the
Philadelphia area, Yaupon Therapeutics, supported by
BioAdvance, has garnered well in excess of $10 million of
federally-sponsored SBIR funding including $700,000 for orphan
drug development for a specific drug for lymphoma. They've been
successful and have now gone on to get $15 million in venture
funding.
Azevan, supported by LSGPA, received $800,000 in phase two
support from NIMH to develop a drug for treating aggression.
They are now venture funded and are proceeding to the clinic.
And in Pittsburgh, which has an aggressive SBIR training
program, they developed a series of companies, one of which is
the company Cohera. Cohera is developing a surgical glue for
use in intra-surgical procedures, now has SBIR funds and
leveraged that into venture-backed funding to develop their
product for the clinic.
Clearly, though, improvements are needed for successful
programs. One is obvious: the eligibility for venture-backed
programs needs to be reconsidered and restored. It is the case
that venture funding is necessary and in fact, the sign of
approval that a company is moving forward. As mentioned before,
excluding these companies is counter intuitive and illogical.
The second point is that there are needs for larger grant
programs. Specific cases are best administered by the programs
that are funding them such as the NCI or the NIH. The set
amounts that are used span across the agencies from DOD to NIH;
it is not a one size fits all and I believe that providing
flexibility within the institutes themselves gives greater
jurisdictional control and a greater sense of the funding
needs.
To give you a specific example of venture-backed company
being excluded from the SBIR program--BioRexus was a successful
Philadelphia-based bio company that was developing a protein
drug for diabetes. It became venture backed but subsequently,
in that same time frame, had a program to develop a botulism
anti-toxin that was highly favored by the DOD. They could not
pull down that SBIR funding; that program came to a grinding
halt, even though BioRexis was successful.
And as we all know, companies have failed on their first
attempts. Cephalon and Centocor are two prime examples, of
highly successful companies where both first drugs failed. So
to limit the program to just one time, one shot at goal really
limits the chance of the company's success and is illogical.
``Valley of Death.'' We have a saying in the Greenhouse,
"build bridges not piers." So we're trying to build a bridge
over the ``Valley of Death'', not a pier to drop people off in
deep water and what often happens is that the funds provided by
the SBIR and other entities at the early stages are not
sufficient to cross the valley, so companies wind up at a
critical period in the middle of a very deep pond of water.
So, we think that programs such as the NSF phase two B
program that provides additional funding, highly competitive,
selective, but matched by outside capital, may be the way to
think about developing programs that can bridge this.
So in summary, I would say that the SBIR program has had an
unbelievably positive impact on the development of novel
medical therapeutics, on health and well being. These
investments are worthy and they are peer reviewed. They get a
cache of scientific respectability and, importantly, they
provide the fundamental basis for other investors, like
ourselves and venture groups, to provide the next stage of
funding in order to develop successfully.
So we welcome the opportunity to weigh in on these issues
and thank you for your time.
[The prepared statement of Mr. Billingsley may be found in
the Appendix on page 48.]
Chairman Altmire. Thank you, Dr. Billingsley, and as you
probably all noticed the vote buzzer went off while you were
speaking. So we have one vote. It's a procedural vote and then
we're going to run back. I'm going to recess for the vote and I
will say at 10:45, we will reconvene. Thank you very much.
(Off the record.)
Chairman Altmire. This hearing will come back to order. I
was pretty close. We may have continuing procedural votes, it
appears throughout the day, so we're going to try to move
quickly, but please take your time and say what you have to
say. When you hear the buzzer, don't hurry up. We'll worry
about the schedule.
So at this point, I would like to thank Dr. Billingsley for
his testimony and Dr. James Stefansic is our next witness. He
is the Chief Operating Officer at Pathfinder Therapeutics, a
medical device company focused on improving patient outcomes
during therapeutic procedures through the use of medical
imaging.
Before joining Pathfinder, Mr. Stefansic, am I pronouncing
that correct? Dr. Stefansic worked as a research assistant in
the Surgical Navigation Apparatus Research Lab, a division of
the Center for Technology Guided Therapy in the Department of
Biomedical Engineering at Vanderbilt University.
Dr. Stefansic is testifying on behalf of AdvaMed. Welcome
and we look forward to hearing your testimony.
STATEMENT OF MR. JAMES D. STAFANSIC, PH.D., M.B.A., CHIEF
TECHNOLOGY OFFICER, PATHFINDER THERAPEUTICS, INC., NASHVILLE,
TN, ON BEHALF OF ADVAMED
Dr. Stefansic. Thank you, Mr. Chairman. We thank the
Subcommittee for holding this important hearing today on the
SBIR program and its role in advancing medical breakthroughs.
I'm going to talk a little bit about my experiences as a
company that receives several SBIR grants.
First, let me tell you a little bit about AdvaMed.
Pathfinder is a member of AdvaMed, the Advanced Medical
Technology Association which represents over 1,600 of the
world's leading medical technology innovators and manufacturers
of medical devices, diagnostic products, and medical
information systems. Over 70 percent of AdvaMed's member
companies are relatively small, with sales of less than $30
million a year. Our constant innovation leads to the
introduction of new technologies that prevent illness, allow
early detection of diseases, and treat patients as effectively
and efficiently as possible.
Pathfinder is a surgical technology company focused on the
world's first image guided surgery systems for soft tissue
applications. Pathfinder was incorporated in July 2004 through
a partnership with Vanderbilt University, where the initial
technology was developed by six current and former clinical and
engineering faculty members, including myself. With support and
guidance from Vanderbilt, Pathfinder was fortunate to acquire a
very modest seed round investment to launch the company. In
2005, Pathfinder was awarded a $1.5 million SBIR grant from the
National Cancer Institute. These funds had been used to develop
the SurgiSight image guided therapy platform for multiple
applications with an initial focus on liver surgery.
In 2006, Pathfinder received a second SBIR grant worth $1.9
million to conduct a three site clinical trial. One of our
sites, by the way, is the University of Pittsburgh Medical
Center. With our Linasys device, which is an image guided liver
surgical system that can be used to pinpoint and accurately
resect or ablate tumors located deep within the organ.
Essentially, this like a GPS system for surgery. Our greatest
achievement to date was being granted FDA clearance in late
December 2007 for our Linasys device. Pathfinder now has
overcome much of the technology and regulatory risk associated
with bringing a new medical device to market. But these risks
would not have been conquered without both SBIR grants and the
modest seed round investment in the company.
The costs of these risks can be staggering and are often
not supported in full by early stage venture capital or angel
funding. To place the SBIR's value in perspective, note that
seven of our eight current employees are funded at least in
part by the SBIR grant. Considerable R&D expenditures, in
addition to some corporate overhead and other expenses, have
been and continue to be covered with SBIR funding. Still, many
challenges remain to ensure that our technology could improve
the lives of those suffering from abdominal cancer, and those
challenges will continue to require a combination of both SBIR
and other funding sources such as venture capital
First, we will continue to need funds for all the overhead
side of the business, beyond research and development,
including accounting, legal, quality, regulatory, marketing,
and sales issues. These activities are critical to the success
of the company in bringing new technologies to patients. They
are largely not covered by SBIR funding.
Second, we will continue to need SBIR funding for further
research and development to develop the next applications of
our image-guided technology. Unfortunately, the 2003
interpretation of SBA regulations may exclude Pathfinder from
seeking SBIR grants even though we are still in need of
assistance. The SBA's ruling is completely at odds with the
intent of the SBIR program to assist small businesses like ours
with enormous tasks of developing promising early-stage
technologies so they can be brought to market for the benefit
of patients.
It also overlooks the nature of venture capital investment
today. Venture capitalists are becoming more and more risk
averse. They are now investing in later stage companies in
order to reduce their risk profile and focus on companies that
are already generating revenue or have completed human clinical
trials.
Unfortunately, because we have continued to be provided
with bridge financing of our seed round venture capital
investors, Pathfinder will very soon no longer be eligible for
any additional SBIR funding given the change of our ownership
structure. We hope Congress will address this issue soon so
companies like Pathfinder can continue to grow and bring
technologies to market for the benefit of all patients.
I do want to commend the NIH and NCI for their additional
initiatives to help bring small companies, to help small
companies get their novel technologies to market. For example,
Pathfinder has recently benefited from the NIH SBIR
manufacturing assistance program. This assistance will not only
ensure that we meet all necessary national and international
regulations in the manufacturing of the Linasys device, but
also improve the overall quality of our facility.
Although this program is beneficial, it is very small
compared to a phase two SBIR grant and will not fill in all the
gaps necessary to commercialize our medical technology. We
believe that addressing the venture capital issue should be a
top priority if Congress intends to help small companies like
Pathfinder that rely on SBIR funding to develop new medical
technologies for patients.
We thank you, Mr. Chairman, Chairwoman Velazquez, and
Congressman Graves for your leadership in the reauthorization
of the SBIR program and for your strong support for restoring
SBIR eligibility for small businesses like ours that also have
venture capital investment. We also want to thank Congressman
Chabot for his willingness to work with us to resolve this
important issue.
We look forward to working all of you to ensure that small
businesses will continue to drive medical innovation in
developing promising new technologies for patients. Thank you.
[The prepared statement of Mr. Stefansic may be found in
the Appendix on page 53.]
Chairman Altmire. Thank you, Dr. Stefansic, and Mr. Graves
wanted me to again recognize Dr. Franano. Dr. Nicholas Franano
is founder and Chief Scientific Officer at Proteon
Therapeutics. Founded in 2001, Proteon Therapeutics is a
privately-held bio-pharmaceutical company developing novel
pharmaceuticals to address the medical needs of patients with
renal and vascular diseases. Proteon Therapeutics' first drug
candidate is in development for the improvement of blood flow
following vascular surgery procedures.
Dr. Franano holds an M.D. and an M.A. in Biomedical
Research from Washington University, St. Louis, and a B.S. in
Cell Biology from the University of Kansas.
Welcome, Dr. Franano.
STATEMENT OF NICHOLAS FRANANO, M.D., FOUNDER AND CHIEF
SCIENTIFIC OFFICER, PROTEON THERAPEUTICS, INC., KANSAS CITY, MO
Dr. Franano. Thank you, Chairman Altmire, Ranking Member
Graves and other Members of the Committee. I do thank you for
the opportunity to share some thoughts with you today and I
think it's an excellent topic and excellent panel. I concur
with almost everything that's been said today and would like to
provide some personal experiences that might help highlight the
issues that we're discussing today.
I've been in that position where you make an invention. And
it's a really interesting thing that happens. I was a
biologist, went to medical school. Was recruited to Hopkins by
Dr. Zerhouni when he was in the Radiology Department there, now
the Chairman of the NIH and he provided me the opportunity to
do a substantial amount of laboratory work while I was in my
residency training. And so some days I would go to the
Interventional Radiology Suite and do patient care and other
days I would go to the laboratory and it was a great
environment in that I could see problems in the clinical side
and then think about how to solve those problems on the
research side.
So in interventional radiology, we're basically glorified
plumbers. We open up blood vessels and keep them open. I mean
you like to think it's exciting, but it's really plumbing at
its basic level. With expensive tools. And so the big problem
we have is often the pipes are too small and so we put in
stents and we use balloons and we do bypass grafts, we do all
these mechanical things, because we have patients who can't get
enough blood flow and not enough blood flow is bad in a lot of
situations.
So what you find is you do an angioplasty. You do a stent.
You do a bypass graft. All that fails. You amputate a person's
leg and you put it in a bucket and that really drives home
failure. Nothing is worse than having a patient come to your
office with a problem and is wheeled out of the hospital
without a leg. That tends to really focus your mind on why
you're failing.
So when I was in the laboratory, I started looking at how
the body naturally dilates blood vessels and discovered a drug
that could dilate blood vessels without any mechanical effect
at all, which was very exciting to me and Hopkins was very
excited and we filed patents and I left to go into private
practice. I started a family. I went back to Kansas City and
the thought was a biotech company is going to pick this up and
develop it.
When it came time to file the world-wide patents they have
offered the technology to several biotech companies, but none
had picked that up and the message was there wasn't enough data
to support a $50 million investment in the drug at an early
stage. And so Hopkins asked if I wanted to buy the technology
back and start a company myself which was a very provocative
thought to me. When I had the invention I knew right away that
this would work. I was absolutely convinced that this would
work. I'd seen it with my own eyes. I had--couldn't find a
problem with it. So-- but it's a very difficult kitchen table
conversation to have with your husband or wife that I'm going
to quit my job which is paying well, and I have a baby on the
way and I'm going to quit my job. I'm going to borrow money
from my friends and family and start a biotech company with the
hope that things are going to work out. That's a tough
conversation to have.
My wife was supportive, remarkably, but a big question was
how are you going to fund the first year? And how are we going
to live while you go chase this idea? And so the SBIR program
for me was an argument that I could use to say I'm going to
apply for these grants and if we're successful in getting the
grants, there will be some money to get the company off the
ground and that was a really big part of it for me and one of
the things I would emphasize to the Committee is people have
novel and innovative ideas all the time.
Today, as we sit here, somebody is having a novel idea that
could lead to an important therapy that could help people. And
then the question becomes can I--how hard is it for me to start
a company and commercialize that technology? The barrier is
getting people started and the SBIR program can help get people
started.
So we did apply for those grants. We were successful. We
got $157,000 grant and then a $100,000 follow-on grant and we
were able to use that grant money to build out our own
laboratory which was absolutely vital for our company to get
its venture capital financing and move this product into
clinical development. Without that initial grant, we would not
have built out our laboratory and we would not have I don't
believe been able to get the venture capital investment that
got our drug into the clinic.
So absolutely, the program was vital to Proteon. I think
we're a success story. Our drug is going to go into clinical
development this year. It looks very good. But we are again
caught in the same problem others are now as we have some
innovative new drugs that we would like to develop. And I'm
going to go to a board meeting later today and I'm going to
advocate that the company devote a substantial amount of money
to one of these new programs. And I'm a decent vote counter.
I'm going to lose that argument, so I've made the argument
before and lost and I'm going to make the argument again. The
venture capitalists invested $19 million in Proteon and they
devoted that money to our lead drug program and it's very hard
for me as Chief Scientific Officer to get $50,000, $100,000,
$150,000, $200,000 for a new program when we need $50 million
more to develop our lead.
And so normally prior to the rule change I would have
applied for an SBIR grant and gotten that program started, but
now I can't, so I can't move the new technologies forward, but
I can't leave them behind. So I do think that it's surprising
the drop off in SBIR grants. I think that should be a warning.
That's a canary in the coal mine that there's something wrong
with the company. And I think eligibility is a big part of
that. So I would encourage the reauthorization of the program
with the changes in eligibility to go back to the old rules
because I think technologies are not being developed and that
has both a human and a financial impact on the country.
I think venture-backed companies are the most innovative
companies and we're 20 people. We have a little lab off the
plaza in Kansas City. We're a small business. Four years ago,
we were in my basement. The idea that we look just like a small
business looks except that we have some very powerful
investors.
And I think it seems unfair to me that the rules allow--say
that we're not a small business, that somehow the employees of
our venture capitalists and the employees of the other
companies that they invest in somehow count towards our total
to me is I think nonsensical. I think really stretches the
credibility of the people making that argument.
I couldn't go and get help from a company that our venture
capitalists invest in. They're not part of us any more than I
could go to another place. So I would concur with the prior
remarks and would say that although it's been a success for us,
I think that the program can be more successful if we went back
to the old rules.
Thank you very much.
[The prepared statement of Dr. Franano may be found in the
Appendix on page 59.]
Chairman Altmire. Thank you. And I was going to--I'm still
going to talk about how Mr. Graves and I work together hand in
hand on this bill. It's a great example of bi-partisan
cooperation. Chairwoman Velazquez and Ranking Member Chabot,
same thing. Unfortunately, on the floor today, we're debating
an issue on which there is some disagreement. So that is why
these procedural votes are taking place and I do apologize, but
I believe, is there a vote on--okay, there's another vote and I
have a lot of really good questions, so I'm going to have to
make it suspenseful for you and go vote and maybe find Mr.
Graves or maybe have a surprise person if I can find someone to
come back. But I have questions, so if any of you have to leave
or your staff have to leave, I understand and I apologize for
this, but I will return to reconvene the hearing at
approximately 20 after 11. Thank you.
(Off the record.)
Chairman Altmire. We will reconvene, and you can imagine my
excitement. I came back and there is a huge line over there.
There's a lot of TV cameras and I thought wow, we're generating
a lot of interest. Then I heard it is because Roger Clemens is
testifying in the next room over. So when you leave, you may
want to go the other way. I recommend it.
(Laughter.)
Thank you for waiting. Sorry, and I'm told there may be
further votes that are going to be coming up shortly.
My first question is for Ms. Goodnight, and again, thank
you all very much for your testimony. Ms. Goodnight, research
has found that SBIR grants encourage University based Ph.D.
researchers to found companies. Of course, running a company
demands skills that not all Ph.D. researchers possess. How
important are available business skill training initiatives to
the eventual success of a company founded with an SBIR award?
Ms. Goodnight. Those types of skills are extremely
important and so much so that we offer a commercialization
assistance program to assist those companies that don't
necessarily have the business savvy on seeing products that
have done well and met certain milestones through the R&D reach
the marketplace. And so, for example, our commercialization
assistance program is about a nine or ten month entrepreneurial
business skills and strategic training that helps businesses
kind of focus on what their strategy will be to bring that idea
to the marketplace.
It is actually a really rigorous program and the companies
realized very early on that they have certain milestones and
homework assignments that they need to accomplish to succeed in
this program. But it is useful and it does help them either to
realize they need to bring on other employees to help address
those business aspects. We can't forget the B in the SBIR
program.
Chairman Altmire. Thank you, and with all these questions,
if any of the other panelists have comments they want to make,
feel free to jump in. Is there anyone who wants to weigh in on
that?
Dr. Billingsley?
Dr. Billingsley. Well, I think it is critical whenever you
get to the point--
Chairman Altmire. If you could turn your microphone on. Is
it on?
Dr. Billingsley. I think so.
Chairman Altmire. Okay, good.
Dr. Billingsley. Critical whenever you get to the point of
commercialization that the equivalent talent and business
skills are matched with the equivalent talent in science. I've
noticed we have an MBA/Ph.D. here and that's certainly one way
to go. But it does take somebody who is seasoned in drug
development or in device development in order to carry it
forward to get a successful company. A lot of what happens is
there is a transition, usually a time of first significant
institutional financing, where the investors and the Board
change, and I believe, people become, founders become chief
science officers and people who are more experienced run it. It
is very critical.
Dr. Stefansic. Can I add something there too?
Chairman Altmire. Certainly.
Dr. Stefansic. If you think about the goals of the SBIR
program, it's in my opinion, if a company gets an SBIR, they
have to start thinking about those business things right away.
They can't put those things on the back-burner, and a lot of
times you don't have anybody with any business acumen working
for the company. The PI is so focused on getting the technology
to market they don't think about regulatory, quality issues,
all of those other issues that a small business almost has to
think of from the beginning, and this is where if you have the
venture backing behind it, that could bring in the seasoned
management that Dr. Billingsley talked about to sort of help
accelerate both tracks, both the research track and the
business track.
Dr. Franano. I would say that the number of potential
people who could be entrepreneurs in this business is much
larger than the number of people currently making a run at it.
There are a lot of natural entrepreneurs out there. I think
sometimes the industry tends to focus so much on experience
that it misses the people who have real potential, but who need
that first start of understanding a business plan. There is a
lot of competence, but not experience. I find that in biotech,
those people can be really powerful entrepreneurs if given the
right opportunity and the right initial training and mentoring.
Because in biotech, I think people ask me, well, how much
impact can the small business, SBA program have? It's $100
million dollars to get a drug to market. What does $100 or
$150,000 dollars really mean, or a million for a phase II.
Biotech companies do really well with small teams.
Innovation in biotech comes from teams of five or ten or
fifteen people and that's one of the areas where biotech has a
huge advantage over pharma. It's hard to get a really
innovative drug through a thousand person department, even if
you have $5 billion. Because everything gets chopped down to
the lowest common denominator, and that's why if Pfizer, I
mean, I don't want to imply, pharma has done a lot of great
things, but they have enormous research budgets, huge numbers
of people, and are producing precious few novel drugs; whereas,
these biotech companies which are small and have very limited
budgets are actually producing a lot of the innovative products
and I think it goes down to in biotech, small teams are very
innovative and the SBIR program can assemble those small teams
to get something like our compound from heresy initially, which
a lot of innovative therapies are to interesting. That's what
your program does is take something outside of the box that
someone has invented and make it--move it on the path, give it
enough data for the data-driven people to go. That looks really
interesting, I'll invest.
And so I think that programs that can assist entrepreneurs,
get people with an entrepreneurial mindset on the path to being
an entrepreneur is very helpful.
Chairman Altmire. Ms. Goodnight.
Ms. Goodnight. I'm just sitting here thinking back to the
days when I was at the National Cancer Institute and we had one
company, Endocyte, who Dr. Phil Low had started. And he was
working on his basic R&D, had an idea of using the vitamin
folate for treating or even potentially curing ovarian cancer.
And he was really in this conundrum. Do I start my own company?
Do I sell everything off to investors? Do I do go outside of my
home state of Indiana? What to do?
And he actually had support through the university and
through some of their facilities that they provide to
entrepreneurs and they even have things like entrepreneurial
leave models. So he was able to start his own company, but he
did impart a very important piece of advice. He said I do
really good basic research and R&D to get the science done
under this SBIR. But I don't have the business acumen, so he
hired a CEO and he hired people who could take care of that of
those types of activities. But the point being that he also was
utilizing resources within the state and so sometimes the state
can provide some very important resources to help bolster some
of the business aspects of the program.
Chairman Altmire. Thank you. Dr. Franano, the guidelines
for phase one and phase two grant sizes have not increased
since 1992 and some observers have noted that the inflation-
eroded awards allow for significant less research than they did
in 1992. Do you believe increasing the average award size is
likely to strengthen the contributions of SBIR-funded research?
Dr. Franano. I do. I think that we're do for an inflation
adjustment. Certainly, the costs of developing drugs continues
to rise certainly above the rate of inflation and so the grants
are not providing as much developmental support as they
previously were.
I think the most important--probably of the two phases, I
think the second phase is more important. That's where $1
million, you take to say it, $1 million doesn't go as far as it
used to-- it's a silly thing to say, but for phase two
especially, I think some flexibility in making larger awards
for technologies that are pretty costly, but very potentially
powerful would be better because the phase two is where you
really struggle to fit the second part of your program into the
current structure.
The $100,000 to $200,000 phase ones are still relevant. I
mean you adjust them somewhat, but I'd say the second phase is
where you could really make an impact on companies because the
second phase grants are harder to write. They're longer. They
require a lot more effort and when you start to fold what you
can fold in there, you realize you come up pretty short most of
the time.
Chairman Altmire. Ms. Rick, as I understand it, when--let
me just say I'm going to reset the clock also. We're about four
minutes over on the first round. We'll consider this to be the
second round, just so we can keep track.
As I understand it, when the NIH develops research project
topics for SBIR awards it is in effect directing millions of
dollars to research to a specific scientific area.
Do representatives of patient groups like yours have an
opportunity to work with the NIH SBIR office with respect to
the development of SBIR research topics and interests?
Ms. Rick. While I understand that that is the case, we have
not had an opportunity to do that and I will say that I'm torn
sitting here because I am a representative of a particular
disease.
One of the rules that we live by in my office, however, is
that we don't compete diseases. And I think SBIR, while they
certainly need to receive input on areas of great need and
gaps, the SBIR applications are, in fact, peer reviewed, and by
colleague scientists. And I think it's hugely important that
the SBIR program with its vision of commercialization focus on
the best science with the best opportunity. And so sitting
here, I will tell you that it is my view and the view of many
of my colleagues with other diseases that the key is creating a
culture where we're getting things out the door. And if that
means there isn't an SBIR grant for the next few years for
Parkinson's, needless to say I'm sad, but the focus is on the
culture and the speed of getting what is needed actually into
patients and it doesn't require necessarily equal
representation at every moment for every disease.
I may lose my job now.
(Laughter.)
Chairman Altmire. Ms. Goodnight, do you have a comment on
that?
Ms. Goodnight. I have an important distinction, so NIH is
comprised of 27 institutes and centers, 23 of which participate
in the SBIR and STTR programs. And each of those institutes and
centers currently has a mandate to address science and health
from a perspective, whether it's a disease area such as cancer
or Parkinson's, whether it's an area of concern such as aging.
The one unique feature about our agency is our applicants
can propose research in any areas that relate to our over-
arching mission of improving human health and we certainly
welcome those types of applications that are in addition to any
specific topics and that's fairly clearly laid in our
solicitation, but perhaps we need to be including that even
stronger in our outreach efforts.
Chairman Altmire. Thank you. Similar to the question I
asked Dr. Franano earlier, this would be directed to Dr.
Billingsley, the National Academies of Science has recommended
increasing the SBIR award amounts for phase one and phase two
grants. Do you believe that an increase in the average dollar
amounts granted by NIH and other federal agencies with SBIR
programs would encourage more life science companies like yours
to apply for the SBIR awards?
Dr. Franano. The answer in the short phase is yes. It costs
more to do more, but I'd also echo the notion of more
flexibility with the need for larger grants and larger entities
at the program and institute level.
Having read the GAO report, it was a financial analysis
across the board comparing DOD and NIH as if all SBIR grants
were created equal. They're not. All projects are not equal.
They're not.
This is a highly regulated, highly risky, long-term
commitment to bring a product to market whereas for a software
or hardware project, it's very short term and it's market-
driven. So that same yardstick that was used to analyze those
sets of data doesn't really apply and I think the NIH has shown
some discretion on occasion at increasing amounts of phase two
and/or the notion that there are other ways in which this can
be done to support pre-clinical trials.
Let me give you a real particular number. It takes at least
$1 million to do some pre-clinical toxicology on a compound in
order to prepare it to be submitted to the FDA for approval as
an investigational new drug. That's almost a fixed cost of
doing business. And that's low.
Dr. Franano. Try $5 million.
Dr. Billingsley. Well, it depends on the compound, but it's
at least that much money must be generated. So there are
increasing costs and you don't want to undercut the value of
the need for that kind of toxicology.
So yes.
Dr. Franano. And often, I think it's that initial money
that is--that will lead you to the larger investment that can
bring your drug into clinical development and put it on the way
to patients is that investors are very reluctant to invest
until they see that the drug or the device works and that it
has an acceptable risk in terms of toxicity.
And it's really hard to generate that data with $50,000 and
$100,000 investments from your friends and family. That's a lot
of friends and family. I don't have that many. So that grant
programs sometimes can step into that breach and provide some
additional investment that can help you get to the point where
you are ready for that large investment to take you to the next
level.
Dr. Billingsley. And there are related programs also by the
federal government such as the National Toxicology Program, the
RAID program or Rapid Access to Investigational Drugs through
different agencies, that may dovetail and may help alleviate
some of the pain, but that takes a fair amount of coordination
between and among the agencies. So it is an expensive
proposition. It has not gotten cheaper to develop a drug or
device.
Chairman Altmire. Thank you. Ms. Rick?
Ms. Rick. Can I just add something that a concept that we
talk a lot about in the Parkinson's community is time.
Obviously, we've discussed the drug development time line and
how long it is. But anything that this program can do to
shorten, a year and a half or two years, that it might take for
someone to find private funding if they can for a stage of
development, to the extent that SBIR can come in and fully or
partially fund that, can be the difference for a person with
Parkinson's between being Stage III and Stage IV. It can be the
difference between working and not working, being in a wheel
chair and not being in a wheel chair.
In fact, the people who are being diagnosed with
Parkinson's disease today, and there's people out there being
diagnosed today, probably will not even benefit with our
current time line from the drugs that are just being thought of
now. It takes too long, 15 or 20 years for drug development, 15
or 20 years you live post diagnosis. So whatever we can do with
this program to shorten the time line makes a huge difference
in people's lives.
Chairman Altmire. Thank you. I will ask one more question
and several Members of the Committee who couldn't be here today
expressed interest in communicating directly with you with
their own questions, so please look for some questions through
the mail or through your offices that other Members may have
and if you could respond in a timely way, that would be
appreciated.
Last question for Ms. Goodnight. It can cost a small
company thousands of dollars to prepare and submit a well-
written phase I application. Undoubtedly, the cost of preparing
the application is prohibitive for a number of potential
applicants, similar to what we've talked about. Has the NIH
considered developing a preliminary application process whereby
an applicant provides a relatively brief white paper and
receives an assessment of the likelihood of success before they
go through the full application process?
Ms. Goodnight. We haven't used that type of a process and
it could be that the reviewers would not necessarily see all of
the details in the research plan for assessing the full
scientific and technical merit of the proposed research. What
we have done is to try to work with states who offer these
Phase 0 programs to help companies prepare more competitive
applications. We do a lot of outreach to do some one-on-one
assistance, and also I think the electronics submission
process, although in the beginning it may have been somewhat
difficult, analogous to the first time you ride a bicycle, it
has actually helped to simplify that whole process.
Chairman Altmire. Okay, any other comment on that?
Dr. Billingsley. I think from our state, representing
Pennsylvania, there are several programs that have been
initiated to deal with this initial barrier. Some of it is
mechanical and technical submissions through egov.com. Others
are more substantive, what people want to see, and offering
pre-review. It is a barrier, several thousand dollars to do
that, but hopefully that is not a complete barrier to entry. It
would be of concern if a company could not find either the
resources or several thousand dollars of consultants that could
help them to do that.
But I would agree that the real value of the SBIR review
process is the peer review, which needs the full scientific
vetting. Without that, you don't have the kind of the blessing
of peer review, as painful and lengthy as it may be.
Chairman Altmire. So as I understand it, you're both
expressing concern that if you go through the process that I
described in the question, that you would leave out, you would
have an initial decision that might leave out someone who
really did have a chance of success?
Dr. Billingsley. Correct. If they wrote the white paper in
a way that was either too descriptive or not technical enough,
it could be dismissed out of hand, and I don't know who would
be comfortable to make a scientific decision based on a white
paper.
Chairman Altmire. How about if you had a process where
anyone could submit a grant, that you could submit a pre-grant
where you would get an award of two or three or five thousand
dollars and a road map for how to prepare a grant as a way to
lower the barrier for someone to at least get interested in the
program and start the process, that you didn't have to go
through that as pre-screen, but that it was available to those
individuals. Because that would allow, if it was a three
thousand dollar grant, someone could use that then to hire a
consultant to help them write the grant. I'm all for anything
that lowers the barrier for that person sitting in their office
to start a company, because that is a huge barrier that we
don't think about much. There's a lot of people out there
thinking about starting a company who aren't. And anything we
can do to make those stairs flatter and shorter to get up to
the top, to make those first few steps, would be good. So you
were you thinking about that, where they might be some small
assistance that you would submit a one-page saying I've got
this kind of idea for a grant application, but I need some
assistance in getting the grant together and could you
administer a small check like that? I don't know.
Chairman Altmire. It sounds like that's what we're trying
to get over that first hurdle to allow especially the smaller
companies the ability to move forward in a reasonable and cost-
effective way, but we don't want to diminish their chances of
success if they really do have a chance of making it through
the process. Obviously, it's worth their while to submit the
full application.
Did you have a comment, Ms. Goodnight?
Ms. Goodnight. Sorry, just a real quick comment. We really
encourage our applicants to contact our program staff, our
program administrators to call and talk about their idea.
They're not playing the role of peer review, but they certainly
can give some good guidance on whether it's an area of research
that we would likely support if the proposal is deemed to be
scientifically meritorious.
I'm also thinking back to the days when the federal and
state--what was it called, FAST, Federal And State Technology
program, I believe, was in existence and that again went back
to the states in providing assistance to small companies for a
very small amount of funds to prepare those proposals. And so
there are still, even today, after FAST has ended, a number of
states who are providing that type of assistance.
Dr. Stefansic. I just want to add something. Most
scientists that write a grant, especially if you're in the
academic setting, you can almost expect that you're going to
have to submit it at least twice. You need that initial
feedback.
I think one thing that the NIH has done and the NCI and
some of these federal institutions in having the electronic
submission program, from what I understand, this cycle, this
first cycle is moving more quickly. So you get feedback back
and you can resubmit--you can maybe hit the next cycle instead
of having to wait two cycles. So that--having that in place, I
think, will help a lot. And it's the same program for the SBIR
or for academic grants. So getting that--I think getting that
peer-review feedback though is really, really important because
you can't really in a one page or summary or a white paper.
It's really going to be very difficult to determine the
scientific validity of what's being presented.
Ms. Rick. There are other Parkinson's disease research
centers at NIH and that program does accept letters of intent,
early on before the grant application process and my
understanding is that that's been very helpful to people either
to weed out some who don't spend a lot of money and time
filling out a grant application and it's not going to go
anywhere, or people with great ideas and may not be that good
at it.
The point is to start the dialogue and it sounds like they
do that at SBIR to help someone through the process to the
bright ideas are not lost for what is in the application as
opposed to the quality of the idea. And that open dialogue, as
long as it can advertised and people know it is available is
what is important, I think.
Chairman Altmire. Thank you, and I know I said that was my
last question, but I do have one more. For Ms. Goodnight,
again. The majority of SBIR awards go to firms based in
technology-rich states and localities. Is the NIH taking steps
to encourage more life science researchers and biomedical firms
from states and regions that win few SBIR grants to apply for
future awards?
Ms. Goodnight. We are and we are doing that through our
outreach at various workshops and conferences held throughout
the United States. We have actually offered to go to states
like Wyoming to do some hands on workshops just to help them
get over that, you know, black box kind of impression that they
might have. We're also doing those types of things so they
understand there is this opportunity to revise and resubmit
their application, because we want to see those states who have
not participated in the past to really take advantage and take
advantage of every opportunity to improve an application if it
is not funded the first time through.
Chairman Altmire. And if you could talk about the SBIR
program, FAST, where states were given the opportunity to apply
for federal grants to support efforts to build their state's
applicant pool, and during the years this initiative received
funding, in your view, did it expand the number of SBIR
applicants from states that win fewer awards?
Ms. Goodnight. I believe it did. We could certainly
probably look more to the states to give those metrics, because
that was part of their proposal as I recall in having to review
those. So that was a program that was supported through the
Small Business Administration and administered by those, but I
definitely think that it was helping to improve the applicant
pool in those states.
Chairman Altmire. That was a question that was of great
interest to a Member of the Committee who is unable to be here
today, so just for your staff that are here, you may be
receiving further questions about that issue.
Dr. Franano. We got assistance from the Missouri Fast
organization, which was outstanding in addition to Jo Anne's
work at NIH has been great. Our head of research and
development, I think has talked to you several times and come
back with glowing, you know, feedback, that the program that
you put together really makes the program accessible. Because
there can be a black box phenomenon for people who are
approaching a big program like this for the first time and to
the extent that you do outreach and you send out your
newsletters and you are accessible for people who are just
getting started without making them feel foolish.
Because when you start, you are raw and you, you know, it
is a bit embarrassing how bad your first business plan is and
how bad your first grant is and I think the organization does a
nice job in making people feel like everybody is bad the first
time, you know. I guess Roger Clemens is next door, right?
You're going to give up home runs in the minor leagues. It's
good for people to have that accessibility to the program,
because I do think that the goal of encouraging the formation
of new businesses and the development of new technology is an
important goal for the country for people and for our economy,
and to the extent that these are really high-risk ventures, and
I think it is fair for the taxpayers to share in the risk of
this high-risk or early-stage development, because they will,
in the end, get the rewards. I think it is a reasonable thing
for the taxpayer to invest in, because I often find that our
individual angel investors are really philanthropic, early
stage investors. They are people who have made a fair amount of
money at a business and are investing because they would love
the idea that they invested in something early that had a big
impact on people's lives. They are really being, I never tell
them that, I always tell them that they're going to make money.
But at base they know that I think they're going to make money,
but at some level it is philanthropy, and it is asking a lot of
individual angel investors to accept the risk when the benefit
of the technology is going to benefit everyone.
So I do think to the extent that the SBIR program can help
spread that risk to the population that's going to benefit
from, and I think it is a legitimate use of the taxpayer's
money.
Chairman Altmire. Just to continue the mutual admiration
society and wrapping it up, I do want to again recognize Mr.
Graves, who is one of the leaders in the entire Congress on
these research issues and biotech and life sciences firms are
important to him and his District, and I've worked very closely
with him on those issues and I really wanted to thank him in
his absence for helping set this hearing up and for his
leadership on the issues. I want to thank the entire panel. I
apologize for the couple of breaks we had to take, which were
beyond our control. I know you have other commitments on your
time, and the fact that you stayed the whole time and your
staff was here, I really appreciate it on the behalf of the
committee. Thank you, and this hearing is now adjourned.
[Whereupon, at 11:49 a.m., the hearing was concluded.]