[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                    OVERSIGHT OF THE SMALL BUSINESS 
                     INNOVATION RESEARCH AND SMALL BUSINESS 
                     TECHNOLOGY TRANSFER PROGRAMS - 
                                PART II

=======================================================================


                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS

                             UNITED STATES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 23, 2014

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-077
              Available via the GPO Website: www.fdsys.gov





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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                      BLAINE LUETKEMEYER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Blaine Luetkemeyer..........................................     1
Hon. Nydia Velazquez.............................................     2

                               WITNESSES

Mr. Javier Saade, Associate Administrator, Office of Investment 
  and Innovation, United States Small Business Administration, 
  Washington, DC.................................................     4
Ms. Marie Mak, Acting Director, Acquisition & Sourcing Management 
  Team, General Accountability Office, Washington, DC............     5
Mr. Andre Gudger, Director, Office of Small Business Programs, 
  Office of the Under Secretary of Defense, Department of 
  Defense, Washington, DC........................................     7
Dr. Matthew Portnoy, Program Manager, NIH SBIR/STTR, National 
  Institutes of Health, Bethesda, MD.............................     8

                                APPENDIX

Prepared Statements:
    Mr. Javier Saade, Associate Administrator, Office of 
      Investment and Innovation, United States Small Business 
      Administration, Washington, DC.............................    24
    Ms. Marie Mak, Acting Director, Acquisition & Sourcing 
      Management Team, General Accountability Office, Washington, 
      DC.........................................................    28
    Mr. Andre Gudger, Director, Office of Small Business 
      Programs, Office of the Under Secretary of Defense, 
      Department of Defense, Washington, DC......................    41
    Dr. Matthew Portnoy, Program Manager, NIH SBIR/STTR, National 
      Institutes of Health, Bethesda, MD.........................    48
Questions and Answers for the Record:
    Questions and Answers from Hon. Nydia Velazquez to Mr. Javier 
      Saade......................................................    54
    Questions and Answers from Hon. Nydia Velazquez to Mr. Andre 
      Gudger.....................................................    59
    Question and Answer from Hon. Chabot to Dr. Matthew Portnoy..    69
    Questions and Answers from Hon. Nydia Velazquez to Dr. 
      Matthew Portnoy............................................    72
Additional Material for the Record:
    None.


                    OVERSIGHT OF THE SMALL BUSINESS 
                     INNOVATION RESEARCH AND SMALL 
            BUSINESS TECHNOLOGY TRANSFER PROGRAMS - PART II

                              ----------                              


                        WEDNESDAY, JULY 23, 2014

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360, Rayburn House Office Building. Hon. Sam Graves [chairman 
of the Committee] presiding.
    Present: Representatives Graves, Chabot, Coffman, 
Leutkemeyer, Tipton, Hanna, Huelskamp, Collins, Velazquez, 
Schrader, Payne, Meng, Barber and McLane Kuster.
    Mr. LUETKEMEYER. [Presiding] Okay. We can begin the 
proceedings here.
    I am Congressman Luetkemeyer, sitting in for Congressman 
Graves this afternoon. And I am glad that we have such a large 
participation by the Committee today. But we are glad everybody 
else is here today. And with that, opening statement will 
begin.
    Good afternoon. Thank you all for being here. Today, we are 
holding the second of two oversight hearings this year to 
examine the changes made in the National Defense Authorization 
Act for Fiscal Year 2012 to both the Small Business Innovation 
Research, or SBIR, and Small Business Technology Transfer, or 
STTR, Programs. Our first hearing focused on private sector 
impressions of those changes. Today, we will focus on what the 
agencies have been doing to implement the modifications we made 
in 2012 to these programs.
    Innovation is the engine that drives our economy. 
Technological breakthroughs and the entrepreneurship it spurs 
build our economy by finding state-of-the-art solutions to 
difficult problems and marketing those new products. This 
correlation is particularly important in the small business 
arena. Small businesses tend to be more nimble, responding to 
market changes more rapidly than their bigger counterparts, and 
they drive the innovation sector and make us more agile in the 
global economy.
    It is that recognition of the ingenuity of small firms that 
led Congress to establish the SBIR program in 1982. It is also 
the recognition that has led to its subsequent 
reauthorizations, the last of which was signed into law thirty-
one months ago.
    This program, which sets aside a portion of federal 
research and development dollars for small businesses, is 
critical for both the small firms that use the grants and the 
federal agencies that seek innovative solutions to the problems 
they encounter. Whether it is a new software system for 
tracking contract payments, a new medical device to help with 
Parkinson's treatment, or a new piece of technology that helps 
save lives on the battlefield, the SBIR program has 
consistently delivered results across all agencies.
    The primary goals of the most recent and bipartisan 
legislation were to increase commercialization of SBIR-funded 
research, to promote greater participation from a wider array 
of small businesses, and to increase the end use of the 
technology developed through the SBIR program by federal 
agencies.
    Today, we have some of the folks most responsible for 
implementing the changes we wrote into law. I am eager to hear 
from them on their progress and to hear their impressions of 
the health of the SBIR and STTR programs.
    Again, thank you all for being here, and I yield to Ms. 
Velazquez for her opening statement.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Over the past 30 years, the SBIR and STTR programs have 
helped fund nearly $40 billion in innovations across a wide 
range of sectors. New drug therapies, homeland security 
technologies, and energy saving devices are just a few of the 
benefits that have resulted from this program. These advances 
have also brought economic development and job creation, 
demonstrating the synergy that can form between small 
businesses and the government. Over the years, these 
initiatives have been regularly reauthorized by Congress. The 
last effort resulted in several key changes. Among the most 
significant was a greater focus on ensuring that these programs 
produce products that are marketable in the private sector or 
to government agencies themselves. This is an important goal 
because the program's intent was never to fund Phase I research 
over and over, but rather to generate innovations that will 
fuel the economy and create jobs. With this in mind, I am 
specifically interested in understanding how agencies are 
implementing the reauthorization's commercialization 
provisions, and if they are, in fact, resulting in more 
successful endeavors. In a similar context, benchmarks have 
been established to track those companies that continually win 
Phase I awards without progressing to Phase II. I look forward 
to examining the agencies' experience with this, especially 
instances where companies have been made ineligible due to a 
lack of transitional success.
    Another notable change was the significant increase in the 
agency set-aside for both SBIR and STTR. This has left agencies 
with hundreds of millions of dollars more to spend on awards. 
However, some have reported declining applications, which means 
fewer companies competing for a larger pot of money. Some have 
suggested that the set-aside was raised too quickly and that 
the overall competitiveness of the program is now at risk. 
Today, I hope to get honest feedback from the agencies on this 
topic.
    Finally, there continue to be several ongoing concerns with 
the program's operation. Agencies' awards remain concentrated 
in California and Massachusetts, who together receive 35 
percent of the total funds from these programs. All together, 
the top 10 states receive 70 percent. This is often driven in 
part by agencies awarding the same companies, year after year, 
the most awards. It is unclear why new firms are unable to 
break into this small group of dominant SBIR, STTR awardees. 
Similarly, the participation of women-owned and minority-owned 
firms has been declining. Women-owned firms' share of SBIR 
awards decreased 35 percent in the last 17 years. In the same 
period, awards for minority-owned firms fell by 70 percent. 
Overall, according to data on SBIR.gov, last year women-owned 
firms won 6.4 percent of SBIR awards, while minority-owned 
firms won just 2.6 percent.
    When it comes to geography and demographics, it is 
important that SBIR and STTR are serving the entire country, 
and are not becoming a regular source of income for the same 
companies. At their core, SBIR and STTR are drivers of 
innovation. In order to be successful, however, we cannot have 
a program that primarily serves a select few.
    During today's hearing, I hope that we can examine these 
matters, evaluating what is working and what is not is crucial 
because before we know it, we will be marking up the next 
reauthorization for this program. Since their establishment, 
SBIR and STTR have played an important function in driving the 
development of cutting edge technologies. Given the sizeable 
investment that we continue to make in them, it is important 
that we regularly oversee these programs. For that reason, I 
thank all the witnesses for being here today, and the chairman 
for calling this hearing.
    Thank you, Mr. Chairman. I yield back.
    Mr. LUETKEMEYER. Thank you.
    Just briefly, if Committee members have an opening 
statement prepared, I ask that you submit it for the record.
    I would also like to take a minute to explain the lighting 
system in front of you. Green means go. Get to the yellow, you 
have got about a minute to wrap up. Red means stop. Hopefully, 
at some point you will stop. If not, well, we have got a big 
gavel here that says ``stop, stop, stop.'' But be respectful of 
everybody else, so get your points in and move on.
    With that, let me begin the introductions. Our first 
witness is Javier Saade, Associate Administrator for the Office 
of Investment and Innovation at the SBA. As part of the SBA 
senior leadership team, he leads the agency's SBIR and STTR 
programs, as well as the Small Business Investment Company. He 
came to SBA with 20 years of global general management, 
principal investing, strategic consulting, and entrepreneur 
experience.
    Thank you for being here, and you can begin your testimony 
for five minutes, Mr. Saade.

STATEMENTS OF JAVIER SAADE, ASSOCIATE ADMINISTRATOR, OFFICE OF 
    INVESTMENT AND INNOVATION, UNITED STATES SMALL BUSINESS 
    ADMINISTRATION; MARIE MAK, ACTING DIRECTOR, GOVERNMENT 
  ACCOUNTABILITY OFFICE, ACQUISITION AND SOURCING MANAGEMENT 
    TEAM; ANDRE GUDGER, DIRECTOR, OFFICE OF SMALL BUSINESS 
PROGRAMS, OFFICE OF THE UNDER SECRETARY OF DEFENSE, DEPARTMENT 
  OF DEFENSE; MATTHEW PORTNOY, DIRECTOR, DIVISION OF SPECIAL 
 PROGRAMS, PROGRAM MANAGER, NIH SBIR/STTR, NATIONAL INSTITUTES 
                           OF HEALTH

                   STATEMENT OF JAVIER SAADE

    Mr. SAADE. Thank you, Chairman, Ranking Member Velazquez, 
distinguished Members of the Committee. Thank you for inviting 
me here today to discuss the Small Business Innovation Research 
and Small Business Technology Transfer programs.
    I would like to begin with an example. Biogen, now known as 
Biogen Idec, used early SBIR funding to develop breakthroughs 
in cancer drugs, such as Rituxan, now the therapy of choice for 
Non-Hodgkin's Lymphoma, as well as some times of leukemia and 
arthritis. Biogen's drugs have saved and improved the lives of 
millions around the world. It is one company alone. It is worth 
$80 billion today. It was created by this only one company. It 
has more than doubled. The American taxpayers have invested in 
these programs since inception. To me, the SBIR program is 
personal because my dad, Jose, has been in remission for six 
years and owes his life to Rituxan, literally.
    The SBIR and STTR programs do more than just provide grants 
and contracts. These programs stimulate the STEM-driven 
economy, as well as support people considering academic careers 
in a wide range of STEM fields. This is a critical pillar of 
over national competitiveness. The 11 agencies that participate 
in the programs, two of which are here today, have awarded over 
145,000 grants totaling about $38 billion to American small 
businesses. In 2012, the SBIR and STTR programs provided about 
$2.5 billion directly into the hands of small businesses 
nationwide, and nearly a quarter of that money was awarded to 
women-owned, minority-owned, or HUBZone located small 
businesses. The SBA's role in both of these programs is to 
provide programmatic and policy oversight on these programs. 
SBIR works very closely with the agency program managers and 
external stakeholders to ensure that the intent of congress is 
carried on in the operation of these programs. It must be noted 
that while there is only one SBIR program, it is operated 11 
different ways, depending on the focus of its agency's 
missions, directives, and goals.
    Thanks to this Committee, the SBIR and STTR programs as you 
noted were reauthorized on January 1, 2012. Annually, GAO 
conducts a series of reviews. At SBA, we take all these reviews 
very seriously. To address the recommendations of GAO, our 
agency has had ongoing discussions with agency program 
managers. Delegations from around the world, including Finland, 
Japan, Italy, U.K., and India, among others, have visited our 
office to learn about these truly world-class innovation 
programs. These programs, in fact, make up the world's largest 
seed fund.
    While we are still the undisputed world leader in 
innovation, we are not alone, and many countries are making 
serious commitments of their own to their own innovation 
efforts. As we speak, today, as an example, China is investing 
billions of dollars and millions of engineering hours in its 
own space program. We need to continue to invest in our future 
as other countries continue to catch up.
    To maximize the commercialization and worth of taxpayer 
investment, SBA is launching a commercialization database. This 
database will allow the private sector to easily search SBIR 
and STTR funded innovations and increase investment in the high 
growth small businesses.
    IRobot, another success story. This company created the 
Roomba vacuum cleaner, now a household name. This company 
received SBIR funding from DoD to develop robots that conduct 
dangerous missions, such as mine detection and explosive 
disposal, keeping our soldiers out of harm's way. What is 
interesting is that iRobot pivoted its military design 
technologies towards mainstream consumer needs and now has 
sales of over half a billion dollars and employs 500 people. 
This is truly a remarkable example of an entrepreneur spotting 
a dual use for a technology developed for our nation's defense 
needs.
    SBIR and STTR are critical components of America's economic 
growth and are also key to advancing next generation science, 
engineering, and technology. Job creation is a national goal. 
Job creation, plus innovative research, leads to global 
competitiveness. As SBA's associated administrator, I will 
continue to work closely with our sister agencies to make sure 
that the programs are top priorities across the federal 
government. I will hold agencies responsible for the 
allocations required by statute, and I will continue to work 
with all of you to improve these programs. They are true gems, 
and we must make sure that our small businesses know about 
these great opportunities. Thank you.
    Mr. LUETKEMEYER. Thank you, sir.
    Next, we have Marie Mak. Is that right? The Acting Director 
in the Government Accountability Office of the Acquisition and 
Sourcing Management Team. In her position, she leads a diverse 
portfolio addressing contracting issues, including ongoing 
reviews related to the Department of Defense's service contract 
limitations, subcontracting under construction contracts, and 
management of the international space station. She has been the 
GAO since 2002. We appreciate your being here.
    You have five minutes. Thank you very much.

                     STATEMENT OF MARIE MAK

    Ms. MAK. Good afternoon, Chairman Luetkemeyer, Ranking 
Member Velazquez, and Members of the Committee. Thank you for 
inviting me here today to discuss GAO's work on DoD's efforts 
to transition technologies developed through the SBIR program. 
My statement today will primarily focus on our SBIR report 
issued in December of last year. We reviewed the tools the 
military services use to support technology transition and 
assess the extent SBIR technologies were successfully 
transitioning to military users.
    There are two key topics from this review that I would like 
to highlight today. First, while DoD's SBIR program has 
developed technologies that support military users, 
comprehensive data on transition outcomes are lacking. Second, 
DoD has not established a plan for how and when it would be 
able to meet the 2012 congressional mandate to begin reporting 
the number of SBIR projects that transition. Let me start by 
saying that over the years, Congress and DoD have increasingly 
recognized the value of the SBIR program and have taken steps 
to improve opportunities for transitioning SBIR developed 
technologies to military users. For example, the military 
services currently provide SBIR awardees additional funding to 
move certain projects closer to transition. They also have 
facilitators who work directly with small businesses and 
acquisition programs to foster transition commitments and 
support the progress of projects.
    As a result, there have been notable successes where SBIR 
technologies have transitioned to weapon systems or to direct 
use by the warfighter. These transition stories cover a broad 
range of technologies and products, but they are collected only 
on an ad hoc basis through voluntary submissions by program 
officials and small businesses.
    Comprehensive data about the nature and full extent of 
technology transition that is actually occurring is lacking, 
which is my first key topic I want to highlight today. DoD and 
the military services use two data systems to varying degrees 
to identify transition results--the company commercialization 
reports and the federal procurement data system next 
generation. However, these systems have significant gaps in 
coverage and data reliability concerns that limit their use for 
capturing transition data. For example, while these systems do 
provide high level commercialization information such as some 
investments and contracting information associated with SBIR 
contracts, they were not intended or even designed for 
capturing transition outcomes or detailed information on 
acquisition programs or fielded weapon systems. Without 
comprehensive data, we found that DoD is unable to meet the 
fiscal year 2012 congressional mandate to report the number and 
percentage of SBIR projects that transition to acquisition 
programs or fielded systems.
    At the time of our report, the Department was still 
assessment options for how to obtain better data and had not 
yet established a plan for how and when it would be able to do 
so, which is my second topic today. In our report, we 
recommended that DoD develop a plan to move forward with 
timelines and appropriate steps to address the data issues. We 
recognize there may be resource and technical challenges to 
collecting more comprehensive data, but we identified 
opportunities available for DoD to improve its tracking and 
reporting of transition outcomes. We found, for example, that 
the Navy has a potential best practice for assessing and 
documenting technology transition outcomes in its Future Naval 
Capabilities Program, a technology development effort separate 
from SBIR that the Department may be able to use on a broader 
scale. There may also be opportunities to use existing 
reporting mechanisms from acquisition programs. Furthermore, 
DoD could consider greater use of contracting provisions to 
require contractors to report on SBIR transition activities.
    Ultimately, however, the key to obtaining better data may 
require closer collaboration between SBIR and the acquisition 
communities within DoD. Incremental improvements may be 
possible to modify existing data systems and increasing SBIR 
program managers' capacity to track projects. But greater 
insights into transition outcomes and the benefits the 
technologies provide to military users may be better achieved 
with further involvement with the acquisition program managers, 
the users of those technologies. In an environment of declining 
budgets, it is important that data on technology transition 
outcomes for SBIR projects be improved for DoD to ensure that 
the right technologies transition to the right users in an 
economical and timely way.
    Chairman, Ranking Member, and Members of the Committee, 
this completes my prepared remarks. I would be pleased to 
answer any questions you may have.
    Mr. LUETKEMEYER. Thank you, Director Mak.
    With that, our next witness is Andre Gudger, Director of 
the Department of Defense Office of Small Business Programs. He 
serves as the principal advisor to the Secretary of Defense on 
small business-related matters. Mr. Gudger's career expands 
over 17 years in the defense, intelligence, and investment 
banking industries. He has been in his current position since 
2011.
    Thank you for being here with us today. You have five 
minutes.

                   STATEMENT OF ANDRE GUDGER

    Mr. GUDGER. Thank you, Chairman Graves, Congressman 
Luetkemeyer, and Ranking Member Velazquez.
    This is a great opportunity for us to talk about progress 
the Department of Defense has made, and since the 
reauthorization which has 41 provisions, which 34 of those 
applied directly to the Department of Defense, we have 
successfully implemented all 34 of those as of today. And that 
is a great news story for us, because we have noticed an uptick 
in the amount of small businesses participating in DoD 
programs. Never has the playing field been this level before, 
and we see that our number of new entrants has increased. We 
have 21 percent of every single solicitation that we put out in 
SBIR and STTR is a new entrant to the Department of Defense, 
which means every five solicitations we turn over our 
industrial base each time, and that shows our commitment to 
reaching out to states that do not participate or had not 
traditionally participated at a high level. Reaching out to 
them and getting them included in DoD acquisitions, and also 
looking at the greatness that we have with companies that are 
currently doing business with the Department of Defense.
    When we look at the numbers, which we have been collecting 
since 1983, we have been able to summarize that for every 
dollar invested in Phase I, $2 are invested at the Phase III 
level, commercialization. Out of every four awards we make in 
SBIR, Phase I, one of those awards go to a Phase III 
commercialization, which is great news. When we look at our 
minority participation and our women-owned participation, in 
2012, 14 percent of our SBIR awards went to women-owned small 
businesses. In 2012, 6 percent of our SBIR awards went to 
minority companies. Those are both higher than the 
congressionally mandated goal of 5 percent. So it is a high bid 
for us. It is traditionally thought of that service-based 
professional services is a leading place for small business to 
do business at the Department of Defense, but this data shows 
us that small, minority, women-owned companies do innovate, and 
if we open the door and show them the kind of things the 
Department has as a priority, that they will participate in our 
solicitations and be very successful.
    So when I look at the overall health of the DoD SBIR 
program, we have seen tremendous improvement. We have taken a 
quantum leap in the right direction. Not only have we 
accelerated payments to small businesses, but we do targeted 
outreach now. We are on Facebook. We are on Twitter. We talk 
the talk that innovative companies talk now, and that has led 
to great outcomes for us. We have an initiative that will lead 
to better outcomes in our department. We do not talk just 
innovation technology; we talk innovation of our people. And 
that is the reason why we made investments and improvements of 
our acquisition workforce, particularly our small business 
professionals.
    So with that being said, I would like to give back some 
time and answer any questions that you have for me. Thank you.
    Mr. LUETKEMEYER. Thank you, sir.
    Next up is Dr. Matthew Portnoy, director of the Division of 
Special Programs at the Office of Extramural Programs as well 
as the National Institutes of Health, SBIR/STTR program 
coordinator. Most recently, Dr. Portnoy worked at the National 
Institute of General Medical Sciences, both as a program 
director and as that program's SBIR/STTR program coordinator. 
Dr. Portnoy came to NIH in 2001 as an intramural postdoctoral 
fellow at the National Human Genome Research Institute.
    Thank you for being here. You may begin your five minutes, 
sir.

                  STATEMENT OF MATTHEW PORTNOY

    Mr. PORTNOY. Thank you. Good afternoon, Chairman 
Luetkemeyer, Ranking Member Velazquez, Members of the 
Committee. I am Dr. Matt Portnoy, the director for the Division 
of Special Programs within the Office of the Director at the 
National Institutes of Health, and the coordinator for the 
SBIR/STTR programs at NIH. Thank you for the opportunity to 
discuss the SBIR and STTR programs and our progress on the 
implementation of the Reauthorization Act.
    NIH is one of the largest funders of the program and the 
largest federal supporter of biomedical research. The SBIR and 
STTR programs continue to be critical to feeding the innovation 
pipelines that promises to deliver the medical advances of 
tomorrow and have complemented NIH's mission to advice science 
while bringing new health care solutions to the public.
    Examples of the types of research that NIH supports through 
the SBIR and STTR programs include drug discovery, drug and 
pharmaceutical development, medical devices, biosensors, 
nanotechnologies, and many other technologies that enhance 
health, lengthen life, and reduce illness and disability.
    Research-initiated ideas are the cornerstone of the NIH 
research portfolio, including projects supported by the SBIR 
and STTR programs. I am proud to say that the implementation of 
many changes included in the Reauthorization Act are completed 
or nearly completed at NIH. In accordance with the law, the NIH 
increased its set-aside for SBIR and STTR to 2.8 and 0.4 
percent, respectively, of its extramural budget in Fiscal Year 
2014. Since the reauthorization, the overall budget for the 
programs has increased from $680 million in Fiscal Year 2011 
before the reauthorization, to the current Fiscal Year 2014 
set-aside of $758 million. Throughout, NIH and HHS have 
continued to meet and exceed the required set-asides each year 
as stated in recent GAO reports. We have bolstered and 
diversified our average efforts and are partnering with the NIH 
Institutional Development Award (IDeA) program as required to 
reach underserved small businesses in IDeA states, increasing 
outreach to women-owned and small disadvantaged businesses, 
collaborating with more state-based economic development 
centers to deliver a regular series of webinars and in-person 
outreach, educating entrepreneurs and small businesses new to 
the programs about the range of opportunities and using social 
media to further engage small business. Fully one-third of our 
applicants and awardees are new to NIH each year and new to the 
program, and we believe we are reaching more future applicants 
and have more effective outreach strategies due to the 
provisions in the reauthorization.
    In February, NIH published a new funding opportunity 
announcement implementing the SBIR direct Phase II pilot 
allowing for the first time companies that have established 
scientific feasibility with non-SBIR and STTR support to bypass 
the need to apply for Phase I and compete for Phase II 
directly. We have received the first round of applications in 
April 2014, and expect to make first funding decisions in early 
Fiscal Year 2015, and we will be monitoring the impact of this 
pilot closely on our overall success rates. We are now also 
able to accept applications that switch programs from SBIR and 
vice versa at the Phase II or Phase IIB level, which our second 
sequential Phase II.
    In 2013, NIH exercised the authority to allow small 
businesses that are majority-owned by multiple venture capital 
companies to apply for SBIR funding. We received the first 
applications in late Fiscal Year 2013 and have made the first 
award this fiscal year. The NIH will soon be reducing the time 
it takes to award funding to our small businesses as required, 
an objective to which we are strongly committed.
    NIH is grateful for the support provided through the 
administrative fund pilot authority to enhance the management 
of the SBIR programs in new and more efficient ways. These 
funds, while currently temporary, have been critical so far in 
a number of areas across NIH to allow us to increase outreach, 
hire new staff to help with outreach reporting, and improve our 
IT infrastructure for more efficient evaluation and management 
of our award portfolio. This includes our soon-to-be launched 
redesigned SBIR website, adding functionality to our 
performance outcome systems to now store commercialization data 
that will be linked to the new SBA commercialization database 
and creating other resources for our program managers and the 
small business community, all of which would not have been 
possible without the additional funds under this pilot.
    We are eager to see the effects of these many changes in 
the coming years, and I would like to stress that NIH 
attributes the success and effectiveness of its programs to 
several factors, the most significant of which is a flexible 
and proactive approach that adapts to the changing nature of 
biomedical research.
    In conclusion, NIH SBIR projects are stories of discovery. 
We are committed to doing everything we can to ensure that the 
small businesses we fund today may become the Marteks, 
MedImmunes, and Abbotts of tomorrow. These companies, now 
household names, all received SBIR funding in the early stages 
and went on to create thousands of new jobs and deliver 
products that are making a real and significant impact on the 
lives and health of millions of people.
    Thank you for your attention.
    Mr. LUETKEMEYER. Thank you, Dr. Portnoy.
    We have votes here in probably the next 20 to 30 minutes or 
so, so I am going to defer my questions, and we will go 
immediately to Mr. Collins for his five minutes.
    Mr. COLLINS. Thank you, Mr. Chairman.
    Dr. Portnoy, I am kind of curious where you say or at least 
allude to someone, a small business could apply for a SBIR 
grant outside of a solicitation from you and in accordance with 
your mission. So help me understand. A small biotech company 
has some idea somewhere that they think is novel, they want to 
get a grant, you do not have a solicitation. How would they go 
about that, and is that something, in fact, the NIH is looking 
for?
    Mr. PORTNOY. Thank you for the question, Representative 
Collins. In fact, everyone who applies to NIH, be it SBIR or 
any of our mechanisms, do apply to a solicitation. What I meant 
was that our standard omnibus SBIR solicitation is 
investigator-initiated, meaning they do not necessarily have to 
respond to one of the many topics we put out that we are 
interested in. If a small business has a technology that is in 
the healthcare or public health space, they can apply to our 
omnibus solicitation despite the fact that it is not in 
response to a specific topic. It will receive an external peer 
review and be considered for funding along with all of our 
other applications.
    Mr. COLLINS. So how does the NIH decide, okay, this is the 
topic I am looking for in this solicitation? Take for instance 
the case where we just found that the CDC had live versions 
of--I am not sure, it was the N5H1 and some other things where 
they thought they had been neutralized and they had not. Is 
that something that would catch the attention of the NIH and 
say, you know, clearly there must be ways of ensuring public 
safety outside of what transpired recently at the CDC labs?
    Mr. PORTNOY. So all of our program managers, each and every 
year, go through a process to determine what topics are of 
interest to their institute and within the mission of their 
institute, and we collect those topics of interest and they 
receive them from a variety of sources, be it workshops, from 
their own staff, also from looking through the literature and 
the technology space to determine what might be missing. And 
they put those topics together for us. That is not necessarily 
all inclusive of what may be out there, but that is the process 
by which we go through developing topics.
    Mr. COLLINS. And how easy is it for a small biotech company 
to find out that your solicitations are out there? Do they have 
to be looking into your website? Do you send things out? How do 
you advertise these and make these known throughout?
    Mr. PORTNOY. We do many different things, including all of 
the above. So we do post all of our solicitations on the NIH 
website, sbir.NIH.gov. We post them through the central NIH 
portal for all SBIR solicitations, the NIH Guide for Grants and 
Contracts. We post all of our SBIR solicitations--they are 
cross-posted on SBIR.gov, which is the central government SBA 
solicitation repository. In addition, we put out a variety of 
marketing through our 16,000 plus member list serve, our 
website, our Twitter feed, and all of our program managers take 
all of that and remarket through all of their channels.
    Mr. COLLINS. Is this mostly Phase I solicitations?
    Mr. PORTNOY. Most of our solicitations are, in fact, a 
combination, and they accept Phase I, Phase II, and what we 
call Fast Track, which is a combination of Phase I and II award 
designed to reduce the funding gap between I and II. Some of 
our solicitations are Phase I only, some are Phase II only, but 
most accept Phase I and Phase II.
    Mr. COLLINS. Now, if it is a Phase II only, would the 
company have had to already do a Phase I?
    Mr. PORTNOY. That is right. That is a little bit separate 
from the new directed Phase II, which I can address in a 
moment, but our solicitations, when they accept regular Phase 
IIs, the company can have received the Phase I from either NIH 
or any other federal agency and applied to one of our Phase II 
solicitations if they are proposing work that is within the 
mission of NIH. Separately, we have a new direct Phase II pilot 
where the companies must have established the Phase I 
equivalent feasibility on their own without SBIR support, and 
then they can apply for the direct Phase II.
    Mr. COLLINS. Okay. Good.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. LUETKEMEYER. Thank you.
    With that, we will go to the ranking member, Ms. Velazquez, 
for five minutes.
    Ms. VELAZQUEZ. I will defer to my members.
    Mr. LUETKEMEYER. Okay. Mr. Barber for five minutes, from 
Arizona.
    Mr. BARBER. Thank you, Mr. Chairman, and thank you, Ranking 
Member Velazquez for yielding.
    Thank you all for coming. I come from Southern Arizona, 
border district with Mexico, and it is an area where small 
businesses, particularly in the high tech optics solar industry 
are just beginning to thrive actually, and the importance of 
SBIR and STTR programs are critical to not only what we have 
done so far but also to continued growth.
    I think it is pretty clear, at least to me from my vantage 
point, that SBIR and STTR programs are some of the most 
effective programs we have got in the federal government for 
spurring innovative ideas of job creation. We have globally 
competitive businesses that have benefitted from these 
programs, both startups and new companies that have expanded, 
developing new commercialization of groundbreaking 
technologies. For example, the University of Arizona is 
partnering with small businesses to develop and commercialize 
new technologies as a part of the small University of Arizona, 
Southern Arizona SBIR/STTR Competitiveness Initiative. And a 
good example of that is Avery Therapeutics, which is developing 
a new therapy to treat heart failure. The University of Arizona 
is helping the company with an NIH Phase I STTR proposal, as 
well as helping design appropriate proof of concept experiments 
to test the safety and efficacy of the therapy and build a 
small business leadership team and develop long-term 
commercialization plans. This is essentially a part of what the 
programs that you represent or have spoken about can do for a 
community.
    So let me turn to you, Mr. Saade. Did I pronounce that 
correctly?
    Mr. SAADE. Close enough.
    Mr. BARBER. Okay. For a question about what you are 
responsible for. Thank you, of course, for being here. And in 
your testimony, you touched on the commercialization component 
of these programs. While a small part of SBIR and STTR 
commercialization makes the most of these investments for the 
federal government and our small businesses, could you talk 
about how successful these efforts have been using the current 
allowed set-asides and how we can better improve or maximize 
commercialization for small businesses moving forward, 
particularly with regard to the set-asides?
    Mr. SAADE. So, as you know very well, the commercialization 
aspect of the program is actually one of the main tenets of the 
program. And the reason why it sits in the agency and within 
your purview is because this is not only about advancing the 
frontiers of human knowledge, which is great; it is about 
creating companies around those. So different agencies do 
different things to get their products and their research 
commercialized. And the reason they do different things, 
obviously, is because the path to commercialization is 
different, and you have two examples here where in the case of 
Defense, at the end of the commercialization road it is 
basically defense. It is a single customer at the end of that 
road, that that technology creates other uses, and so on and so 
forth is a different story. NIH, for example, clearly not a 
sole customer at the end of the road. It is not a contract that 
the SBIR recipient gets to commercialize.
    So there are things that could be better done, and one of 
the best examples as to what SBA, at least from having a 
preview of the program, is finding best practices. And one of 
the things we are looking at is something NSF does to 
commercialize, to get the scientists that participate in the 
programs to have a commercial mindset from day one. And the 
reason is that for the most part, most Ph.Ds. are extremely, 
extremely good at research, but sometimes they do not think 
about the business side. So NSF implemented with great success 
something called I-Corps, Innovation Corps, and it is one of 
the ways in which we can cross agencies and we are looking at 
how to do that, begin to export some of these best practices, 
one of which is I-Corps, one of which enables scientists to 
begin their research always with a commercial purpose in mind. 
And NSF has been greatly successful, and right now NIH actually 
is looking at figuring out how to implement I-Corps in their 
areas.
    Mr. BARBER. Well, Mr. Chairman, I am almost out of time so 
I will yield back. Thank you.
    Mr. LUETKEMEYER. Thank you.
    With that, we go to the gentleman from Colorado, Mr. 
Coffman, for five minutes.
    Mr. COFFMAN. Thank you, Mr. Chairman.
    Ms. Mak, are there ways to enhance existing data systems, 
such as the company commercialization reports or federal 
procurement data systems to enable more comprehensive tracking 
and reporting of technology transition in the Department of 
Defense Small Business Innovation Research Program?
    Ms. MAK. Thank you, sir, for the question.
    The existing systems can only take you so far, and like I 
said earlier, we believe that the systems were not intended or 
designed for tracking outcomes and not for tracking for the 
detailed information about acquisition programs. But I tend to 
believe there are good practices that DOD could consider that 
would make incremental improvements to the systems, such as 
increased training of those responsible for entering data on 
what is supposed to be reported. However, really it is a 
partnership that is needed to improve technology transition and 
commercialization within DoD. We really see it as a partnership 
between SBIR offices and acquisition offices. It is a push-pull 
collaboration where SBIR does the technology pushing and the 
acquisition side does the pulling. There are more ways that DOD 
can build SBIR considerations into the process for acquiring 
weapon systems, such as including it in the program acquisition 
strategy, the planning, and the milestone reviews. In the 
different phases of the acquisition process, there could be 
more implementation of SBIR considerations into the process.
    Mr. COFFMAN. Thank you.
    Mr. Gudger, what level or rate of technology transition 
success should be expected from the Department of Defense Small 
Business Innovation Research Program?
    Mr. GUDGER. Well, that is a great question. The Department 
of Defense is big and massive, and that answer will probably 
vary depending on the military component or defense agency. On 
average, we see 25 percent of the investments the Department of 
Defense make go to commercialization, whether it is industry or 
DoD. So I think it is a very healthy number. And I anticipate 
that still being the track and trend that we are on.
    Mr. COFFMAN. Good.
    Dr. Portnoy, about how many in the National Institute of 
Health, the Small Business Innovation awards utilize the waiver 
for surpassing the statutorily defined award sizes? And do you 
have evidence and/or studies that show that larger SBIR awards 
result in more innovation and better commercialization?
    Mr. PORTNOY. Thank you for the question, Representative 
Coffman.
    In terms of the percentage of awards that we make over the 
statutory hard caps, historically, before the reauthorization, 
we were at around 20 to 27 percent portion of our awards were 
over the hard cap and in light of the new reauthorization and 
the waivers, we do not anticipate that to change very much.
    In terms of your second question about--excuse me, can you 
repeat the question?
    Mr. COFFMAN. Do have evidence and/or studies that show that 
larger SBIR awards result in more innovation and better 
commercialization?
    Mr. PORTNOY. Yes. Thank you.
    So we have the 2008 or 2009 Academy study that bolstered 
the size of our awards. In addition, we are asking the 
Academies again in the current study to look at that. And we 
have our own data in terms of how the size of awards is 
important for making sure that technology gets supported with 
SBIR to the point where it is being able to be picked up by the 
next investor. Biomedical research is very expensive, and SBIR 
typically only is involved in the first 5 to 10 percent of the 
overall investment before technology gets to the market, and so 
we strive to fund research at an appropriate level so that a 
venture capital company, angel investor, strategic partner, 
pharmaceutical, may pick it up at the appropriate point.
    Mr. COFFMAN. Thank you, Mr. Chairman. I yield back.
    Mr. LUETKEMEYER. Thank you.
    Now we will go to the gentleman from Oregon, Mr. Schrader.
    Mr. SCHRADER. Thank you, Mr. Chairman. Appreciate it.
    I guess, Mr. Saade, what are the outcome measures that the 
agency is using for SBIR and STTR with the different players 
that we have got here?
    Mr. SAADE. So one of the things that we looked at, which 
was actually embedded in the law, is the rate--and this has 
been brought up a couple of times--is the rate at which Phase 
Is becomes Phase IIs and at which Phase IIs become Phase IIIs, 
which is really commercialization. So what is in there is 25 
percent. So the goal is for across the program for one out of 
four SBIR Phase I awards to get Phase II awards. It basically 
goes to the premise of the program that you are taking probably 
a little more risk in the very, very early stages of the Phase 
I and you are hoping that at least one in four make it to Phase 
II. On the Phase II to Phase III, there are two ways to kind of 
measure it. One is how much outside investment is--and by 
outside investment I mean not the taxpayer footing the bill, 
but an investment firm. It could be a company. It could be a 
big or small business. And the target there is that for every 
seven awards--and I have to check on these numbers, but it is 
something about this, and I will get back to you with the exact 
numbers, but it is something like every seven awards attracting 
either--sorry, for every seven awards, one patent, because if 
the patent is available, the likelihood that the technology 
will get to market is more likely because there is intellectual 
property. And the other one has to do with how much outside 
investment. And I actually do not recall exactly, but it is 
like 100,000 for every Phase II award, but I will have to check 
on that.
    Mr. SCHRADER. So basically three major outcomes that you 
are looking for with the SBIR/STTR program?
    Mr. SAADE. There are a few milestones, like the ones I 
mentioned, but we also, because we have a purview obviously of 
the program across the agencies, there are definitely some best 
practices. And one of the best practices I mentioned before, 
which is sort of on the front end of Phase I, basically, you 
are making scientists go through essentially what is an MBA 
101. And the reason for that is that the theory goes or in 
practical terms, if the researcher and investigator is thinking 
about what the market segments are going to be for their 
technology, how they are going to fund it, who are they going 
to sell it to, MBA 101 type stuff, then the likelihood of that 
becoming a commercial success is higher. It is logic. So 
because NSF has been very successful at this, even there are no 
hard numbers yet, but it costs nothing because essentially you 
are making the scientists go through this as part of the 
program, why not blow it out across? So there are some nuggets 
of interesting best practices that could be used. Yeah.
    Mr. SCHRADER. Okay.
    Director Mak, you talked about not a lot of outcomes, or at 
least--insufficient might be a harsh word--outcomes in some of 
the DoD programs, and yet Director Gudger talked about certain 
outcomes that sounded reasonable, sounded decent. Could you 
juxtapose the two conversations for us?
    Ms. MAK. I definitely agree. There are success stories. 
There are numerous outcomes. But it is a matter of tracking, 
getting comprehensive data to really know to what extent, how 
many successes are you really having versus just what you can 
get from the existing systems. There are models within the 
department that we have found in our work that are very 
effective in tracking transition outcomes. Like I mentioned 
earlier, a key example is the Future Naval Capabilities 
Program. They have a Transition Review Board that regularly 
reviews their investments, tracks the outcomes, and uses that 
information to make future investment decisions. Also, SBIR 
specific, the Program Executive Office for Submarines has been 
noted for years for actively supporting the SBIR technologies, 
tracking the outcomes, including it in their program planning 
milestone reviews, and offering incentives in contracts.
    Mr. SCHRADER. I have got limited time. I apologize. So in 
other words, you are talking about filling in the blanks. In 
other words, all the programs are considered?
    Ms. MAK. Comprehensive data for all the SBIR programs is 
critical to establishing a baseline.
    Mr. SCHRADER. Director Gudger has given a good example of 
the Department overall, but not to show the micro, into each of 
the different program areas----
    Ms. MAK. Absolutely.
    Mr. SCHRADER.--that will help us.
    The request I would make as my time expires, it would be 
interesting--for me, I am just a businessman--but like over the 
last 10 years, what the trend line has been in the SBIR, maybe 
STTR programs for the different agencies that get the money or 
that are supposed to be doing the granting to the different 
companies. See what the trend line has been, just and the 
different outcomes areas that the administrator talked about. 
That would really help me get a picture of how we are doing. It 
might take into account the fact that we have had a recession. 
I get that. Or money that has been allocated or not allocated 
to make the program hopefully as successful as it could be. But 
if I could get trend lines from the different agencies, that 
would be really helpful. If I could ask that, Mr. Chairman, 
going forward.
    Mr. LUETKEMEYER. Very good.
    Mr. SCHRADER. Thank you.
    Mr. LUETKEMEYER. With that, the gentleman from Colorado, 
Mr. Tipton. Five minutes.
    Mr. TIPTON. Thank you, Mr. Chairman. Thank you, panel, for 
taking the time to be here.
    Mr. Gudger, this is a follow up perhaps a little bit on Mr. 
Schrader's question. You may be able to give us some insight in 
regards to some of the trending. In the 2012 Reauthorization 
Bill, the Department of Defense was authorized to be able to 
establish goals to be able to increase the SBIR's technology 
transition and to be able to use some incentives, I believe, to 
encourage prime contractors to be able to meet the goal. Has 
the DoD implemented these policies, and could you maybe 
enlighten us a little bit on some of the incentives that were 
used as well?
    Mr. GUDGER. Absolutely. I have been waiting for this 
question all day.
    Mr. TIPTON. That is what I was here for.
    Mr. GUDGER. In Fiscal Year 2011, I presented a plan to the 
House Armed Services in collaboration with the House Small 
Business Committee, and I laid out this plan about increasing 
small business participation DoD with a particular focus on 
technology firms, which meant SBIR/STTR. I wanted to increase 
commercialization. And in that plan, what we did was look at 
the acquisition framework. Now, make no mistake about it. The 
SBIR/STTR programs are within the acquisition community, and so 
they work hand-in-hand, close already. And in that plan, there 
were eight actionable items. One of them is a monthly meeting 
between myself hosted by the Undersecretary for Acquisition 
Technology and Logistics, and the service acquisition 
executives in which these technology programs report up to. So 
that became a best practice. We do that DoD wide. And that led 
to the standup of our SBIR PEO, which is led by Chris Rinaldi, 
who is here in the room. That PEO has a specific focus on 
commercialization, and it works with the Pre-Defense 
Acquisition Board. All my small business directors now sit on 
abstracts and peer reviews or anything above 500 million, and 
we look at how we get small business participation across the 
board into these major defense programs ACAT One and above. And 
that led to a great outcome.
    And going to Congressman Schrader's point, I have the 2003 
data all the way through 2013, and I look at the 
commercialization number. DoD had 3.5 billion aggregate over 
time, and just to show you the focus and the results, it goes 
down to dollars, and we have commercialized 13.5 billion 
aggregate over a 10-year period. That is significant for small 
business. And we track that data. And we have a system. We work 
with SBA. When they come and look at our system, they like it. 
It is a great model. I am very familiar with all the military 
departments and how they bring their data together. And they do 
that in a decentralized way. They make the systems that meet 
the need for the department, and we bring it in together and we 
provide that report annually.
    And so, I think that we have done the right thing. We have 
a commercialization working group that the members are the S&T 
executives from the defense agencies and research and 
engineering at the OSD level, and it includes all the directors 
of small business. So this collaboration happens. We are using 
technology better, and we are looking to put hooks into the 
publicly available databases, like FPDS and ESRS that was 
referred to earlier. Yes, they were not designed originally to 
collect this kind of information, but there is a however part.
    In Fiscal Year 2013, in the NDAA and the authorization, the 
language I actually supported and pushed for, was for us to 
work with SBA, GSA, and the members of DoD, and we did that. A 
tiger team stood up with members from my office, our 
Procurement Acquisition Policy Office, the contracting folks, 
GSA, and SBA, and that team looked at the systems and made 
recommendations on how to improve them. And we want to roll out 
those recommendations. At the time, we were in the middle of a 
continuing resolution, so there was limited new starts that we 
could do, and that would be considered one. But that is an area 
focused in 2014 and 2015 to make improvements to the technology 
systems and take the best practices we have in our system that 
we collect, that data that I can refer to. I have it, and I 
want to make it available to those public systems where right 
now we provide that to the SBA.
    Mr. TIPTON. Okay, well, thank you.
    Mr. Saade, how many agencies have utilized the authority 
given to them under Section 5123, Reauthorization, and 
requested to establish a commercialization readiness pilot 
program?
    Mr. SAADE. Eleven agencies participated in the SBIR 
program, and that is driven by how much of the research budget 
is--extramural budget is X. And five agencies participate in 
the STTR program, so 11 and five. It is two different numbers 
for both programs.
    Mr. TIPTON. Okay. Thank you.
    Mr. Chairman, my time has expired, and I yield back.
    Mr. LUETKEMEYER. Thank you.
    With that, I will go to the ranking Member, Ms. Velazquez, 
for five minutes.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Director Gudger, I would like to know if your agency has 
conducted any training in terms of your DoD SBIR personnel 
regarding the new procedures put in place by the 
reauthorization statute.
    Mr. GUDGER. Yes.
    Ms. VELAZQUEZ. So I guess that your staff briefed you 
regarding the first oversight hearing that we held on this 
committee since you were coming to testify regarding SBIR and 
STTR. Were you?
    Mr. GUDGER. I was definitely briefed.
    Ms. VELAZQUEZ. Okay. So you heard that a company stated the 
fact that DoD personnel complained about having to execute a 
``small business welfare program'' and that they denied 
submission of Phase II proposals from Phase I awardees when 
they do not have the authority to do so. What do you have to 
say about that?
    Mr. GUDGER. Well, I am not aware of that, and if I was made 
aware of that, I have an open door policy. I will give my email 
address. Send me an email and tell me who said that and why 
they said that, and I will pay a personal visit to them. 
Because we are focused on capability and technology superiority 
in the Department of Defense. That is our future, protecting 
the young men and women. So that means that we have to have 
Phase II and Phase II programs in the Department of Defense in 
order to be successful. So I am not aware of anyone saying they 
have not done it or they are not going to do it.
    Ms. VELAZQUEZ. Well, I just want to make sure that you were 
briefed regarding those complaints that were shared with us 
during our committee hearing.
    Mr. GUDGER. Yes.
    Ms. VELAZQUEZ. The reauthorization legislation made 
permanent the DoD commercialization program and created a 
similar pilot program to civilian agencies. This program 
diverted funds from Phase I and Phase II awards and reallocated 
them to commercialization efforts. Given that GAO has found DoD 
lacks the data of commercialization, how are you measuring 
success?
    Mr. GUDGER. Well, I do not concur with GAO's report. I 
think it is vastly inaccurate. However, we measure success of 
SBIR by the percentage of commercialization. SBA set those 
rules and defined them and we adhere.
    Ms. VELAZQUEZ. Ms. Mak, would you please comment on Mr. 
Gudger's characterization?
    Ms. MAK. Yes, thank you.
    They do track some outcomes, but it is one of those issues 
where it is not extensive enough. The existing systems, the 
company commercialization reports and the federal procurement 
data systems that they use to get the numbers, there are 
reliability issues when it comes to tracking outcomes, and we 
found that in our work. We also found what you mentioned 
earlier, that there is not a complete awareness of the SBIR 
program throughout all the acquisition communities that are 
impacted, and therefore, there could be more improvements in 
those particular areas. And when we talk about databases, we 
are talking about measuring the extent of success. I don't 
disagree, there are successes. But until we know what the 
baseline is, how are they going to report how effective those 
programs are overall? Until you have comprehensive data that 
sets a baseline, it is really kind of difficult to determine.
    Ms. VELAZQUEZ. Ms. Mak, according to data on SBIR.gov, from 
1996 to 2013, women-owned firms' share of SBIR awards by value 
decreased from 9.8 percent to 6.4 percent, a decline of 35 
percent. In the same period, award shares for minority-owned 
firms fell from 8.3 percent into 2.6 percent, a decline of 70 
percent. This happened at a time when women-owned firms grew by 
59 percent, about one and a half times the national average, 
and according to one study, women-owned firms are exceeding 
overall sector growth in eight of the 13 most popular 
industries. It looks like in the area of research and 
innovation, that does not hold water. Why is there that 
discrepancy?
    Ms. MAK. I really cannot comment on that because we did not 
do work focused on that area, but I do feel that Congress has 
provided a lot of good provisions, established clear policies 
of maximizing small business contracting opportunities for 
women and minorities, but I cannot say much more than that 
regarding this area.
    Ms. VELAZQUEZ. Okay. Ms. Mak, according to data from--well, 
I believe that this will be the same answer to my question. I 
would like to ask to Mr. Saade, in May of last year, SBA 
published guidance on benchmarks for Phase I to Phase II 
transitions. The goal of these benchmarks is to prevent the 
same company from continually winning Phase I awards without 
progressing to Phase II. Are agencies enforcing these 
benchmarks? And if so, have there been any cases where the 
company was made ineligible for the year?
    Mr. SAADE. So, yeah, I alluded to this a little bit 
earlier. The progress to Phase II from Phase I and the progress 
to Phase III from Phase II respectively, there is a minimum 
benchmark of 25 percent, so one in four, Phase I to Phase II. 
And in terms of Phase II to Phase III, if a company has gotten 
a Phase II in the last 10 years, they must have one of two 
things. Either an investment or sales of at least $100,000, 
which indicates commercial success, or a one in seven 
conversion into intellectual property and IP.
    One of the things that I think is going to help us and the 
Committee look at the success of this is to have one place 
which basically houses the commercialization data across the 
SBIR program, and that is something that we are hoping to have 
live very soon. And it will be basically a repository of data 
which is going to give us that baseline that Acting Director 
Mak was talking about. Also, enables ease and efficiency of use 
for the sectors to commercialize that data.
    Ms. VELAZQUEZ. Okay. So my question is, is SBA tracking and 
compiling data on firms that are now meeting these benchmarks. 
Are you doing that?
    Mr. SAADE. We are compiling data.
    Ms. VELAZQUEZ. Okay.
    Mr. Portnoy, you state in your testimony that the current 
demand for NIH awards from venture-backed companies is low. Why 
do you believe that this is the case?
    Mr. PORTNOY. So as I said in my written testimony, at the 
moment there is not a high demand for the venture capital-
backed provision in our solicitation. It is in all of our SBIR 
solicitations since the middle of 2013 when we implemented. I 
do not think there is any one reason, and I just think a 
variety of reasons in no particular order might be that the 
provision is new. It takes time for companies--we are doing 
extensive outreach on that provision, but it takes time for 
companies to decide to go after SBIR when they have not and to 
build up the resources and the capability to put in 
applications. It is also possible that with the new direct 
Phase II provision, this might be more attractive for venture 
capital-backed companies to apply as opposed to the Phase I 
route. But at the moment it is too early to know. We are 
tracking it, and we will see what happens over time.
    Ms. VELAZQUEZ. Under the reauthorization, VC-backed 
companies must register with the SBA and also note their 
funding structure in the SBIR program application. Do you think 
that these requirements serve as a deterrent for VC 
participation?
    Mr. PORTNOY. I do not believe so. They are required in the 
SBA company registry to put the rough ownership structure of 
the company, what percentage they have owned by multiple 
venture capital companies, et cetera, and that is used solely 
for determining eligibility, whether they fall into the VC 
eligibility criteria or not. It is not used in any way other 
than that to determine eligibility.
    Ms. VELAZQUEZ. Thank you, Mr. Chairman.
    Mr. LUETKEMEYER. Thank you.
    I have got just a few questions and then it looks like we 
are getting ready to call votes here in a minute. And I think 
Mr. Payne will be able to ask a few whenever he gets settled 
here as well.
    Mr. Saade, we have already kind of asked this question but 
I want to take a little bit different tact on it. A Cross 
agencies, what is being done to improve data collection and 
dissemination, so it is important with reauthorization, it is 
required, a lot more reporting to you at the SBA and to us here 
in Congress. It is crucial for us to engage in future 
reauthorization activities. And so I guess the question really 
is what are you doing to improve the data collection? I know 
you have talked about it, but what are you doing to improve the 
cross agencies?
    Mr. SAADE. Thank you for the question.
    One of the things in which we play a big role is to ensure 
that as much of the mandates and the statute as dictated by the 
reauthorization are done consistently across the agency. So one 
of the things that was born out of that was five groups which 
are composed of different and varied program managers from 
different agencies, one which is solely focused on 
commercialization and outreach, another one which is focused on 
asset mapping. Asset mapping meaning the federal government 
owns billions of dollars of buildings and equipment that are 
available for use for small businesses. We are trying to figure 
out where they are so that small businesses can use them. And 
several other groups.
    So one of the roles that we are playing, and the agencies 
and the program managers are participating in a great way, is 
to have this cross pollination and cross collaboration between 
agencies across five very specific groups which are intended to 
corral what the intent of the reauthorization was, one of which 
is the standardization of data collection. And there are two 
things to that I just want to add. One is the data collection 
of the inbound, which is what allows us to see how many women 
or minorities are applying because one of the reasons why 
potentially women and minority awards are down is because they 
are applying less. That is a different problem than them not 
getting them. So that is on one end of the spectrum. On the 
other end of the spectrum is if we make the data surrounding 
the technologies funded by the taxpayer easy to search, you 
would think that more private investment dollars are attracted. 
So that is kind of data from both ends.
    Mr. LUETKEMEYER. Very good. Thank you.
    Mr. Gudger, what progress has been made in implementing the 
transition reporting requirements required by the law? Has the 
plan been developed as GAO recommended to address requirements? 
If so, how and when will improvements be made in the tracking 
and reporting of technology transition outcomes?
    Mr. GUDGER. Thank you. That was a great question.
    We are already tracking them and reporting them. The 
genesis of what GAO found wasn't necessarily us collecting the 
comprehensive data as much as it was the validation of that 
data. And some of the challenges we have in validation of the 
data is most of the companies that are moving into 
transitioning programs of record are typically subcontractors. 
And we have been bound by the self-reporting allowances of the 
law, not DoD policy, but inside of the comprehensive 
subcontracting test program, it allows for large companies to 
self-report and it is very difficult to validate that data. And 
we had a ripe opportunity here to let that program expire and 
have transparent reporting into the system that we can 
validate. That is behind us a little bit, but yes, what we have 
done in DoD to further implement what we were doing is we 
updated our DoD 5000, which is our acquisition framework 
documentation. It is full of transition reporting incentives. 
We have updated our Defense Acquisition Guidance, which goes to 
our field, our program managers, and our contracting officers. 
In addition to that, the Secretary of Defense for the first 
time in history in 2012 included a small business innovation 
research and technology transfer, STTR, into the framework of 
the defense planning guidance, and that was directly to the 
chairman of Joint Chiefs and Joint Staff, secretary of the 
military departments, and director of defense agencies to 
report on transitioning SBIR technologies into their programs. 
And our defense contract management organization office tracks 
that. And our office gets an annual report on that and 100 
percent of them are compliant in Fiscal Year 2014.
    Mr. LUETKEMEYER. One hundred percent. Wow.
    Mr. GUDGER. Yeah.
    Mr. LUETKEMEYER. Mr. Portnoy, you have kind of answered a 
little bit about this, but also these two gentlemen, we asked 
them with regards to the reporting requirements, so we do not 
leave you out of the questioning here, I know that you are 
monitoring the extra reporting requirements of SBIR applicants 
as well, especially those that are majority venture backed. 
What is the National Institute of Health doing to help ensure 
that these requirements are not overly burdensome and 
prohibitive to majority venture backed small companies?
    Mr. PORTNOY. Well, I think Mr. Saade emphasized it quite 
well in that SBA is developing central data systems so that the 
burden is less on all of our awardees, including venture 
backed. So SBA is about to launch a commercialization database. 
They already have an award database and a registry, and so we 
will be requiring through the policy directive of SBA all of 
our awardees to report their outcomes in the central SBA 
database.
    Mr. LUETKEMEYER. Not to interrupt, but just a question to 
follow up. Do you ever get feedback from the applicants 
themselves about whether the application process is burdensome 
or not, whether the amount of information, the constant rules 
and regulations, do they ever give you any feedback and say 
this is just right or this is not enough or this is way too 
much?
    Mr. PORTNOY. Well, I do not believe they ever tell us that 
it is too little, but we do get feedback, and we have to, of 
course, follow all of the rules within the policy directive and 
the law, and follow all of our own regulations in terms of 
collecting what we need in an application to assure a fair and 
unbiased view.
    Mr. LUETKEMEYER. We cleared that half of the spectrum. What 
about the other half of the spectrum? Do you get complaints 
from the applicants about how burdensome it is? How much it 
costs to comply? How much time it takes?
    Mr. PORTNOY. We do not get complaints about time or cost. 
There are a lot of forms to apply for any type of federal 
funding, and that is to ensure that the funds are spent and 
used appropriately.
    Mr. LUETKEMEYER. Very good. Thank you.
    With that, Mr. Payne, if you are ready, you have got five 
minutes.
    Mr. PAYNE. Mr. Chair, let us see. I was ready.
    I had a question for Mr. Gudger. I understand the 
Department of Defense uses multiple outreach methods to 
increase the participation of women and minority-owned 
businesses. Do you find that this outreach has been effective?
    Mr. GUDGER. Yes. What we see, we actually have very healthy 
numbers in the women and minority areas for SBIR and STTR. When 
we look at minority-owned participation in SBIR, it is 6 
percent. The federal goal is 5 percent.
    Mr. PAYNE. Six, you said?
    Mr. GUDGER. Yes, six. It is greater than the goal. And in 
women, it is 14 percent, which also is greater than the 5 
percent goal. So we have a healthy mix of women and minorities 
now participating in SBIR and STTR.
    Mr. PAYNE. Maybe the goal should be raised.
    Mr. GUDGER. Well, talk to SBA on that one.
    Mr. PAYNE. So, but earlier you mentioned, you said that the 
numbers were down--the associate administrator, did you mention 
that the minority outreach goals were down? No? Oh, good.
    Also, in 2011, reauthorization allows for up to 3 percent 
of small business innovation research funds to be used for 
program management and administration purposes, including 
outreach. Is the Department of Defense using the full 3 percent 
available? And what has this additional funding allowed the DoD 
to do that if it had not been available otherwise?
    Mr. GUDGER. So, yes. We do use a portion of the 3 percent 
in administering the SBIR program. It is a billion dollar 
program for us, so we use a small percentage of that to do the 
administration. It is very complex. I have a posture that we 
need to be slim and trim and be innovative with our outreach. 
We need to use technology where available. And we should use 
those additional administrative funds where appropriate to help 
small business commercialize their technologies. So for us, we 
use a significant portion, maybe a percent and a half in the 
administration, which is very helpful. Thank you for that. And 
the other half goes into--directly back to small businesses, 
which is where it belongs.
    Mr. PAYNE. In the interest of time, Mr. Chair, I will yield 
back.
    Mr. LUETKEMEYER. Thank you.
    With that, I would like to thank the witnesses for being 
with us today.
    The SBIR Reauthorization Act was signed into law 31 months 
ago. That law instructed participating agencies to improve 
their data collection, focus more on the commercialization of 
SBIR technologies, and set goals for inclusion of those 
technologies in larger programs. Agency compliance thus far 
seems to have been a mixed bag. By and large, SBIR and STTR 
programs are performing very well, but we can always do better. 
Agencies need to continue to be partners with us here in 
Congress to increase participation, commercialization, and 
provide American taxpayers the greatest return on their 
investment. This Committee will continue to follow the progress 
of the agencies implementing the changes and hope to see better 
results in the coming months.
    I ask unanimous consent that members have five legislative 
days to submit statements and supporting materials for the 
record. Without objection, so ordered.
    This hearing is now adjourned.
    [Whereupon, at 2:13 p.m., the Committee was adjourned.]
                            A P P E N D I X


    Chairman Graves, Ranking Member Velazquez and distinguished 
members of the committee, thank you for inviting me here today 
to discuss the Small Business Innovation Research (SBIR) and 
Small Business Technology Transfer (STTR) programs.

    I would like to begin with an example. We know about 
Parkinson's disease, and have observed the way it can impact a 
person's life. It makes doing simple tasks, like eating, very 
tough and millions are impacted by it.

    A San Francisco-based startup called LiftLabs created an 
``anti-tremor'' spoon that cancels up to 70% of the hand 
tremors, which allows an individual to eat a bowl of cereal. 
This startup can thank NIH's SBIR program for the initial seed 
financing of $800,000 to get their product, LiftWare, developed 
and deployed into the market. The company, subsequently, raised 
$1,000,000 in private capital and received the backing of 
RockHealth, a health-care focused accelerator based in San 
Francisco's Mission Bay neighborhood--the type of accelerator 
whose model we are looking to export to the rest of the country 
through SBA's Growth Accelerator program.

    The SBIR and STTR programs do more than just provide grants 
and contracts. They enable and empower entrepreneurs to pursue 
innovative ideas that turn into inventions that, in turn, make 
peoples' lives easier and more fruitful. These programs change 
the world for the better through next generation science and 
technology development. These programs touch and affect the 
research of hundreds of thousands of STEM educated 
professionals across the country. They also stimulate the 
demand for people considering academic careers in STEM. This is 
a critical pillar of our national competitiveness.

    SBIR and STTR are programs that pay for themselves many 
times over. Another example is IDEC Pharmaceuticals, now known 
as Biogen Idec, which used early SBIR funding to develop 
breakthroughs in cancer drugs, such as Rituxan, the therapy of 
choice for Non-Hodgkins Lymphoma patients. Biogen's drugs have 
saved and improved the lives of millions of people around the 
world. To me SBIR is personal, my father, Jose, has been in 
remission for 6 years and literally owes his life to Rituxan.

    This one company alone is worth $76 billion dollars today. 
The wealth created by this one SBIR recipient is double what 
American taxpayers have invested in these programs over the 
last three decades.

    There are many more examples. We've helped seed innovation-
driven companies like Qualcomm and Symantec in their infancy. 
About 25 percent of R&D Magazine's top 100 innovations came 
from companies that received an SBIR grant. The development of 
3D printing and additive manufacturing are attributable to SBIR 
financing from NSF in 1994. These programs are responsible for 
truly impressive companies and industries.

    The 11 agencies that participate in SBIR and STTR programs 
have awarded over 145,000 grants totaling about $38 billion 
dollars to America's small businesses, over the programs 
history. In 2012, the SBIR and STTR programs provided over $2-
1/2 billion dollars directly into the hands of small businesses 
nationwide. Nearly a quarter of that money was awarded to 
women-owned, minority-owned, or HUBZone located small 
businesses.

    Thanks to this committee, the SBIR and STTR programs were 
reauthorized. The reauthorization of the programs enabled 
several important changes including:

           allowance of majority ownership by multiple 
        investing firms;

           funding for outreach, commercialization, 
        better program management, and prevention of fraud/
        waste/abuse;

           the introduction of performance benchmarks; 
        and

           significant streamlining of the award 
        process.

    The SBA's role, in both the SBIR and STTR programs, is to 
provide programmatic and policy oversight, SBA works closely 
with agency program managers and external stakeholders to 
ensure that the intent of Congress is carried out in the 
operation of the programs. We have taken the lead to hold 
regular meetings to ensure timely implementation of the 
reauthorization provisions and have updated the SBIR and STTR 
policy directives to guide those changes. While there is one 
SBIR program, the agencies operate it 11 different ways so as 
to maximize technology innovation in the areas of the agency's 
mission directive and goals. The same goes for the five 
affiliated STTR programs.

    The SBA established five working groups to implement the 
directives in the reauthorization and to support the White 
House's Lab-to-Market Commercialization agenda. Each of the 
working groups is co-chaired by a mix of agency program 
managers and SBA. The five groups are:

          (1) the commercialization group,

          (2) the databases and interagency exchange of 
        information group,

          (3) the award efficiency and efficacy group,

          (4) the outreach and communications group, and

          (5) the asset mapping group.

    To maximize the commercialization and worth of our 
investments, SBA will be launching a new commercialization 
database. This will allow the private sector to easily search 
SBIR and STTR funded research and increase the opportunities to 
invest in small businesses.

    These groups have made the SBIR and STTR programs better 
for the American entrepreneur and small business owner. They 
uncover and deploy best practices across the agencies, an 
example of which is the expansion of NSF's Innovation Corps 
Teams, known as I-Corps, to NIH.

    The General Accountability Office (GAO) conducts annual 
reviews of these two programs. On the recommendation of GAO, 
SBA has updated its Policy Directives to clarify spending 
requirements and has ongoing discussions with agency program 
managers on the requirement for timely submission and the 
methodology for extramural budget calculations. We work 
diligently to raise awareness about these important programs. 
We have spoken at conferences, partnered with our colleagues in 
SBA's Office of Entrepreneurial Development and are working 
with the National Council of Entrepreneurial Tech Transfer and 
the Small Business Technology Council. In June, SBA and the 11 
agencies hosted the annual SBIR and STTR National Conference at 
the National Harbor. It was a widely attended event and an 
overwhelming success, with participants who joined in 
workshops, panels, and exhibitions that showcased the energy of 
our dynamic small innovative technology companies.

    Delegations from around the world (Finland, Japan, Italy, 
Ukraine, Germany, Great Britain, India, etc.) visit our office 
regularly to learn about these world-class innovation programs. 
These programs make up the largest seed investing pool on the 
globe. While we are still the undisputed world leader in 
innovation, we are not alone and many countries are making 
serious commitments to their own innovation efforts. Today, 
China is investing billions of dollars and thousands of 
engineers in its space program. We need to continue to invest 
in our future as others catch up so that we may be able to 
maintain our leadership for the 21st Century.

    To maximize the commercialization and worth of our 
investments, SBA will be launching a new commercialization 
database. This will allow the private sector to easily search 
SBIR and STTR funded research and increase the opportunities to 
invest in small businesses.

    Allow me to close with another success story. iRobot is 
another amazing success story, creator of the Roomba vacuum 
cleaner which has become a household name. This company earned 
over $10M in SBIR funding from DOD. iRobot pivoted its military 
designed technologies towards mainstream consumer needs. This 
is a truly remarkable example of an entrepreneur spotting a 
dual-use of a technology originally developed for DOD.

    In FY 2013, iRobot generated over $487M in revenue and 
employed over 500 people. This is a truly inspiring example of 
an entrepreneur enabling multiple uses of a technology 
developed for DOD.

    The SBIR and STTR program are foundational components of 
America's economic growth and are keys to progressing to the 
next generation of science and technology development. Job 
creation is a national goal. Job creation plus innovative 
research leads to international competitiveness.

    As Associate Administrator for SBA's Office of Investment 
and Innovation, I will continue to work closely with our 
agencies to ensure the SBIR and STTR programs are highly 
prioritized, I will hold agencies responsible for the 
allocations required by statute, and I will continue to work 
with you to improve these programs. They are true gems, and we 
will make sure our small businesses know about these 
opportunities.

[GRAPHIC] [TIFF OMITTED] 

                          Testimony of

                        Mr. Andre Gudger

          Director, Office of Small Business Programs

    Office of the Under Secretary of Defense (Acquisition, 
                    Technology & Logistics)

               House Committee on Small Business

           Review of the Department of Defense (DoD)

  Small Business Innovation Research (SBIR) Program and Small 

                      Business Technology

     Transfer (STTR) Program Implementation of P.L. 112-81

                         July 23, 2014
    Thank you for the opportunity to testify on the Department 
of Defense Small Business Innovation Research (SBIR) program 
and the Small Business Technology Transfer (STTR) program. I 
welcome this opportunity to provide a perspective on how the 
changes made by Division E of P.L. 112-81, the SBIR/STTR 
Reauthorization Act of 2011, have been implemented and managed 
within the Department. The programs are tools for the 
Department of Defense (DoD) to seed innovation in our 
industrial base, and, in so doing, develop leading-edge 
technologies with the potential to meet warfighter needs, today 
and in the future. Now, more than ever, we need to leverage the 
responsiveness, efficiency, capability, and technological 
innovation our nation's small businesses provide.

    One of our central obligations as public officials is to 
ensure that we are using taxpayer dollars as productively and 
efficiently as possible. From that perspective, today I will 
provide an overview of the SBIR and STTR programs, steps taken 
to comply with the most recent authorization of the program, 
and the overall health of the program.

    SBIR and STTR at DoD

    The Office of Small Business Programs (OSBP) provides 
oversight to the DoD SBIR/STTR program which currently has 
thirteen participating DoD Components comprising of the 
Military Departments, Defense Agencies, and other Defense 
Activity programs.

    Thirteen DoD Components participate in our SBIR and STTR 
programs, including the Military Departments and several 
Defense Agencies. Each Component manages its portion of the 
overall program to be responsive to specific mission and 
technology research and development needs while supporting 
overarching Department science and technology requirements. In 
terms of budget, the Department's program represents over 50 
percent of the total federal SBIR budget, which exceeds two 
billion dollars.

    The SBIR and STTR program fund a significant amount of 
research and development in any given year. In Fiscal Year 
2013, over 9,676 Phase I and approximately 1,500 Phase II 
proposals were received, which resulted in over 1,500 Phase I 
and 950 Phase II contract awards. Of those awards, over 450 
went to universities.

    The SBIR and STTR programs are important for small 
businesses and the Department. The results of our 
commercialization efforts indicate that for every dollar 
invested in a small technology firm through the SBIR and STTR 
programs, two dollars of Phase III funding are invested in 
these firms for follow on work. Phase III dollars and 
commercialization success stories are self-reported through the 
OSBP Company Commercialization Report (CCR) system database.

    DoD Implementation of the SBIR/STTR Reauthorization

    On December 31, 2011, the President signed into law the 
National Defense Reauthorization Act of Fiscal Year 2012, which 
included the SBIR/STTR Reauthorization Act of 2011, extending 
the programs through September 30, 2017. The SBIR/STTR 
Reauthorization Act includes many changes and pilot programs 
aimed at enhancing the SBIR and STTR programs, targeted to 
strengthen the role of innovative small business concerns in 
Federally-funded research and development. Implementation of 
these changes was planned and executed in the areas of 
outreach, commercialization, streamlining and simplification, 
reporting, and compliance.

    The Department uses multiple outreach methods to increase 
the understanding of the SBIR and STTR programs and encourage 
participation by small technology firms, particularly 
underserved firms such as women-owned small businesses, 
veteran-owned small businesses, service-disabled veteran-owned 
small businesses, small disadvantaged businesses, small 
business located in historically underutilized business zones, 
and firms from underrepresented states \1\. In addition to 
briefings and one-on-one meetings at several national level 
conferences, the Department has provided tailored briefings, 
either at conferences or through webinars, for small technology 
firms in more than half of the 27 underrepresented states as 
identified by the Small Business Administration (SBA). Regular 
updates on upcoming events, outreach, and program information 
reach an even wider audience through the DoD SBIR/STTR 
listserv, which has more than 12,000 subscribers, and social 
media interaction through Twitter and Facebook.
---------------------------------------------------------------------------
    \1\ ``The 27 states (AK, AR, DC, DE, HI, IA, ID, KS, KY, LA, ME, 
MO, MS, MT, ND, NE, NV, OK, PR, RI, SC, SD, TN, UT, VT, WV, WY) with 
the lowest success in the SBIR program...'' Small Business 
Administration, The Small Business Innovation Research (SBIR) & Small 
Business Technology Transfer (STTR) Program Interagency Policy 
Committee Report - SBIR Outreach (draft), May 2014, 8

    OSBP has worked with DoD leadership to establish, develop, 
and infuse SBIR/STTR objectives into the Department's normal 
business procedures and processes. We have established working 
groups, updated DoD policies, created incentives for 
acquisition program managers, and implemented mechanisms for 
collecting and tracking data. The following highlight some of 
---------------------------------------------------------------------------
our efforts:

           The establishment of the DoD 
        Commercialization Working Group (CWG), comprising of 
        government experts in SBIR commercialization and led by 
        the OSBP ``Program Executive Office (PEO) SBIR/STTR,'' 
        to standardize transition planning tools and processes 
        across the Department focused on increasing the 
        transition rate of SBIR/STTR-developed technologies 
        into programs of record (PoR) and fielded systems.

           The CWG established formal definitions for 
        commonly misunderstood, key commercialization terms 
        such as ``transition'' and ``Phase III work''.

           The CWG provides direct support to 
        acquisition PM's in identifying and transitioning SBIR/
        STTR-developed technologies into PoR or fielded 
        systems.

                   As an example, PEO SBIR/STTR 
                Commercialization is currently working closely 
                with PMs from the Armored Multi-Purpose Vehicle 
                (AMPV) program, the U.S. Army's largest combat 
                vehicle program, to match program capability 
                needs and recently developed technologies under 
                the SBIR/STTR program. The PEO SBIR/STTR 
                manager has participated in the AMPV's Defense 
                Acquisition Board (DAB) meetings to provide 
                direct input into their acquisition strategy.

           Inserted into Interim DoD Instruction 
        5000.02, ``Operation of the Defense Acquisition 
        System,'' requirements for acquisition PMs to establish 
        goals and incentives that increase transition of SBIR/
        STTR-developed technologies into PoRs and fielded 
        systems.

        [GRAPHIC] [TIFF OMITTED] 
        
    Additional clarification for SBIR/STTR requirements will be 
inserted into the final DoD Instruction 5000.02:

           Program managers will establish goals for 
        applying SBIR and STTR technologies in programs of 
        record and incentivize primes to meet those goals.

           For contracts with a value at or above $100 
        million, PMs will establish goals for the transition of 
        Phase III technologies in subcontracting plans and 
        require primes to report the number and dollar amount 
        of Phase III SBIR or STTR contracts.

    OSBP, DoD leadership, and SBA collaborated on data 
collection and reporting requirements:

           A data collection gap analysis was conducted 
        to ensure the required fields were incorporated into 
        the annual reports to Congress. This will ensure data 
        from all thirteen participating DoD Components is 
        collected and consolidated in a timely and efficient 
        manner.

           The Department created standardized 
        templates and documented process timelines for all 
        reporting requirements. This has resulted in complete, 
        accurate, and on-time reports.

    All new policies and procedures have been documented and 
communicated to the relevant SBIR/STTR stakeholders through our 
annual DoD SBIR/STTR Training Workshop held in June 2014.

    In Conclusion

    The overall health of the DoD SBIR/STTR Programs has shown 
tremendous improvement. Process timelines, both internally and 
with small businesses, have been reduced, payments to small 
businesses have been accelerated, and targeted outreach has 
resulted in a small but encouraging increase in proposal 
submissions from underrepresented states. Department-wide 
knowledge and collaboration has increased through workings 
groups, our annual training workshop, and professional 
workforce development initiatives. Also, implementation of 
SBIR/STTR policies has increased direct participation in 
transition activities with PoR. The DoD SBIR/STTR program 
sparks innovation and develops successful, leading-edge 
technologies to support the warfighter. It is critical that we 
continue to leverage the robust potential available in our 
nation's small businesses.

    Once again, I appreciate this opportunity to testify on 
behalf of the DoD SBIR/STTR program.

[GRAPHIC] [TIFF OMITTED] 

    Good afternoon, Chairman Graves, Ranking Member Velazquez 
and Members of the Committee. My name is Dr. Matthew Portnoy 
and I am the Director for the Division of Special Programs 
within the Office of the Director's Office of Extramural 
Research at the National Institutes of Health (NIH), and the 
Coordinator for the SBIR and STTR programs NIH. Thank you for 
the opportunity to discuss the Small Business Innovation 
Research (SBIR) and Small Business Technology Transfer (STTR) 
programs at the NIH, and the role they play in stimulating 
innovation and our economy. I would like to note that my 
remarks will primarily focus on NIH because our agency 
represents 98 percent of the Department's programs, however my 
office coordinates closely with the Centers for Disease and 
Control and Prevention, the Food and Drug Administration and 
the Administration for Children and Families, our sister 
agencies that also fund SBIR and STTR programs. Among the 11 
Federal departments and agencies that participate in these 
programs, the NIH is one of the largest funders of this 
program, and the largest Federal supporter of biomedical 
research. The SBIR/STTR programs continue to be critical to 
feeding the innovation pipeline that promises to deliver the 
medical advances of tomorrow and have complemented NIH's 
mission to advance science while bringing new health care 
solutions to the public.

    Importance of the SBIR/STTR Program at NIH: Igniting 
Imaginations and Spurring New Discoveries

    The NIH SBIR/STTR programs are ideally suited for creating 
research opportunities for U.S. small businesses to stimulate 
technological innovation. Part of a complex innovation 
ecosystem, these programs provide dedicated funding for U.S. 
small businesses to conduct early-stage research and 
development (R&D) to explore the feasibility of innovative 
ideas that may eventually result in products or services that 
will lead to better health for everyone. The NIH SBIR/STTR 
programs are one means by which NIH Institutes and Centers 
(ICs) accomplish their R&D objectives. A key feature that sets 
SBIR/STTR apart from other NIH programs is a focus on 
commercialization of the results of research. Thus, the 
programs serve to supplement the more basic and applied 
research programs of NIH.

    Types of research NIH supports under SBIR/STTR

    Examples of the types of research that NIH supports through 
the SBIR/STTR programs include, but are not limited to: drug 
discovery, drug and pharmaceutical development, medical 
devices, biosensors, nanotechnologies, proteomics, imaging, 
bioengineering, behavioral research, health services, and other 
technologies that enhance health, lengthen life, and reduce 
illness and disability. Researcher-initiated ideas are the 
cornerstone of the NIH research portfolio, including projects 
supported by the SBIR/STTR program. Thus, while we solicit 
projects on specific topics, we primarily encourage small 
businesses to propose their own innovative research ideas that 
are relevant to our mission as a way of tapping those closest 
to the market trends and needs to drive innovation.

    NIH SBIR/STTR Program Reauthorization Implementation 
Overview

    I am pleased to share with you today that the 
implementation of the many changes included in the SBIR/STTR 
Reauthorization Act of 2011 are completed or nearly completed 
at NIH. I will now provide you with a brief update on some of 
our work to date.

    SBIR/STTR Funding: In accordance with law, the NIH 
increased its set-aside for the SBIR and STTR programs to 2.8 
and 0.40 percent, respectively, of its extramural research and 
development budget in Fiscal Year (FY) 2014. Since the 
reauthorization, the overall budget for the programs has 
increased from $680 million in FY 2011 (pre-reauthorization) to 
the current FY 2014 minimum set-aside of $758 million. That is 
an increase of $78 million that are available to small 
businesses working in many different technology areas across 
the country. Throughout, NIH and DHHS continue to meet and 
exceed the required set-asides each year, as found by two 
recent GAO reports. At the same time, however, the number of 
SBIR/STTR applications was on a downward trend during FYs 2012 
and 2013. The FY 2013 SBIR award success rate, the percentage 
of reviewed grant applications that receive funding, the most 
recent year we have full data, for SBIR programs was 13 percent 
for Phase I and 33 percent for Phase II. The FY 2013 combined 
award success rate for the SBIR and STTR programs, all phases 
was at 16.3 percent.

    Increased Outreach Efforts: We have bolstered and 
diversified our outreach efforts to key stakeholders within the 
small business community. We are partnering and coordinating 
with the NIH Institutional Development Award (IDeA) program 
\1\, as required under the reauthorization, to reach 
underserved small businesses in IDeA states, increasing 
outreach to women-owned and small disadvantaged businesses, 
collaborating with more state-based economic development 
centers to deliver regular series of webinars educating 
entrepreneurs and small businesses new to the programs about 
the range of opportunities, and using social media to further 
engage small businesses. We have also done a tremendous amount 
of work to educate those impacted directly or indirectly from 
reauthorization changes through pre-submission webinars and 
large-scale messaging. Our data show that fully one-third of 
our applicants and awardees are new each year. Taken together, 
we believe we are reaching more future applicants and have more 
effective outreach based on the positive feedback we receive 
following each outreach event.
---------------------------------------------------------------------------
    \1\ The Institutional Development Award (IDeA) program broadens the 
geographic distribution of NIH funding for biomedical and behavioral 
research. See more at: http://www.nigms.nih.gov/Training/IDeA/Pages/
default.aspx.

    Reporting: The reauthorization also called for a number of 
new reporting requirements. During the past two years, our team 
held weekly meetings with numerous business units both inside 
and outside NIH including Small Business Administration (SBA), 
and stakeholders. From these meetings, we developed policies 
and processes to implement the reporting requirements of the 
reauthorization. This required making changes to a deeply 
integrated and complex NIH system that includes almost two 
hundred other funding mechanisms, and the recording and 
monitoring of information on tens of thousands of new awards 
annually. Thus you can imagine that any change, no matter how 
small, is far reaching and takes time to implement correctly 
---------------------------------------------------------------------------
and appropriately.

    SBIR Direct Phase II Pilot and Switching Between Programs 
\2\: These two programmatic changes in particular represented a 
substantial effort on our part. This past February, we publish 
a new SBIR Direct Phase II Pilot program funding opportunity 
announcement, allowing for the first time companies that have 
established scientific feasibility with non-SBIR/STTR support 
to bypass the need to apply for Phase I and compete for Phase 
II funding directly. We received the first round of 
applications in April 2014 and expect to make first funding 
decisions in early FY 2015. We will continue to monitor closely 
the impact of this pilot on our overall success rates. Let me 
also make an important point about this pilot program. All 
Direct Phase II applications go through the exact same rigorous 
peer review process as all other SBIR/STTR applications. We 
have issued guidance to NIH scientific review officers, grants 
management officers, and others directly `touching' these 
applications and continue to work with other key stakeholders 
to ensure consistency in review and funding decision processes. 
To that end, we have made the necessary systems modifications 
to be able to track these applications separately from regular 
Phase II and Fast Track awards for reporting and analysis 
purposes. Similarly, our NIH system is now able to accept 
applications that switch programs from STTR to SBIR or vice 
versa at Phase II or Phase IIB (our second, sequential Phase 
II) of the program. And we continue to conduct rigorous 
outreach to inform our stakeholders of these new opportunities.
---------------------------------------------------------------------------
    \2\ The NIH Published the following Notice, NOT-OD-14-048, on 
February 5, 2014: NIH Implements Option for Applicants to Switch 
between the SBIR/STTR programs and the SBIR Direct to Phase II pilot of 
the SBIR/STTR Reauthorization Act of 2011--See more at: http://
grants.nih.gov/grants/guide/notice-files/NOT-OD-14-048.html

    12-Month Award Notification: Earlier this year we have 
started to notify all applicants of our intent to fund or not 
to fund their application in compliance with the new 
---------------------------------------------------------------------------
requirement to do so within twelve months.

    Venture-backed Small Businesses: In 2013, NIH exercised the 
authority to allow small businesses that are majority owned by 
multiple venture capital companies, hedge funds and private 
equity firms to apply for SBIR funding. We received the first 
applications in late FY 2013 and have made the first award in 
FY 2014. As in the previously mentioned changes, we worked 
closely with our information technology specialists to build in 
the capability to separately track the amount of funding going 
to these projects for reporting purposes. The current demand 
for this flexibility is low and we will be monitoring it 
closely over time.

    Shorten Time to Award: Perhaps the most dramatic change the 
NIH will be deploying soon is the requirement to reduce the 
time it takes to award funding to our small business 
applicants, an objective to which we are strongly committed. In 
the past year we have evaluated every detailed aspect of the 
life cycle of an application from the time it first arrives at 
NIH to the time it is awarded. We have made significant 
progress and are working to identify a new model that we 
believe will first and foremost benefit small businesses while 
at the same time maintaining the meritorious nature of our 
mandated two-tiered peer review process and meeting 
congressional expectations with full support of NIH Director 
Dr. Francis Collins.

    Administrative Funding Pilot: NIH is grateful for the 
financial and human resources support provided through the 
administrative fund pilot authority to enhance our management 
of the SBIR/STTR programs in new and better ways. These funds, 
while currently temporary, have been critical so far in a 
number of areas across the entire Department. In my immediate 
office, we have been able to hire a dedicated statistician 
focused on programmatic analyses and helping us meet existing 
and new reporting requirements. We also hired a communications 
specialist now largely overseeing our outreach efforts and 
expanding our social media capabilities, especially targeting 
IDeA states, women-owned and small disadvantaged businesses. 
NIH has begun proactively delivering a variety of webinars 
about the SBIR/STTR programs and drawing large numbers of 
attendees. Across the NIH, a number of ICs have used the funds 
to hire new program support staff to help with outreach, 
reporting, and work on improvements in their IT infrastructures 
for more efficient evaluation and management of their award 
portfolios. Our central SBIR office also issued a contract to 
help us redesign our NIH SBIR/STTR website; build in additional 
IT functionality into our Performance Outcomes and Data Systems 
(PODS) database that integrates all award data, success stories 
and other program data to now store the commercialization 
outcomes data that will be linking to the new SBA 
commercialization database; and create other centralized 
internal and external web-based tools for our program managers 
and the small business applicants and awardees. These funds 
have been used across NIH to increase outreach to underserved 
SBIR and STTR communities and to make improvements in our 
processes, all to the benefit of the small business community. 
These activities would not have been possible without the 
additional funds under the pilot.

    Program Flexibility is Key: One Size Does Not Fit All

    We are eager to see the effects of these many changes in 
the coming years and are continually focused on ways to address 
the needs of a diverse small business community navigating 
through a complex regulatory landscape, ever-changing private 
sector risk appetite and expectations, and continually rising 
cost of R&D. I would stress that NIH attributes the success and 
effectiveness of its programs to several factors, the most 
significant of which is a flexible and proactive approach that 
adapts to the changing nature of biomedical and behavioral 
research while maintaining a highly competitive and effective 
program.

    Examples of program flexibility include the ability to 
propose research projects in fields that have the most 
biomedical potential; the ability for an applicant to resubmit 
an unfunded application; and the ability to fund Phase I and 
Phase II awards at appropriate budgets that may exceed the 
established guidelines if the science proposed warrants such an 
exception to ensure successful outcomes. The NIH Phase II 
average award size in FY 2013 was $1.3 million for SBIR and 
$1.1 million for STTR. Biomedical research presents a unique 
set of challenges that require appropriate resources to 
commercialize the next set of discoveries.

    The NIH also has a suite of funding gap and technical 
assistance programs to help companies accelerate their projects 
forward into the next stage of R&D development and help them 
navigate the period between discovery and commercialization. 
Thus we help companies grow into sustainable businesses and 
leverage our investments in the long run.

    Conclusion

    In conclusion, I want to re-emphasize that flexibility is 
critical at a time when science is changing rapidly, becoming 
more complex, more interdisciplinary, and resource intensive. 
The SBIR program seeks to fund the most scientifically 
promising projects for which private and public funds are not 
traditionally available. Also, as a responsible steward of 
taxpayers' dollars, we strive to leverage NIH's portfolio 
across the biomedical enterprise. NIH SBIR projects are stories 
of discovery. One example is IntraLase Corporation from Irvine, 
California which developed the ultra-fast femtosecond (FS) 
laser for use in ophthalmology with more than $400,000 in NIH 
SBIR funding from the National Eye Institute. The company was 
acquired in 2007 for $877 million by Advanced Medical Optics, a 
division of Abbott, who developed it into today's LASIK 
technology and also uses it for advanced corneal surgery 
procedures. And we are committed to doing what we can to ensure 
that the small businesses we fund today may become the Marteks, 
Medlmmunes, and Abbotts of tomorrow. These companies all 
received SBIR funding in their early stages and went on to 
create thousands of new jobs, deliver products that are making 
real and significant impact on the lives and health of millions 
of people, and became household names across our country.

    This concludes my statement. Thank you for your attention 
and I look forward to answering any questions you may have.
    SBA responses to Questions for the Record: Rep. Velazquez 
July 23, 2014

    According to data on sbir.gov, from 1996 to 2013, Women-
owned firms' share of SBIR awards, by value, decreased from 9.8 
percent to 6.4 percent, a decline of 35 percent. In the same 
period, award shares for minority-owned firms fell from 8.3 
percent in [sic] to 2.6 percent, a decline of 70 percent. Why 
are women and minorities receiving a declining level of funding 
through these programs?

          a. Why aren't agencies able to be more successful in 
        this area?

    SBA response:

    The data on SBIR.gov that has been officially verified and 
cleared for public review is only the annual report data which 
is current through fiscal year (FY) 2011.

    The information and data currently available on SBIR.gov 
for FY2012 and 2013 is incomplete as it only shows data as 
inputted by the companies and has not yet been fully verified 
by SBA.

    In addition, SBA is currently collecting all of the 
historical information from the participating agencies to be 
uploaded into the new commercialization database which will 
provide a fully synchronized and more comprehensive view of 
SBIR/STTR commercialization data. This will provide the 
complete data for any analysis. SBA intends for the 
commercialization database to be available to the public by the 
end of this calendar year.

    We are in the process of getting clearance of the 2012 
Annual Report. This report shows a preliminary uptick in the 
number of awards made to Women and Minority-owned firms. SBA 
anticipates that the FY2012 data will soon be publicly 
available.

    SBA is currently coordinating initiatives at all 11 SBIR/
STTR participating agencies focusing on improving the outreach 
to and program participation of woman-owned small businesses 
and socially and economically disadvantaged small businesses.

    These efforts include our continued collaboration, 
internally, with SBA's Office of Entrepreneurial Development, 
Office of Women's Business Outreach, and National Women's 
Business Council. Additionally, we are now collaborating with 
other federal agency partners such as the US Department of 
Commerce's Office of Innovation & Entrepreneurship and US 
Patent & Trademark Office, US Agency for International 
Development's Global Development Lab, and The National 
Endowment for the Arts and also non-federal organizations such 
as National Society of Black Engineers, Society of Women 
Engineers, National Council of Entrepreneurial Tech Transfer, 
Puerto Rico Science Trust, XPrize Trust, and the American 
Association for the Advancement of Science-Lemelson Foundation 
Invention Ambassador program.

    2. California and Massachusetts together win 35 percent of 
awards through the SBIR program. Meanwhile, states like Oregon, 
New Hampshire, and Arizona receive less than 2 percent of 
awards. The top ten states receive almost 70 percent of awards. 
This pattern has been consistent for most of the programs' 
duration. Why aren't agencies making progress to geographically 
diversify the program?

    SBA response:

    The historical concentration of awards in certain states is 
partially due to the concentration of research institutions, 
universities, entrepreneurial activity, capital and 
infrastructure in those specific states. Those general 
components are needed for STEM-driven commercially viable 
innovation. This type of ecosystem is critical for the early-
stage, high risk technology being developed via the SBIR/STTR 
program; therefore, a concentration of awards is seen where 
those ecosystems are more robust.

    The SBIR/STTR programs have always limited their award 
selection to the following statutory criteria to: (1) 
scientific and technological merit and (2) potential for 
commercialization. To provide as much assistance as possible to 
states with fewer awards, SBA and the participating agencies 
are supporting outreach efforts in these states to help 
companies learn about the programs, prepare proposals, and 
access the relevant local business assistance infrastructure. A 
few examples of our recent outreach efforts include SBIR and 
STTR awareness events with STEM professionals and entrepreneurs 
in San Juan, Puerto Rico; Boise, Idaho; Sioux Falls, South 
Dakota; and Providence, Rhode Island.

    In addition, 8 Agencies have requested administrative 
funding to increase their marketing and outreach efforts to 
underserved states.

    3. According to data from sbir.gov, some companies have won 
hundreds of awards for over $100 million. In many instances, 
individual companies have won more in SBIR funding than many 
states_often times winning more than multiple states combined. 
We have heard that there are too few companies to apply or that 
certain agencies have developed strong relationships with 
certain companies. Why do you think that the same handful of 
companies are able to win the most awards in these program year 
after year?

          a. Is the ability of so few companies to receive so 
        many awards year after year good for the program? Why 
        or Why not?

    SBA response:

    Although the issue of multiple award winners has often been 
raised, and until reauthorization there was never a limit 
placed on the number of awards a firm may receive from the 
SBIR/STTR programs, we have now implemented the 
commercialization benchmarks on number of awards a firm may 
receive before being placed on suspension if they go over the 
limit for Phase 1 or Phase 2 award. In addition, the proposal 
review and award selection processes used are quality-driven, 
require a high level of integrity, and are successful at 
selecting high quality projects. Roughly about one-third of 
SBIR/STTR awards go to first-time winners. Some of the awardee 
firms that win multiple awards provide much needed competition 
within the Federal procurement market for high risk technology 
development.

    4. In your testimony, you stated that a quarter of the 
value of SBIR and STTR awards in 2012 went to women-owned, 
minority-owned, or HUBZone located small businesses. According 
to data on SBIR.gov, however, the programs awarded a dollar 
value equal to 7.4 percent to women-owned, minority-owned, and 
HUBZone businesses in 2012. Which data source is correct, your 
testimony or the sbir.gov website?

          a. Please explain this discrepancy between the data 
        in your testimony and the sbir.gov website.

    SBA response:

    The testimony provided was accurate and reflected 
information that is not currently available on SBIR.gov. The 
data that is publicly available on SBIR.gov only reflects 
annual report data that has been verified through FY 2011. SBA 
is currently collecting historical information from the 
agencies and also their award data for FY 2012 and FY 2013. 
Once this data is verified and analyzed it will be publicly 
released and SBIR.gov will be updated.

    5. Do you believe that there is enough high-quality small 
business research to justify the increases in the set-aside 
percentages contained in the 2011 reauthorization?

          a. Would an annually negotiated agency goal for small 
        business research_similar to contracting goals_be a 
        better mechanism?

    SBA response:

    Based on a study conducted by R&D Magazine \1\, over 25% of 
innovative R&D in the U.S. originates with small business 
concerns funded by the SBIR/STTR programs. There are sufficient 
numbers of small business research firms to justify the 
increases in the programs' set-aside percentages. Recently 
there have been a number of articles and Op-Eds \2\ indicating 
additional laudatory support for the program from notable 
technologies and entrepreneurs \3\.
---------------------------------------------------------------------------
    \1\ http://www.itif.org/files/
Where--do--innovations--come--
from.pdf
    \2\ http://www.entrepreneur.com/article/236008
    \3\ http://www.business2community.com/startups/countrys-best-kept-
secret-startup-seed-funding-0958250

    SBA does not believe an annually negotiated agency goal 
would serve as an effective mechanism to fund the SBIR and STTR 
programs. The historical success of these programs is, in no 
small part, due to the fact that agencies are required, by law, 
to use a specified minimum portion of their extramural 
research/research and development (R/R&D) budgets for these 
programs. Without this clear statutory requirement, it is 
unlikely that federal agencies would provide adequate support 
for small business-lead innovation on a consistent basis. 
Although the language in the statute is clear that the set-
aside percentages are minimums, most participating agencies 
treat them as target amounts that are rarely intentionally 
exceeded. And this tendency persists despite the notable 
---------------------------------------------------------------------------
success of the programs.

    The SBIR/STTR programs are designed to help seed-finance 
next generation technology development for federal government 
needs and be applicable for mainstream commercial needs, where 
possible. For example, 3D Printing is an industry which can be 
traced back to the U.S. National Science Foundation's SBIR 
program. Another example is the biotechnology industry. Many 
titans of that industry, such as Biogen (now Biogen IDEC 
Incorporated), Genentech (now part of F. Hoffman-La Roche AG 
and Amgen Incorporated) got their start in the 1980's and 
1990's with scientists in their employ receiving SBIR grants 
from the National Institutes of Health.

    6. SBA's budget submission for FY 2015 revealed that the 
agency was not requesting funds for FAST (on Table 5, page 20 
of their submission) a program that provides outreach to 
underserved areas. Why did SBA not seek funding for FAST?

          a. Given the low levels of women and minorities and 
        the geographic concentration, should FAST be expanded?

    SBA response:

    The program was initially authorized at $10 million per 
year; however it has never been funded at that level. Congress 
has funded the program with approximately $2M in appropriations 
annually. In FY2016, Budget submission SBA requested additional 
$2M in appropriations to support the program. The request for 
the additional funding is to provide more training to states to 
encourage more participation in the SBIR/STTR programs.

    7. You state in your testimony that SBA is developing a new 
commercialization database so the private sector can find 
research opportunities. How do you plan to disseminate this 
information to the private sector?

    SBA response:

    The new commercialization database will be used to evaluate 
the effectiveness of the SBIR and STTR programs. The sensitive 
elements of the data are collected from awardee firms and 
treated as proprietary. The proprietary data is not made public 
or shared with other companies, without the consent of the 
company. Non-confidential elements of the data will be publicly 
available on sbir.gov and can be used to showcase a particular 
SBIR/STTR awardee's award history in specific topical areas of 
interest by the awarding agency. We also plan to publish a 
running roster of success stories that will include but not be 
limited to Tibbetts Awards winners and SBIR/STTR Hall of Fame 
Inductees.

    8. While some job creation data does exist for SBIR/STTR, 
it is often the result of ad hoc reports produced by agencies. 
How difficult would it be for SBA to collect this information?

    SBA response:

    Some employment data is being collected from awardee firms 
as part of the SBA commercialization database. This data, 
however, does not correlate directly with job creation and 
surveying this type of data can be a costly laborious process 
that would impact small businesses that are already focused on 
competing in a globally competitive marketplace.
                        CHARRTS No.: HSBC-01-001


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                       Member: Congressman Graves


                    Witness: Director (OSBP) Gudger


                              Question: #1


                    Utilization of SBIR technologies


    Question: The Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics approved Department of 
Defense (DOD) Instruction 5000.02. This instruction requires 
Program Managers to set goals for utilization of Small Business 
Innovation Research (SBIR) technologies. How is your office 
measuring implementation of these goals?

    Answer: Initially, DoD is measuring implementation of goals 
by participating in select Program-of-Record (PoR) Overarching 
Integrated Product Team (OIPT) meetings and Defense Acquisition 
Board (DAB) Milestone reviews to monitor Acquisition Strategy 
documentation. A centralized database is being developed to 
provide a reporting mechanism to automate tracking of goals and 
incentives by program.

                        CHARRTS No.: HSBC-01-002


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                       Member: Congressman Graves


                    Witness: Director (OSBP) Gudger


                              Question: #2


        Transitioning SBIR technology into acquisition programs


    Question: In your written statement and comments at the 
hearing, you indicated that DOD has created mechanisms and 
incentives for acquisition program managers and prime 
contractors to increase SBIR technology transition into 
acquisition programs of record and fielded systems. Please 
provide the following information:

          a. What specific actions have been established in DOD 
        policy and procedures since the 2012 reauthorization of 
        SBIR to increase transition?

          b. What major defense acquisition programs of record 
        have implemented transition goals and incentives in 
        2013 and 2014?

          c. How are goals and incentives specified in these 
        programs?

          d. What incentives have these programs used?

    Answer:

          a. Specific goals and incentive requirements for 
        acquisition program managers have been inserted into 
        the Interim DoD Instruction 5000.02, ``Operation of the 
        Defense Acquisition System,'' (November 25, 2013). 
        Expanded guidance has been added to the corresponding 
        Defense Acquisition Guidbook (DAG). These resources 
        were recently briefed by senior subject matter experts 
        at our 2014 SBIR/STTR Annual Training Workshop, 
        attended byover 300 DoD acquisition, contracting and 
        technical personnel.

          b. All major defense acquisition programs of record 
        are required to comply with the DoDI 5000.02 for new 
        contracts. The requirement does not apply retroactively 
        to existing contracts.

          c. Goals and incentives are determined for individual 
        programs according to acquisition phase and market 
        research of technological opportunities.

          d. All incentives permitted by the DFARS will be 
        allowed. Incentives do not apply retroactively, but 
        will be included in new contracts.

                        CHARRTS No.: HSBC-01-003


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                       Member: Congressman Graves


                    Witness: Director (OSBP) Gudger


                              Question: #3


       Collection and tracking of SBIR technology transition data


    Question: You also indicated that a number of steps have 
been taken to improve the collection and tracking of SBIR 
technology transition data and that the department is meeting 
all reporting requirements. Please provide the following 
information:

          a. What are the specific actions DOD implemented to 
        improve transition data?

          b. What data system is being used to track transition 
        outcomes?

          c. How has the department addressed the data quality 
        issues GAO highlighted in its report GAO-14-96 (Dec. 
        2013)?

          d. What are the number and percentage of SBIR Phase 
        II projects that transitioned into acquisition programs 
        of record or fielded systems in 2013?

          e. Was this information included in the department's 
        annual reporting to SBA?

    Answer:

          a. The current reporting uses existing systems that 
        include the Company Commercial Report and information 
        obtained from individual Military Service and Component 
        databases. The specific actions DoD implemented to 
        improve transition data include an evaluation of 
        limitations in the current reporting systems. A concept 
        development for an entirely new system is ongoing. 
        Current systems are insufficient to collect all of the 
        data.

          b. The current system to track transition outcomes 
        include the Company Commercial Report and information 
        obtained from individual Military Department and other 
        DoD Component databases.

          c. The department has evaluated the limitations in 
        the current reporting systems, and is in concept 
        development of an entirely new system.

          d. OSBP currently requests Phase III data from SBIR 
        and STTR firms. This data is self-reported and captures 
        both DoD and non-DoD Phase III funding. Approximately 
        $1.1 billion of DoD Phase III funding was reporting in 
        FY 2013. This funding may come from laboratories and 
        other DoD funding sources, in addition to programs of 
        record and fielded systems. New reporting mechanisms to 
        capture the number and percentage of SBIR Phase II 
        projects that have transitioned into acquisition 
        programs of record or fielded systems are being 
        developed.

          e. Yes, DoD reports all information that is required 
        by SBA in the annual reports.

                        CHARRTS No.: HSBC-01-004


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                       Member: Congressman Graves


                    Witness: Director (OSBP) Gudger


                              Question: #4


               Implementation of certain legal provisions


    Question: During your oral testimony, you stated ``... the 
reauthorization which has 41 provisions, which 34 of those 
applied directly to the Department of Defense, we have 
successfully implemented all 34 of those as of today.'' Could 
you please elaborate and explain specifically how you have 
implemented the provisions of the law contained in Sections:

          a. 5106--Please outline each step taken to utilize 
        the additional funding provided in this section and 
        what additional activities your office and the 
        individual program managers have been able to exploit.

          b. 5108--Please outline the specific incentives 
        utilized by both the DOD and prime contractors to 
        increase transition of SBIR technology.

          c. 5122--Please state the goal that has been 
        established that lead to technology transition into 
        programs of record or fielded systems, and how that 
        goal has been implemented and disseminated to the DOD 
        SBIR program managers.

          d. 5125--Please outline what actions your office has 
        taken to ensure all program managers at the DOD have 
        received instruction on the clarified definition of 
        ``Phase III.''

          e. 5165--Please describe in detail how the DOD is 
        tracking commercialization success between all Phases 
        of the SBIR program, how the DOD is working with the 
        SBA to ensure accuracy with the commercialization 
        success regulations published by the SBA, and please 
        list any companies that have failed to meet proscribed 
        commercialization benchmarks.

    Answer:

          a. Section 5106, which amended 15 U.S.C. 638, 
        provided additional program flexibility, but no 
        additional funding to implement the pilot program. DoD 
        is conducting a pilot program with Defense Advanced 
        Research Projects Agency (DARPA) regarding direct Phase 
        II awards. Based on the initial DARPA pilot program 
        success and lessons learned, DoD OSBP is in the process 
        of opening up this pilot to other DoD Components. No 
        additional funds were required for implementation.

          b. Section 5108 does not mention incentives. 
        Regarding the SBIR incentives required by Section 5122, 
        all incentives permitted by the DFARS will be allowed. 
        Incentives do not apply retroactively, but will be 
        included in new contracts.

          c. The department-wide goal is to increase the use of 
        SBIR technologies in programs of record. The individual 
        program goals are determined according to acquisition 
        phase and market research of technological 
        opportunities. The goal has been communicated to the 
        DoD SBIR program managers in written guidance, monthly 
        meetings, and at the 2014 Annual SBIR/STTR Training 
        Workshop.

          d. DoD has updated the definition of ``Phase III'' on 
        all DoD SBIR websites, published information, program 
        documentation, and department wide training materials. 
        It was also briefed by DoD at the 2014 Annual SBIR/STTR 
        Training Workshop.

          e. DOD tracks commercialization success between all 
        Phases of the SBIR program through our DoD SBIR/STTR 
        Awards database and the Company Commercialization 
        Report (CCR) database. DoD works directly with SBA to 
        verify accuracy with the commercialization success 
        regulations published by the SBA each year. The 
        official list of companies that have failed to meet 
        prescribed commercialization benchmarks is maintained 
        at SBA.

                        CHARRTS No.: HSBC-01-005


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                              Question: #5


                          SBIR VC-backed firms


    Question: According to sbir.gov, the only agency currently 
permitting VC-backed firms to participate in their SBIR program 
is the NIH. Prior to the rule change in 2003, venture-backed 
firms participated in DOD's SBIR programs regularly. Given 
this, why hasn't DOD or any of their military agencies taken 
advantage of this provision allowing VC-backed companies to 
regain access to the DOD's SBIR program?

    Answer: VC-backed firms are currently authorized to 
participate in the DoD SBIR program. The only restriction is 
related to majority-owned venture capital operating companies 
(VCOC). DoD already receives more quality/competitive proposals 
from independently owned small businesses, both VC-backed and 
non VC-backed, than we can fund.

                        CHARRTS No.: HSBC-01-006


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                              Question: #6


             3 percent of SBIR funds used on administration


    Question: The 2011 reauthorization allows for up to 3 
percent of SBIR funds to be used for program management and 
administrative purposes, including outreach. Is DOD using the 
full 3 percent available? a. What has this additional funding 
allowed DOD to do that it would not have been able to do 
otherwise? b. Are you concerned that this takes money away from 
small business awards?

    Answer: No, we are not using the full 3 percent.

          a. The primary areas that additional funding has 
        allowed DoD to expand the most have been related to 
        commercialization and outreach. The extra funding has 
        allowed the DoD Components that did not already have 
        Technical Assistance Programs to establish them to help 
        increase commercialization efforts. The funding has 
        also been used to expand outreach activities and 
        efforts specifically to improve marketing SBIR/STTR 
        program information to underrepresented States and 
        categories.

          b. The administrative funding allows DoD to pursue 
        initiatives that directly benefit all small businesses 
        participating in the DoD SBIR/STTR Program. The support 
        services and tools being developed and implemented with 
        the administrative funding provide a greater value to 
        the small businesses in the areas of commercialization, 
        outreach, and streamlining than the small businesses 
        could leverage on their own. Any administrative funding 
        not used for this purpose is used to fund additional 
        SBIR projects.

                        CHARRTS No.: HSBC-01-007


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                              Question: #7


                         SBIR phase III awards


    Question: The 2011 reauthorization legislation focused 
greatly on commercialization. One provision requires agencies 
to issue Phase III awards relating to technology, including 
sole source awards, to the SBIR and STTR award recipients that 
developed the technology. Has your agency made any such awards?

    Answer: DoD has made nearly 3,000 Phase III awards, 
totaling nearly $4 billion in non-SBIR funding, since the 2011 
reauthorization.

                        CHARRTS No.: HSBC-01-008


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                              Question: #8


                 SBIR/STTR commercialization frequency


    Question: Companies that frequently win SBIR and STTR 
awards without commercializing their research have long been a 
concern. In terms of the application process, how does DOD view 
repeated failures by SBIR/STTR companies to commercialize their 
research?

    Answer: Commercialization is used as an evaluation factor 
for small business concerns that have previous DoD SBIR/STTR 
experience as noted in the latest DoD SBIR solicitation (14.3). 
Per Section 4(a)(3) of the SBA SBIR Policy Directive (updated 
February 24, 2014), small businesses that have an unacceptably 
low rates of transitioning from Phase I to Phase II and from 
Phase II to Phase III are restricted from receiving a Phase I 
awards for one year.

                        CHARRTS No.: HSBC-01-009


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                              Question: #9


                 SBIR and STTR in subcontracting plans


    Question: You testified that DOD is going to specifically 
include goals for SBIR and STTR technologies in subcontracting 
plans and require prime contractors report on this performance. 
In the event that a prime does not meet a goal, what will be 
the repercussions?

    Answer: Currently, DoD is proposing language for the 
Defense Federal Acquisition Regulation Supplement (DFARS) 
requiring SBIR and STTR goals in contracts greater than $100M. 
DoD intends to encourage contracting officers to include past 
performance in meeting SBIR and STTR goals as a source 
selection evaluation factor.

    When SBIR transition plans and goals are included in 
contractors' subcontracting plans, compliance will be monitored 
in accordance with FAR 19.706, which directs the contract 
administration office to track whether the contractor is 
meeting the subcontracting goals, whether the contractor is 
expending the efforts promised in the subcontracting plan, and, 
if the contractor is not meeting a goal, whether it is making a 
good faith effort to comply. The contract administration office 
also is instructed by FAR 19.706 to maintain documentation of 
the contractor's performance and compliance with subcontracting 
plans from previous contracts. Additionally, in Defense 
contracts, DFARS 219.706 directs the small business specialist 
to support the administrative contracting officer in evaluating 
a contractor's compliance with its subcontracting plan.

                        CHARRTS No.: HSBC-01-010


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                             Question: #10


                        Multiple phase II grants


    Question: The reauthorization ensured that federal agencies 
can continue to award multiple Phase II grants. While this may 
reduce the number of awards, it may increase commercialization. 
How is this affecting DOD's SBIR program?

    Answer: The limit of two Phase II awards that can be given 
for any particular topic can occasionally restrict very 
promising innovations from being widely utilized throughout the 
Department or by other Federal agencies.

                        CHARRTS No.: HSBC-01-011


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                             Question: #11


             Commercialization pilot program made permanent


    Question: The 2011 reauthorization made the 
commercialization pilot program at DOD permanent. This 
initiative allows DOD to use 1 percent of SBIR funds for 
commercialization purposes. Is this level sufficient to 
accomplish the commercialization objectives set out by the law?

    Answer: The 1 percent is being used, in addition to a 
portion of overall administrative funding, to meet the 
objectives of the program. It is not clear at this point 
whether these resources will be adequate.

                        CHARRTS No.: HSBC-01-012


                      Hearing Date: July 23, 2014


                            Committee: HSBC


                    Member: Congresswoman Velazquez


                    Witness: Director (OSBP) Gudger


                             Question: #12


                       Small business set-asides


    Question: Do you believe that there is enough high-quality 
small business research to justify the increases in the set-
aside percentages contained in the 2011 reauthorization? a. 
Would an annually negotiated agency goal for small business 
research--similar to contracting goals--be a better mechanism?

    Answer: Due to the number of high quality of SBIR and STTR 
proposals received, the process for determining annual SBIR/
STTR research areas is a very competitive process. The increase 
in the set-aside has allowed DoD to expand investments in 
research areas and to invest in additional DoD high, priority 
research areas.

          a. The current mechanism ensures full expenditures of 
        the SBIR/STTR funding set-aside are achieved. A 
        percentage of set-aside calculated across the top line 
        RDT&E budget would ensure a more accurate and timely 
        calculation of the minimum expenditures.
                        Statement for the Record


                           Rep. Steve Chabot


                   House Committee on Small Business


    ``Oversight of the Small Business Innovation Research and Small 
           Business Technology Transfer Programs - Part II''


                               7/23/2014


    I would like to thank Chairman Graves for holding this 
installment of the series of hearings on oversight of the Small 
Business Innovation Research (SBIR) and Small Business 
Technology Transfer (STTR) Programs. It is an incredibly 
important topic that impacts a lot of small businesses across 
the full spectrum of industries.

    Thank you to all panelists for testifying before the 
committee. My question is for Dr. Portnoy.

    Dr. Portnoy, thank you for testifying and thank you for 
your work at the NIH. It is well understood that the NIH plays 
a critical role in innovation, by collaborating with the 
private sector, to help advance therapies and technologies for 
the American people, and SBIR/STTR grants help stimulate that 
collaboration.

    Ohio, particularly my hometown of Cincinnati, is home to a 
number of fantastic research institutions, hospitals, and 
companies that are leading the way in the discovery and 
development of new therapies and technologies to treat all 
sorts of diseases.

    One particular disease that hits close to home is diabetes, 
which now impacts 885,000 Ohioans and costs $9.3 billion 
annually. Nationally, diabetes has an even more traumatic toll, 
impacting 29 million Americans and costing $245 billion each 
year. I understand that the NIH, with the support of the 
Special Diabetes Program, has invested in research 
institutions, including universities and small businesses, to 
encourage diabetes innovation.

    Could you share with the Committee some of the highlights 
of this work and how the NIH is prioritizing further private 
sector involvement in addressing diabetes?

                                 # # #

    Answer: The National Institutes of Health (NIH) has and 
will continue to partner with the private sector to advance 
innovative research on diabetes and its complications. For 
example, small businesses have received grants supported by the 
Special Diabetes Program for research to develop artificial 
pancreas technologies for people with type 1 diabetes. An 
artificial pancreas actually would link three technologies: a 
glucose-sensing component; an insulin delivery device, such as 
an insulin pump; and a computer that calculates the amount of 
insulin needed in response to the blood glucose level. This 
technology holds great promise to help people with type 1 
diabetes achieve recommended levels of blood glucose control 
associated with reduced risk of long-term complications, while 
preventing dangerously low blood glucose levels and alleviating 
patient burden. The National Institute of Diabetes and 
Digestive and Kidney Diseases (NIDDK), one of NIH's 27 
institutes and centers, has supported many aspects of research 
toward the development of an artificial pancreas, to a large 
extent through grants to small businesses, for at least two 
decades. For example, all the current continuous glucose 
monitoring technologies on the market benefitted from NIH 
support early in development. Those technologies are currently 
being used by patients, but are also a major milestone toward 
developing artificial pancreas systems.

    To accelerate progress in this field, the NIH has 
intensified its artificial pancreas research program with 
support from the Special Diabetes Program and annual NIH 
appropriations. Small businesses continue to be an important 
partner in this research endeavor. For example, Thermalin 
Diabetes, Inc., in your home state of Ohio, has received 
funding support from the Special Diabetes Program, as well as 
from annual NIH appropriations, to develop ultra-stable and 
ultra-rapid insulin formulations that could be used in long-
term implantable insulin pumps, which could potentially be part 
of an artificial pancreas system. In fact, with support from 
the Special Diabetes Program, Thermalin is working in 
collaboration with an academic research center and other small 
businesses to develop an implantable artificial pancreas 
system. In this effort, the small business partners develop 
novel glucose sensors, insulin pumps, and improved insulin 
formulations, while the academic center conducts pre-clinical 
and clinical studies. Thus, the research is leveraging the 
unique expertise of academic and private sector partners to 
advance artificial pancreas research. Later this fiscal year, 
the NIH expects to award additional small business grants 
toward developing artificial pancreas technologies to continue 
to build on the tremendous progress to date. In addition to 
research toward artificial pancreas technologies, the NIH has 
also awarded Special Diabetes Program-supported grants to small 
businesses to develop new therapeutic and diagnostic tools for 
diabetic complications, as well as new methods and technologies 
to identify individuals at risk of developing type 1 diabetes.

    Partnership with the private sector has also been 
critically important in the Special Diabetes Program-supported 
Type 1 Diabetes TrialNet, which is a major, multi-site, 
national clinical trials network testing strategies for type 1 
diabetes prevention and early treatment. TrialNet regional 
sites in Cincinnati, other parts of Ohio, and throughout the 
United States have screened over 100,000 people to identify 
those at risk of developing type 1 diabetes for enrollment in 
prevention trials. Improved screening tests developed through 
research conducted by small businesses, as described above, 
could help expand TrialNet's screening efforts and make 
screening less burdensome for families, including those in Ohio 
served by TrialNet sites. TrialNet also works closely with 
private partners, receiving support from the JDRF (formerly the 
Juvenile Diabetes Research Foundation) and the American 
Diabetes Association, and collaborates with industry on studies 
aimed at slowing disease4 progression in newly diagnosed 
patients. TrialNet's prevention efforts are particularly 
important because the Special Diabetes Program-supported SEARCH 
for Diabetes in Youth Study, which has a study in Cincinnati 
and is jointly led by NIH and CDC, has shown that rates of type 
1 diabetes are rising in American youth. Thus, research 
conducted in Cincinnati and throughout Ohio--through small 
businesses, public-private partnerships, and research 
institutions--is contributing to defining the extent of the 
diabetes problem in the United States, testing approaches to 
stem the disease, and developing innovative technologies to 
improve the lives of those with type 1 diabetes today.
    Questions for the Record from Ranking Member Nydia 
Velazquez for Dr. Portnoy

          1. SBA has approved a waiver for the NIH to exceed 
        the caps on award amounts for specific research topics. 
        What is NIH able to accomplish with these larger award 
        sizes?

          a. In the next reauthorization, do you believe that 
        the award amount should be increased further?

    Answer: In order to achieve its mission with its SBIR and 
STTR programs, the National Institutes of Health (NIH) funds 
projects level deemed appropriate for each specific research 
study. Biomedical and behavioral research is unique, as: (1) 
the cost of such research can often exceed the statutory cap, 
especially when compared with other research and development 
conducted under the SBIR and STTR programs; (2) projects need 
adequate funding to move products far enough along for 
regulatory filings, testing, and approval; and (3) projects 
need adequate funding to attract third-party funding and 
partnerships after the SBIR/STTR project period in order to 
move products along the commercialization path (those projects 
may ultimately take years and require significant investment).

    Underfunding a Phase I, II, or IIB SBIR/STTR project could 
potentially cause a project to fail and not reach the market.

    NIH attributes the success and effectiveness of its SBIR 
and STTR programs to several factors, the most significant of 
which is a flexible and proactive approach that adapts to the 
changing nature of biomedical and behavioral research while 
maintaining a highly competitive and effective program. 
Examples of program flexibility include the ability to propose 
research projects in fields that have the most biomedical 
potential and the ability to fund Phase I and Phase II awards 
at budgets that may exceed the established guidelines when the 
science proposed warrants such a deviation to produce 
successful outcomes. Between 2009 and 2012, approximately 25 
percent of NIH's SBIR funding was spent on the amount exceeding 
the hard cap established under the recent reauthorization. For 
example, in FY 2011 Avatar Medical, LLC, from Brooklyn, NY, 
received a two-year $600,000 Phase 1 SBIR award to develop an 
injectable HIV vaccine. In FY 2013, the company received a 
follow-on Phase 2 award for approximately $3,000,000 over three 
years to further the development of the vaccine. NIH continues 
to appreciate the flexibility afforded by Congress to tailor 
its SBIR and STTR programs to the needs of our agency to ensure 
NIH fulfills its mission and brings life-saving and life-
changing technologies to the market.

    2. For NIH, the reauthorization established a Phase Zero 
program to facilitate the proof-of-concept process and 
accelerate product development. In April, NIH announced that it 
would implement this through the creation of REACH Hubs. Do 
these REACH Hubs have any specific outreach targets or goals?

    Answer: The NIH Research Evaluation and Commercialization 
Hubs (REACH Hubs) will foster the development of therapeutics, 
preventatives, diagnostics, devices, and tools that address 
diseases within the NIH's mission in a manner consistent with 
business case development. Each HUB will assemble diverse 
experts in translational and proof of concept research who have 
the knowledge required to identify and develop promising early 
stage technologies in order to accelerate their translation 
into commercial technologies to enhance human health. Each Hub 
will focus on research projects that have progressed to a point 
where a potential commercial product can be envisioned, but 
additional research and development efforts are required to 
define the product and demonstrate feasibility as well as 
proof-of-concept.

    REACH Hubs will provide entrepreneurial educational 
opportunities to academic investigators about the design and 
conduct of product definition studies and the commercialization 
processes required for transitioning a technology out of 
academic labs to the private sector (either as startup small 
businesses or licensing opportunities). Cross-disciplinary 
career development, including from science, business, and 
regulatory perspectives, is highly encouraged to achieve the 
goal of exposing innovators to the myriad processes required to 
translate discoveries into marketable products. NIH encouraged 
the broader investigator community, including those from 
traditionally under-represented backgrounds, to access forums, 
seminars, workshops, and related activities to learn about this 
unique opportunity. NIH is especially interested in promoting 
participation of organizations from Institutional Development 
Award (IDeA) states in the REACH Hubs, and encouraged 
applications from eligible IDeA states as well as outreach from 
non-IDeA based applicants to existing IDeA programs.

    The REACH Hub funding solicitation RFA-OD-14-005 recently 
closed and applications are currently under review.\1\ NIH 
anticipates making the awards in March 2015.
---------------------------------------------------------------------------
    \1\ Complete details may be found at the solicitation posted at: 
http://grants.nih.gov/grants/guide/rfa-files/RFA-OD-14-005.html.

    3. The reauthorization included pilot authority for three 
agencies - NIH, DOD, and the Department of Education - to make 
Phase 2 awards to companies that did not receive Phase 1 
awards. How will this initiative affect the composition of 
---------------------------------------------------------------------------
NIH's SBIR program?

    Answer: NIH recently implemented the SBIR ``Direct to Phase 
II'' pilot when it published in February 2014 PAR-14-088 SBIR 
Direct to Phase II funding opportunity program announcement, a 
three-year pilot with three receipt dates per year.\2\ NIH is 
currently reviewing the first applications, which were 
submitted in April 2014, with possible awards to be made in FY 
2015. At this time, it is too early to know how awards made 
under this provision will affect the composition of the NIH 
SBIR program. The NIH SBIR/STTR program office will track and 
monitor the effect of this pilot on the SBIR program over time.
---------------------------------------------------------------------------
    \2\ See http://grants.nih.gov/grants/guide/pa-files/PAR-14-
088.html.

    4. The set-aside at NIH increased by $78 million this year, 
but the number of applications was on a downward trend. Do you 
believe that this lack of competition will reduce the quality 
---------------------------------------------------------------------------
of work undertaken in SBIR and STTR?

          a. Was the set-aside percentage increased too much or 
        too quickly for agencies and small firms to adjust?

    Answer: The NIH SBIR/STTR set-asides have increased by $78 
million since the reauthorization went into effect. The number 
of applications does fluctuate from year to year historically. 
While the past two fiscal years have seen a downward trend in 
applications with an overall decline of approximately 1,100 
applications, preliminarily, the FY 2014 application numbers 
are trending up.\3\ NIH does not believe there is or will be a 
lack of competition within the SBIR and STTR programs. The 
success rates for the programs typically range between 15-20 
percent for Phase I and 25-40 percent for Phase II, which is 
competitive and comparable to other agency success rates. The 
programs are and remain very competitive, and the quality of 
research conducted by SBIR and STTR firms remains high.
---------------------------------------------------------------------------
    \3\ NIH received FY 2011 6,415 SBIR and STTR applications, 5,847 
applications in FY 2012, and 5,290 applications in FY 2013

    5. Do you believe that there is enough high-quality small 
business research to justify the increases in the set-aside 
---------------------------------------------------------------------------
percentages contained in the 2011 reauthorization?

          a. Would an annually negotiated agency goal for small 
        business research - similar to contracting goals - be a 
        better mechanism?

    Answer: NIH does not believe there is or will be a lack of 
competition for the SBIR and STTR programs. These programs are 
and remain very competitive and the quality of research 
conducted by SBIR and STTR firms remains high. NIH supports the 
historical set-aside model as it allows for program stability 
and for program planning from year to year given that awards 
are multi-year.

    6. The reauthorization allowed VC-backed companies to be 
eligible for 25 percent of SBIR funding at NIH. While it is 
still very early in the process, do you believe that the 25 
percent limit is too high, too low, or just right?

    Answer: NIH agrees that it is every early in the 
implementation of the VC provision, where NIH may award up to 
25 percent of its SBIR funding to VC-backed companies. NIH 
implemented the ability for VC-backed companies to apply to the 
SBIR program in mid-FY 2013. The first awards were recently 
made to VC-backed companies. The NIH SBIR/STTR program office 
will track and monitor participation by VC-backed companies and 
its effect on the SBIR program over time.

    7. Under the reauthorization, agencies have to ``opt-in'' 
and justify their decision to allow VC backed small businesses 
to participate in their SBIR program. Is this becoming a 
roadblock to VC-backed participation in the program?

    Answer: No, this is not a roadblock to VC-backed small 
business participation in the SBIR program. The opt-in was an 
agency responsibility, which NIH completed in FY 2013.

    8. Given the changes from the 2011 reauthorization, why do 
you believe that VC-backed company participation in NIH's SBIR 
and STTR programs is so low?

    Answer: When NIH implemented the VC provision in mid FY 
2013, we employed a variety of means of informing the small 
business community about this new flexibility. This includes:

           Modifying all of our SBIR solicitations 
        issued after implementation of the revised VC 
        eligibility;

           Updating the NIH SBIR website and the 
        SBIR.gov website, via SBA, to indicate the 
        implementation;

           Notifying the small business community, 
        including SBIR advocates, state-level economic 
        development groups that support SBIR/STTR, and many 
        other relevant communities, through email about the new 
        flexibility through our listserv, which contains more 
        than 16,000 subscribers;

           Requesting NIH Institute and Center SBIR/
        STTR Program Managers to reach out to their communities 
        and constituencies regularly;

           Tweeting about the VC provision from our @ 
        NIHsbir Twitter handle that has more than 1,000 
        followers;

           Conducting Pre-Submission webinars to an 
        audience of more than 1,000 attendees and archived for 
        repeat viewing discussing this provision and other new 
        flexibilities implemented;

           Adding slides about the VC provision to all 
        NIH standard SBIR slides decks for all our webinar and 
        in person outreach events including dozens of events 
        per year across the country; and

           Discussing this provision at SBIR National 
        Conferences, NIH Annual SBIR/STTR Conferences, and at 
        the BIO convention among other conferences and outreach 
        activities.

    NIH agrees it is early in the implementation and recognizes 
that it takes time for new companies, which haven't 
participated before, to learn about the program, decide to 
apply, and prepare and submit SBIR applications. The NIH SBIR/
STTR program office will track and monitor participation by VC-
backed companies and its effect on the SBIR program over time.

    9. The 2011 reauthorization legislation focused greatly on 
commercialization. One provision requires agencies to issue 
Phase III awards relating to technology, including sole source 
awards, to the SBIR and STTR award recipients that developed 
the technology. Has your agency made any such awards?

    Answer: NIH does not fund or issue Phase III awards via the 
SBIR and STTR programs. NIH is not an acquisition agency, like 
the SBIR contracting agencies. Approximately 95 percent of the 
SBIR awards and 100 percent of the STTR awards are made in the 
form of grants-in-aid to small business concerns. The remaining 
approximately five percent of the SBIR awards are in the form 
of contracts. The technology funded by those contracts is 
rarely directly acquired by NIH. Beyond Phase I and II awards, 
NIH's intention is that these projects are supported in the 
private sector by venture capitalists, pharmaceutical, and 
biotechnology companies because of the significant amount of 
capital and development times necessary for clinical trials and 
federal regulatory approval. The overall goal of NIH's SBIR/
STTR program is to commercialize the biomedical technology in 
the open market as a means to enhance health, lengthen life, 
and reduce illness and disability.

                                 
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