[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
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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.
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\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
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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.
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\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
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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.
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\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
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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.