Federal Research and Development: Contributions to and Results of
the Small Business Technology Transfer Program (21-JUN-01,	 
GAO-01-867T).							 
								 
Research and Development (R&D) is vital to the long-term health  
of industry and the national economy. In an effort to join the	 
ideas and resources of the research institutions--universities	 
and colleges, federal laboratories, and nonprofit research	 
centers--with the commercialization experience of small 	 
businesses, Congress authorized the Small Business Technology	 
Transfer (STTR) Pilot Program on 1992 and reauthorized it in	 
fiscal year 1997. The STTR program is closely modeled on the	 
Small Business Innovation Research (SBIR) Program. In preparation
for the review and potential reauthorization of the STTR program,
GAO obtained information from companies participating in the	 
program. The companies reported that both they and the research  
institutions made considerable contributions to the R&D, such as 
knowledge or expertise essential to the project. They also	 
created new partnerships that were effective in achieving	 
technical objectives. However, the companies reported that they  
played a substantially greater role than the research		 
institutions in originating the key ideas for the R&D. The	 
companies further reported a variety of results from the R&D,	 
including the sales of products, processes, or services; the	 
receipt of additional developmental funding beyond the original  
STTR funding; and patents granted. Finally, when asked for their 
view of the STTR program in relation to the SBIR program, about  
half of the companies expressed a preference for maintaining the 
current separation of the STTR and SBIR programs. This testimony 
summarized the June report, GAO-01-766R.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-867T					        
    ACCNO:   A01224						        
  TITLE:     Federal Research and Development: Contributions to and   
             Results of the Small Business Technology Transfer Program        
     DATE:   06/21/2001 
  SUBJECT:   Research and development				 
	     Small business					 
	     Technology transfer				 
	     Nonprofit organizations				 
	     Interagency relations				 
	     Small Business Innovation Research 		 
	     Program						 
								 
	     Small Business Technology Transfer Pilot		 
	     Program						 
								 
	     Small Business Technology Transfer 		 
	     Program						 
								 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-867T
     
FEDERAL RESEARCH AND DEVELOPMENT

Contributions to and Results of the Small Business Technology Transfer
Program Statement of Jim Wells, Director Natural Resources and Environment

United States General Accounting Office

GAO Testimony Before the Committee on Small Business,

U. S. Senate

For Release on Delivery Expected at 10: 00 a. m. Thursday, June 21, 2001

GAO- 01- 867T

GAO- 01- 867T Small Business Technology Transfer Program 1 Mr. Chairman and
Members of the Committee:

We are pleased to be here today to discuss our review of the Small Business
Technology Transfer (STTR) Program. 1 Research and development (R& D) is
vital to the long- term health of industry and the national economy. The
nation?s research institutions- universities and colleges, federal
laboratories, and nonprofit research centers- have impressive scientific
capacity but often have limited capability to translate research results
into marketable technologies. On the other hand, small businesses have a
wellearned reputation for bringing new ideas to the marketplace but often
lack the resources to carry out extensive R& D. In an effort to join the
ideas and resources of the research institutions with the commercialization
experience of small businesses, the Congress authorized the STTR Pilot
Program in 1992 and reauthorized it in fiscal year 1997. The STTR program is
closely modeled on the Small Business Innovation Research (SBIR) Program.
Since the first grants became available in 1994, the STTR program has
awarded approximately $300 million to small businesses and research
institutions to foster R& D. The program is scheduled to expire in September
2001.

In preparation for the review and potential reauthorization of the STTR
program, we obtained information from companies participating in the
program. In particular, we focused on the companies? views concerning (1)
the contributions made by the companies and the research institutions; (2)
the results of the R& D; and (3) options for the future relationship between
the STTR program and the SBIR program. In conducting our work, we surveyed
all 166 companies that had received STTR awards for further idea development
in fiscal years 1995 through 1997, the first 3 years when such awards were
made. We chose to analyze these early years because studies by experts on
technology development have concluded that 5 to 9 years are needed for a
company to progress from a concept to a commercial product. Our results are
based on responses from companies for 102 projects. We did not independently
verify the information that they provided.

1 Federal Research and Development: Contributions to and Results of the
Small Business Technology Transfer Program (GAO- 01- 766R, June 4, 2001).

GAO- 01- 867T Small Business Technology Transfer Program 2 In summary, the
companies reported that both they and the research institutions made

considerable contributions to the R& D, such as knowledge and/ or expertise
essential to the project. They also created new partnerships that were
effective in achieving technical objectives. However, the companies reported
that they played a substantially greater role than the research institutions
in originating the key ideas for the R& D. The companies further reported a
variety of results from the R& D, including the sales of products,
processes, or services; the receipt of additional developmental funding
beyond the original STTR funding; and patents granted. Finally, when asked
for their view of the STTR program in relation to the SBIR program, about
half of the companies expressed a preference for maintaining the current
separation of the STTR and SBIR programs.

Background

Five agencies participate in the STTR program: the Department of Defense,
the Department of Energy, the Department of Health and Human Services?
National Institutes of Health, the National Aeronautics and Space
Administration, and the National Science Foundation. Each agency manages its
own program, while the Small Business Administration plays a central
administrative role, issuing policy directives and annual reports for the
program. Each agency having an external R& D budget in excess of $1 billion
annually must set aside not less than 0.15 percent of that budget for the
program.

As you know, the 1992 legislation authorizing the program established a
three- phase structure for it. The first phase, not to exceed 1 year, is
designed to determine the scientific, technical, and commercial merit and
feasibility of a proposed idea. The second phase, which begins upon
successful completion of phase I and is not to exceed 2 years, is designed
to further develop the idea. The statute established $100,000 and $500,000
as the general funding limits for phases I and II, respectively. The third
phase, in general, is expected to result in commercialization or further
continuation of R& D. However, no STTR funding is provided for phase III.
Additional developmental funding for phase III can include private sector
funds and federal, non- STTR funds.

GAO- 01- 867T Small Business Technology Transfer Program 3 The STTR program
is closely modeled on the SBIR program, which was established in

1982. Their key difference is that under the STTR program, a small business
must partner with a nonprofit research institution. While this partnership
is permitted under the SBIR program, it is not mandatory. This special STTR
requirement reflects the fact that STTR was envisioned primarily as a
technology transfer program, in which promising concepts originating in the
nonprofit research community would move toward commercialization with the
assistance of small businesses.

Company Views on Contributions Made by the Companies and Research
Institutions

For the 102 projects that we reviewed, the companies reported that both they
and the research institutions contributed significantly to the R& D. For
example, the companies believed that both parties contributed significantly
to the knowledge and/ or expertise essential to the project. Furthermore,
they generally believed that both parties contributed significantly in
constructing or testing prototypes and in providing special equipment or
facilities.

The companies also reported that they and the research institutions were
effective in creating new partnerships to conduct the R& D. At the time that
they received the phase I award, 70 percent of the companies reported that
they did not have a formal working relationship with the research
institution. In addition, about half of the awards went to companies whose
employees had not previously worked with the specific researcher( s)
associated with the award. Moreover, the companies viewed the partnerships
favorably. For about 90 percent of the awards, the companies reported that
negotiations involving intellectual property rights and business
transactions were very fair or generally fair. Also, for about 90 percent of
the awards, the companies reported that the partnerships were very effective
or generally effective in achieving technical objectives.

However, the companies reported that they played a substantially greater
role than the research institutions in originating the key ideas for the R&
D. In their view, they

GAO- 01- 867T Small Business Technology Transfer Program 4 originated, or
were primarily responsible for originating, the key ideas in 72 percent of

the projects. The companies reported that research institutions originated,
or were primarily responsible for originating, the key ideas in 19 percent
of the projects and that both the companies and the research institutions
contributed equally to the key ideas in 5 percent of the projects.

Company- Reported R& D Results

The companies reported a variety of results from the R& D. Of the 69
projects active in phase III, 51 had sold a product, process, or service;
obtained additional developmental funding; or both. As of April 2001, the
companies reported about $132 million in total sales. About two- thirds of
the projects with reported sales achieved their first sale in 1999 or 2000
and projected about $900 million in additional sales by December 31, 2005.

Companies reported receiving about $53 million in additional developmental
funding. About $22 million (or about 41 percent) of this funding originated
from federal sources. The remaining $31 million was provided by companies
receiving the awards ($ 10 million); other private companies (about $12
million); venture capitalists and private investors (about $5 million); and
research institutions, state institutions, and others (about $4 million).

The companies also reported obtaining 41 patents for the core technologies
associated with their projects and the creation of 12 spin- off companies.
However, they also reported discontinuing 27 projects. When asked to
identify factors that had a great role in the decision to discontinue a
project, companies most frequently cited insufficient additional funding for
further technical development.

Companies with active projects in phase III also reported a variety of
ongoing discussions or finalized agreements with other companies in the
United States and in foreign countries. For example, for almost half of
these active projects, companies reported ongoing discussions for licensing
agreements, and for about one- fifth, companies reported finalized
agreements. Companies also reported that about 70

GAO- 01- 867T Small Business Technology Transfer Program 5 percent of their
active projects were associated with ongoing negotiations for joint

venture agreements and marketing and distribution agreements.

Company Views on Options for the Future Relationship Between the STTR and
SBIR Programs

Most of the companies responding to our survey expressed a preference for
maintaining the current separation of the STTR and SBIR programs. In our
survey, we asked the 97 companies who had also won SBIR awards to choose
among four options for the future of the STTR program in relation to the
SBIR program. The results were as follows: (1) companies associated with 47
percent of the STTR projects preferred preserving the current separation of
the STTR program from the SBIR program, (2) those associated with 33 percent
of the projects favored subsuming the STTR program under the SBIR program
with a portion of funds reserved for STTR- type partnerships, (3) companies
involved with 19 percent chose subsuming the STTR program under the SBIR
program with no funds reserved for STTR- type partnerships, and (4)
companies involved with 1 percent supported eliminating the program.

- - - - Mr. Chairman, this concludes my prepared statement. I would be happy
to respond to any questions you or the Members of the Committee may have.

GAO Contact and Staff Acknowledgments

For future contacts regarding this testimony, please call Jim Wells at (202)
512- 3841. Robin Nazzaro, Dennis Carroll, Vondalee Hunt, and Lynn Musser
also made key contributions to this testimony.

(360108)
*** End of document. ***