SBIR Gateway

SBIR Insider Newsletter
June 30, 2009 Edition



Dear SBIR Gateway Insider,

Stop the Presses! For our younger generation of readers, that saying originally referred to delaying the printing of a newspaper for late-breaking news.

The flurry of SBIR activity over the past couple of weeks saw story after story rapidly superceding themselves and I hoped for the dust to settle before visiting with you. Unfortunately a tornado of SBIR activity has arisen, some of which requires (optionally) your attention now, and some other NIH information that may shock you.

In this issue:

DISCLAIMER

The views expressed in the SBIR Insider are that of the author and/or content contributors. This publication is independent and does not represent the SBIR agencies, program managers, policy makers or Bernard Madoff.

House Small Business Committee (SBC) Tries To Push SBIR Bill Quickly To The Full House With Limited Or No Debate

The four House SBIR reauthorization bills we documented for you last issue have been rolled into one (H.R. 2965 see http://www.rules.house.gov/111/LegText/111_hr2965_txt.pdf ). It was quickly marked up and passed (22-0) by the House SBC. The House S&T committee held a markup on the bill that passed by voice vote (although technically still open to S&T for further consideration until July 7).

SBC chair Nydia Velazquez has now sent the bill to the Rules Committee (RC) and was hoping for a closed rule. The RC will decide which (if any) amendments are allowed to be voted on. You can monitor the Rules Committee work on the bill at http://rules.house.gov/announcement_details.aspx?NewsID=4347

Once again, Velazquez with the help of major Wall Street lobbyists have turned this SBIR small business reauthorization into a Wall Street vs Main Street battle, with the deck stacked on the side of the Wall Street special interests such as BIO and NVCA.

CASE IN POINT: The VC issue is contentious, divisive but deserving of full vetting on both sides of the issue. The House Small Business committee chaired by Nydia Velazquez, held three hearings, including one subcommittee hearing (aside from the markups). In these hearings, 12 of the total of 13 witnesses (not including SBIR program managers or SBA) were from the BIO/NVCA and pro majority VC ownership sector, and only one witness was invited from the other side of the issue, retaining the current size/ownership structure rule.

To take that a little further, 10 of the 13 witnesses were there on the subject of NIH/BIO related SBIR. Isn't that curious in the light of DoD being 50% of the entire SBIR program?

This Velazquez lead action is only for a 2 year reauthorization. You can't fully implement, let alone evaluate the programmatic changes in that time. The SBIR program would likely be in a constant reauthorization mode until the next one is passed!

There are other issues of importance, and some excellent changes offered in the bill but the VC issue and the reauthorization duration are two of the biggest points and roadblocks to a full congressional SBIR reauthorization.

THE VC ISSUE - From reader feedback, I find a minority, but nevertheless good number of my readers are for a VC compromise. Only a few are for full VC participation, and the largest number are for keeping eligibility "as is." The Senate was/is open to compromise and has compromised on the VC issue, while the House has not. Indeed the House SBC has turned their back on the other side.

REAUTHORIZATION DURATION - While I have had interesting responses from both sides of the VC issue, there has not been one response to try to justify a two year reauthorization! In fact, many people agreed that it was the House Democrats way to do re-election fundraising from the fat cats that are lobbying the VC issue. To be fair, the Republicans also receive a good deal of lobbyist money on the VC issue, that's why it looks "non-partisan."

THE BOTTOM LINE - If H.R. 2965 is passed "as is," the House SBC's disingenuous efforts on the two key issues listed above are likely to result in another "non-starter" as far as the Senate is concerned. With the two bodies being so far apart, the smart money will be on another CR, or perhaps no program at all if some in the NVCA get their way. BIO wants the SBIR program to continue and will likely be amenable to a compromise. NVCA who last year stated they would not support the SBIR program if they didn't get the VC change, has softened their tone publicly somewhat (perhaps open to a compromise) but behind the scenes we hear some voices that reflect last year's stance.

Markey To Offer Key Amendment To H.R. 2965

The SBIR Insider has learned that Congressman Edward Markey (D-MA) will be offering an amendment to H.R. 2965. Although the text of the amendment is not known at this time, it is expected that it will reflect the concerns of his many constituents including many small biotech firms opposed to changing the VC eligibility requirements for SBIR.

Markey, along with many other representatives, sent SBC chair Velazquez a letter urging the committee to retain current SBIR size standards. Not only were these pleas ignored, Velazquez refused to allow testimony from companies opposed to the VC change.

Last year Markey and Congresswoman Niki Tsongas sent a "Dear Colleague" letter in support of SBIR reauthorization but opposing last year's H.R. 5819's VC expansion language and the tripling of SBIR award $$$ (see http://www.zyn.com/sbir/insider/Markey-Tsongas08.htm ).

With over 3 decades of House experience, Markey knows that it will take reasonability in order to reach a compromise with the Senate and pass a good SBIR reauthorization bill. He will need your help to do this.

Those of you unhappy with the VC provision and duration of the reauthorization in H.R. 2965 are urged to call your Representative and ask them to support the Markey amendment. More information on the Markey process is available from the SBTC web site at www.sbtc.org Then click on "Support Markey's Actions on SBIR."

Things will happen quickly because all amendments must be filed with the rules committee by 10:00am on July 7, 2009. Velazquez wants a vote right away in order to avoid any backlash that may come from the SBIR community.

Additional Information On H.R. 2965

Obviously there is more to this bill than the VC eligibility issue and the 2 year extension. The bill contains some very good items as well as questionable ones. Here's a brief rundown on some of the most talked about issues.

CONCERNS:

a) SEC. 413. First Phase Required - Looks to be a sham to have a loophole for direct to phase II awards without having to have a phase I.

b) SEC. 302. Rural Preference - Gives a rural SBIR company award priority over another company, irrespective of technical merits.

c) SEC. 414. Involvement Of Chief Counsel For Advocacy - In essence strips the SBA Chief Counsel for Advocacy from the SBIR program, including access by small businesses to one of their most important, independent small business advocates. It also affects SBIR agencies' access to the Chief. Note: This office has been the enabler of significant SBIR projects and programs over the years such as the National Tibbetts Awards.

d) SEC. 408. Interagency Policy Committee - The SBA's Office of Technology (OT) was supposed to serve in this role, and is not even mentioned or allowed to participate in this activity. It's fair game to criticize the SBA's lack of effectiveness in their role, but with 8 years of budget cuts, reduced staff, and intentional neutering of the OT, the Senate's Bill goes a long way to remedy the SBA problem.

IMPROVEMENTS:

a) SEC. 304. Increased Partnerships Between SBIR Awardees And Prime Contractors, VCs and Large Business - Targeted for improved phase III results.

b) SEC. 401. Increased Number Of Research Topic Solicitations Annually And Shortened Period For Final Decisions On Applications - What's not to like here?

c) SEC. 404. Funding For Administrative, Oversight, And Contract Processing Costs - The agencies really need the help here, but the problem is this calls for an appropriation of $27.5M which may be difficult to obtain.

d) SEC. 405. Comptroller General Audit Of How Federal Agencies Calculate Extramural Research Budgets - This may seem unimportant to you, but it is possible, in fact probable that millions of $$$ have been diverted from SBIR/STTR by the manner in which an agency calculates its extramural R&D budget (a very complex project).

e) SEC. 407. Agency Databases To Support Technology Utilization - This should not be confused with SBA's Technet. This is a tool to market SBIR technologies both intra and extramural. In the DoD you see projects such as the Navy's Virtual Acquisition Showcase, the Air Force's SBIR/STTR Technology Mall, and the granddaddy, NASA's SBIR Mall. A cohesive database would be a great service to the various technology and Investment communities.

f) SEC. 411. Increased SBIR And STTR Award Levels - This is both a plus and minus. The increases are doubled but the House & Senate could compromise on an award amount that serves the program without severely dropping the number of awards.

Senator Cardin Holds Field Hearing On NIH/SBIR Exclusion In The Recovery Act (ARRA)

Senator Benjamin Cardin (D-MD), of the Senate Committee on Small Business and Entrepreneurship (SBE), chaired a field hearing, Monday, June 22, 2009 entitled "Missed Opportunities: The ARRA and the NIH/SBIR exclusion."

Senator Cardin and many others were "displeased" about NIH opting out of their SBIR/STTR allocation responsibilities from NIH's $10 billion in ARRA funding. This results in a projected loss of $229 million in SBIR/STTR grants. NIH took an unusual and some would say "sneaky" (dead of night) congressional tactic to change the ARRA bill's language, and some worry that these tactics could be used in the future to further degrade SBIR/STTR funding.

The hearing was held in NIH's own back yard of Rockville MD, yet NIH was a "no show" and their seat at the table remained vacant during the proceedings. Interestingly enough, Senator Cardin also invited House members, Congresswoman Donna Edwards (D-MD) who sits on the House Science & Technology Committee, and Congressman Chris Van Hollen (D-MD), who serves as Assistant to the Speaker of the House of Representatives, and is Chairman of the Democratic Congressional Campaign Committee.

Both Edwards and Van Hollen represent MD districts in close proximity to the field hearing location. Cardin, Edwards and Van Hollen have received many comments from their small business constituents including many that are small biotech companies in Maryland.

Few will argue the fact that the NIH is a very important entity, much needed, generally well respected and heavily supported by government. However, the NIH has historically had a "dark side" as applied to legislatively supporting SBIR and small business in the R&D community.

According to BIO witness Joe Hernandez of Innovative Biosensors, Inc., "The vast majority of NIH grants have historically been targeted toward hypothesis-driven basic research, not the development-oriented endeavors small biotechnology companies purse." ". almost all NIH research funds are awarded to non-business entities. For example, in 2006, NIH awarded 54,773 extramural grants, of which 79% were awarded to higher education institutions, 8% to research institutions and 8% to independent hospitals. Outside of the SBIR/STTR grant program, businesses (of all sizes and fields) received a total of 0.04% of the 2006 awards."

Another witness, Aprile L. Pilon, Ph.D., of Clarassance, Inc. stated: "The NIH basis for requesting the SBIR program exclusion from the stimulus and position that the SBIR program is underutilized and that poor quality applications, so-called "junk science", would receive funding under the SBIR/STTR program at the expense of higher quality academic applications is unfounded. Indeed, the reverse may be the case."

Dr. Pilon went on to say, "NIH review committees are comprised primarily of academics who, in my experience, generally resent the intrusion of small business into what they consider their domain (ie. NIH funding) and often do not consider translational R&D conducted by small businesses to be either innovative or meritorious. Given these prejudices, the NIH's position that small businesses are eligible to compete for non-SBIR grant awards under most of the other RFA's planned under the ARRA is disingenuous."

Jonathan Cohen of 20/20 GeneSystems, explained the differences between ARRA "shovel ready" projects that provide quick but in most cases temporarily employment, vs other projects that create new and sustainable employment. He stated, "Permanent job creation requires the creation of new products and technologies that can be made, sold, and improved upon for years after they are developed. This is primarily the domain of entrepreneurial companies. For example, the 20/20 BioCheck® product that I mentioned will have created 6-8 new jobs each year over a 20+ year timeframe with the support of only about $100,000 in government assistance.

Jere Glover, former SBA Chief Counsel for Advocacy, and current Executive Director for SBTC (and the only witness who has been involved with SBIR from the beginning) presented some ominous facts about NIH history concerning small R&D business. The SBTC's report is very detailed and beyond the scope of the SBIR Insider, but here are some points from that report:

  • "In the earliest 1978 Congressional studies of the percentage of Federal R&D dollars going to small businesses, we found that NIH had NO contracts with small businesses. In subsequent hearings they testified that there were NO small businesses that could satisfy their requirements. That was empirically proven wrong by an industry witness at the hearing, and has been abundantly proven wrong by the successful history of the SBIR program at NIH."

  • "There is a history of inaccurate information about SBIR by members of by NIH staff.

  • (A) In 1996, the NIH Director, Harold Varmus, MD, provided a clarification letter to Congress and to the Office of Advocacy at SBA correcting some misinformation provided by NIH staff to Congress and to Science Magazine. Dr. Varmus pointed out that the NIH scoring system for the SBIR program used a "100 to 500 Scale" for evaluation, versus a "100 to 300 Scale" for R01 programs, and that claims by NIH staff that SBIR projects had worse scores did not accurately reflect lower research quality (at NIH a higher score means a worse score). As Dr. Varmus stated, "Because of these scoring differences, the NIH resists making any side-by-side comparisons of the quality of a proposal based on the priority scores alone."

  • "(B) In recent discussions with the National Research Council staff preparing the Congressionally mandated National Academy of Sciences report on the SBIR program at NIH, the NIH staff again misstated the differences between SBIR (100 to 500) and R01 (100 to 300) scoring as reported in the NAS report."

  • "Misinformation on SBIR Competitiveness at NIH: Within the past few months, additional misinformation has been provided to Congress regarding the lack of competitiveness of the SBIR program. This misinformation was used to argue that the SBIR Program should not receive any of the billions of dollars in windfall funding that NIH received from the American Recovery and Reinvestment Act (ARRA)."

  • "SBTC performed an analysis of the comparative competitiveness of the SBIR and the R01 programs at NIH. That analysis shows that the SBIR program is from 1.7 to 3.6 times MORE competitive than NIH's comparable R01 program."

The SBTC's testimony contains abundant footnotes as to the sources of the data. Unfortunately the NIH declined to participate at this hearing so we have no statements from them. All of the witness testimony is available on the Senate SBE web site at: http://sbc.senate.gov/hearings/20090622.cfm

Thoughts For State SBIR Outreach Organizations

Both the House and Senate want state outreach restored. It's not known if it will come in the form of FAST, ROP or some other program. I highly suggest that if you believe you are the official outreach/support entity for your state, or want to be, get in touch with your governor's office to get that confirmation started because reauthorization could surprise us and come quickly.

There are some challenges and discrepancies to whatever outreach program may come out of SBIR. First is the challenge of funding, in which the House bill requires a $20M appropriation ($10M for each year). There is also the contradiction in the House bill that states the Governor must provide a written endorsement for their outreach entity, but preference will be given to states that utilize their SBTDC (an SBDC that is accredited for technology services).

There is some pushback on the SBDC issue because there are some really good ones and some really not-so-good ones. Since the state is putting up matching funds, shouldn't the Governor have something to say about who is best qualified to server their state?

The SBIR Gateway will be starting its State Support database soon. This will be comprised of official state sanctioned support entities as well as other state SBIR support vendors. It's all a part of our SBIR Gateway, non-commercial and no fee. Visitors (well over 7,000 daily) will be able to search for SBIR help within their state, region or nationally. Drop me a note if you are interested in being listed.

By the way, nobody serves the states better in Technology Based Economic Development (TBED) than does the State Science & Technology Institute (SSTI), and we are not replicating, nor could we replicate any of their excellent services. Their web site is www.ssti.org


There's likely to be significant SBIR action soon. We'll send you an update when that occurs. Let's hope for the best!

Sincerely,

Rick

Rick Shindell
SBIR Gateway
Zyn Systems
40 Alderwood Dr.
Sequim, WA 98382
360-681-4123
rick@zyn.com
www.zyn.com/sbir

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