A recent Biotech Takes column covered how the political battle over making venture-backed biotech companies eligible for Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) program funding derailed passage of the SBIR reauthorization bill last year. Some of the political machinations that went into last year’s non-decision are becoming clear and may be resurrected again in the current congress,
A continuing resolution is needed very soon in order to extend the life of the SBIR/STTR program beyond March 20. But, the word from Washington insiders is that the House wants a very short continuing resolution (perhaps only a couple of months), while the Senate wants a longer continuation. The House wants the short time line so it can rush through a reauthorization bill with limited debate and amendments. Sadly, this is reminiscent of last year’s fiasco when the House Small Business Committee, chaired by Nydia Velázquez (D-NY), prevented any testimony from small business interests, which strongly opposed letting venture capital-backed biotechs apply for program funding. It appears that Ms Velázquez again wants to suspend committee rules in order to ram her favored reauthorization bill through the committee. Last year, the Senate drafted a compromise version of the SBIR/STTR reauthorization that was acceptable to both venture capital and small business interests, yet, for some reason, Ms Velázquez wants to return to the bill the House approved and that was strongly opposed by the small business lobby and that was not supported by the Senate.The House and Senate will most likely pass another continuing resolution but battle over its length.
Politics at HHS
In the recently passed American Recovery and Reinvestment Act of 2009, the National Institutes of Health (NIH) received a whopping infusion of $8.2 billion of stimulus money, on top of a 3.2 percent budget increase in the Omnibus Appropriations Act that President Obama just signed. Thus, the act’s munificence represents a 27 percent boost over institute’s base budget. But, it seems that the Department of Health and Human Services (HHS) and NIH do not want biotech companies to share in this windfall. The reinvestment act bill specifically directs the institute to exclude SBIR/STTR research from the stimulus money. Yet, neither the House nor the Senate recovery bills contained such exclusionary language, which means that it was inserted into the final bill by the House/Senate Conference Committee and was never voted on by either House. Furthermore, it recently was revealed that HHS resorted to a last-minute Machiavellian maneuver to get this exclusion inserted into the bill.
The chairwoman of the Senate Committee on Small Business and Entrepreneurship (SBE), Mary Landrieu (D-LA), and ranking minority member Olympia Snowe (R-ME), sent a very strongly worded letter to Charles Johnson, the acting secretary of HHS, to express their concern over the SBIR exclusion in NIH’s recovery money. The letter says that the SBE “…questions…the NIH’s and Department of Health and Human Services’ (HHS) commitment to small, high-tech firms and the success of the SBIR and STTR programs.” The Senators also reminded NIH that there remains a statutory obligation in the Small Business Act that requires NIH to allocate a total of 2.8 percent of its research funds to SBIR/STTR programs. So, it boils down to which contradictory legal obligation HHS and NIH will decide to follow.
The senators’ letter concludes with this admonishment and instruction, “…we respectfully request that HHS specifically consult us when making legislative recommendations that affect these programs that are squarely within our Committee’s jurisdiction.” Ouch!
HHS Antipathy to SBIR/STTR Funding
Over the past two congresses, NIH and HHS have been major opponents to yet another controversial SBIR proposal to increase the percent of SBIR/STTR allocations. This basically is a protectionist stand for academic research over “less pure” commercial oriented research. NIH doesn’t believe that there are enough “high quality” SBIR proposals to warrant increased allocations. The Small Business Technology Council (SBTC) obtained some of the figures and calculations used by NIH, and claims NIH is using fuzzy math.
This is an odd stance by NIH and HHS since a study by the National Research Council (NRC) found that the SBIR program, “…is sound in concept and effective in practice”; was “stimulating technological innovation”; “linking universities to the public and private markets”; “increasing private sector commercialization of innovations” at an “impressive” rate; and “providing widely distributed support for innovation activity.” The study also concluded that the SBIR/STTR program was a boon to research universities as it promotes commercial development of university-based technologies. So, one wonders why HHS opposes expanding the SBIR/STTR programs.
Senator Russ to the rescue?
Senator Russ Feingold (D-WI), citing the NRC report, recently championed expanding the SBIR program by introducing the “Strengthening Our Economy Through Small Business Innovation Act of 2009” (S. 177). In a statement in the Congressional Record, Feingold opined that, “…it is essential that our (economic recovery) efforts not just be short term fixes—they must not only aim to create jobs and investment opportunities in the short term, they must be part of strategic efforts to strengthen our Nation’s innovation capabilities and sustain long term economic development…. There is no better way to do this than by stimulating and supporting small business innovation,….”
Feingold’s bill has three key provisions: First it would reauthorize the SBIR/STTR programs for 14 years to provide greater funding continuity and certainty for applicants and awardees. It also proposes to increase agency allocations for SBIR from 2.5 percent to 10 percent of their research and development budgets. Similarly, STTR allocations would increase from the current 0.3 percent to 1 percent. SBIR award limits would also increase from $100,000 to $300,000 for phase I awards and from $750,000 to $2.2 million for phase II. Finally, it also sets funding priorities for energy innovation, water safety, domestic security and transportation. Too bad about that, NIH.
The bill, which currently has no co-sponsors, was referred to the Senate Committee on Small Business and Entrepreneurship.
A Phase III Bonanza?
Obviously, the whole idea behind the stimulus bill is to quickly infuse capital into the economy, but the federal agencies that are to spread the act’s largesse are constrained by Federal Acquisition Regulations that require, except under special circumstances, that federal government contracts be issued only after a “fair and open competition.” Of course it takes time and effort for each agency to draft and issue requests for proposals and then to collect and evaluate applications before new contracts and grants can be issued. Agency procurement officers would love to bypass the competition requirement and just issue contracts.
Well, there just might be a “special circumstances” solution that would allow them to do this. A recent article on the SBIR Coach blog, points out that Jere Glover, executive director of the Small Business Technology Council (SBTC), an arm of the National Small Business Association (NSBA), has raised a simple strategy to directly leverage SBIR Phase I and II awards directly into Phase III contracts without going through the usual competition process. It turns out that once you have a Phase I or II SBIR (or STTR) award, all subsequent government contracts (or grants) for work that “derives from, extends, or logically concludes” the work supported by the award are “sole source justified.” This means that if you currently have an SBIR or STTR grant that is related to a program or RFP at any Federal agency, you can call the procurement officer who’s responsible for issuing stimulus contracts for that program and claim that you have a “sole source justification” to do the work. If s/he agrees, then the contract can be immediately issued to you, styled as a Phase III SBIR, without the need for competition.Furthermore, it is not necessary to first have a Phase II award since all you need to do is make a case for “sole source justification.” This is a way to jump from a phase I SBIR directly to phase III. At lease one such Phase III contract was issued to a business that had a Department of Defense Phase I SBIR for some work that applied the same technology that the DOT sought.
Of course, you do need to have something of value to offer and there needs to be a match with agency needs and your capabilities. You can find information on Federal grants and contracts on the recovery.gov web site and in the stimulus bill itself.Additional information and updates on all of this will be placed on the on the SBTC website, but the most informative information will be found in the “Members Center” section, so you might consider joining the SBTC and help support its advocacy programs.
Recent columns by Steve Clark
- Steven S. Clark: SBIR (non)Reauthorization redux?
- Steven S. Clark: Pharma makes a pragmatic left turn in this election
- Steven S. Clark: Fallout from the bailout: Time for a bake sale at the National Institutes of Health?
- Steven S. Clark: Who’s your mama?
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