At a recent Technology Transfer Conference in San Francisco, Michael Weingarten, Director of the National Cancer Institutes' Small Business Innovation Research (SBIR) and Technology Transfer (STTR) Programs, discussed how biotech entrepreneurs can obtain grants for start-up and product development funding. Michael noted that these grants provide one of the largest sources for seed funding for biotech businesses in the US.
The SBIR/STTR Programs
The congressionally mandated SBIR and STTR programs make up about 3% of the NIH extra-mural budget—about $700 million a year. Over 85% of this money goes into the SBIR grants as opposed to the STTR grants. Of the 27 NIH institutes, 24 participate in the SBIR/STTR grants program. However, the National Cancer Institute (NCI) runs one of the larger programs. In 2012, the NCI provided approximately $110 million to about 400 small businesses last year.
The Three Phases
The three-phase SBIR program is designed to support product development, testing, and commercialization:
- Phase I consists of the initial application for acceptance into the program. If approved, it provides initial grant funding of about $150,000 to $225,000 for 6-months to a year of development research. This period is intended to determine the feasibility of the project. For example, a drug development enterprise might apply for studies to validate the target for a potential therapeutic or optimize a lead compound. Other companies might use the funding to generate data that proves the effectiveness of a new platform or assay. Essentially, grants for this phase emphasize a clear plan to develop novel and needed techniques or products.
- Phase II, which provides the main funding for technology development, is only available to companies that have successfully completed their Phase I feasibility project. Companies can obtain more than a million dollars over a two year period for Phase II, during which time they are expected to complete the work required to develop the technology into a marketable product or service. For many technologies, this may be require generating large data sets to validate or demonstrate the applicability of a technology, testing a drug's effectiveness in mice, or screening clinical samples to assess a test's effectiveness. In addition, for medical application, studies may be required for regulatory purposes, such as toxicology assessments. Success in obtaining Phase II grants really requires showing reasonable and technologically sound development milestones with a clear commercialization plan for the resulting products or technology platform.
- Phase III, while technically the last stage of the program, does not involve any funding. Recipients that reach this stage are expected to have secured non-SBIR private funding to pursue commercialization of their technology. In reality, though, for most innovative biotechnology research, Phase I and II provide only the barest resources required to develop and validate a new technology. Companies at the end of Phase II may find it difficult to obtain outside finding to continue commercialization of a new technology. As a result, the NCI SBIR program, in particular, had added a supplementary Phase II Bridge Grant to help companies cross the gap between Phase II development and Phase III commercialization.
Bridge across the Valley of Death
When trying to raise additional funds at the end of Phase II, companies often find that potential investors want to see certain types of data or expect particular studies completed before risking investment. For this reason, many technical proven technologies never get commercialized. The gap between development and commercialization is often referred to as the Valley of Death and is not limited to biotechnology.
To help companies get across this Valley, the NCI Phase II Bridge grant provides as much as $3 million toward commercial development. However, the funding comes with a specific requirement. The recipient company must secure additional private investment money that matches or exceeds the grant amounts. The logic seems to be that a company should be able to fund at least some funds to commercialize a tested technology that which has been approved and funded by NIH reviewers.
Since the Bridge Grant was implemented in 2009, the NCI has given $32.4 million to 13 applicants. The same applicants, though, also raised another $74 million from private sources. In other words, the 13 companies receiving the money also obtained over double the amount from other private sources, such as angel investors or venture funds. The matching funds requirement appears to be working quite well.
Of course, since the program is funded by US taxes, businesses must be US owned to apply. More than 50% of the company much be owned by US citizens, US business concerns, or US venture funds. The additional of venture fund owned companies is a recent change to the program's eligibility. Also, the principle investigator applying for the grant must be an employee of the company. Finally, since the program is targeted toward small business, only companies with less than 500 employees can apply.
The STTR program works a bit differently than the SBIR grants. The goal of the STTR program is to enable academic labs to transfer their technology to commercial entities so the principle investigator receiving and STTR grant can be an employee of an academic research institute. Unlike with the SBIR program where at least 67% of the work must be done by the company, with STTR grants, only 40% of the research work must be undertaken by the company. As much as 30% of the research plan can be done by an academic researcher.
Finding Out About SBIR/STTR Grant Opportunities
There are three main opportunities to obtain funding with the SBIR grant:
- Annually in January, the NIH releases the general SBIR/STTR grant application notice, otherwise known as the Omnibus Solicitation. This notice outlines the requirements and other particular instructions for applying for the current year's grants. There are three deadlines for applications related to the is Solicitation in April, August, and December.
- There are periodic targeted Grant Topics that provide specialized grant funding opportunities. These may occur at any time throughout the year.
- In August of each year, solicitations are made for defined projects as SBIR Contracts. In fact, the requirements a recipient needs to meet for these contracts are a bit more stringent than for SBIR grants. However, the awards are similar and they can be provide significant resources for technology that can deliver the requested specifications.
The Grant Funding Process
It typically takes about nine months for a researcher to find out whether a grant application is successful. Only about 15%-20% of SBIRs are granted.
Applications are first sent through a peer review process which typically takes about 3 months after the application deadline.
After peer review, applicants receive their comments and score for the grant. The score can range from 10-90, with the lower numbers having the highest ratings. Usually grants need to have scores in the mid-low 20 or better to win funding.
Following scoring, grants then return to the appropriate Program Manager who reviews the details and makes the funding recommendations to the Grants Advisory Council. This process can take 3-4 months. The Advisory Council then reviews and makes awards for individual grants based on their score.
Weingarten explained that the reviewers and Program Managers focus on five primary criteria when considering funding:
- Whether the technology represents and innovative solution to a significant clinical need?
- If the team applying appears to have the right strengths to develop the technology. Do the company's founder, principle investigator, and other individuals have the right experience and expertise?
- Does the technology or potential product have significant commercialization potential?
- What sort of feasibility data would be required to proceed with commercialization, and will the work proposed provide this data?
- Is the funding really required to develop this technology?
Weingarten advised that applicants to the program address these five criteria in their proposals to have best chance of success.
(Published: July 31, 2013)