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Jay Inslee: Washington's 1st Congressional District

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Technology

Inslee Fights to Restore Funding for Puget Sound Biotech Companies

16 June 2005

U.S. Rep. Jay Inslee reintroduced legislation today to change a recent interpretation that currently prevents many small, predominantly biotech companies from receiving Small Business Innovation Research (SBIR) grants. Inslee’s legislation (H.R. 2943) would restore the ability of small hi-tech and biotechnology companies with venture capital backing to compete for these important grants. This legislative solution will reflect Congress’ original intent when it established the SBIR program in 1982. The lead Republican sponsor of the legislation is U.S. Rep. Sam Graves (R-MO).

Said Inslee, “Puget Sound is an ideal location for creative and innovative biotech companies to turn their dreams into realities. SBIR grants are a critical conduit for transferring the research of emerging biotechs into commercial drugs and devices that benefit all Americans. Unfortunately, this new interpretation pulls the rug out from pioneering research by excluding many deserving small businesses that rely on both venture capital and government seed money to be successful. Our legislation will fix this problem and help Puget Sound inventors maintain their competitive edge in our increasingly global economy. Who knows what cures, medicines and life-saving technologies will remain on the drawing board if our local researchers do not receive necessary seed money during the genesis of their bold ideas?”

Said Jack Faris, PhD, the President of the Washington Biotechnology & Biomedical Association, “There are a number of companies in Washington State that no longer qualify for SBIR grants under current rules. SBIR grants are an important source of funding for small early stage companies working on therapies and cures for cardiac disease, stroke, cancer, arthritis, diabetes, multiple sclerosis, and other serious conditions. Legislation that restores eligibility for innovation grants to companies working on our nation’s health, safety and security is good for the public and is good public policy.”

In 2001, the Small Business Administration (SBA) changed its interpretation of SBIR eligibility requirements in a way that prevents many deserving and innovative small businesses and startup biotechnology companies from competing for SBIR grants. Now, a biotech firm with over 49 percent venture capital control cannot qualify for SBIR grants because the new interpretation excludes venture capital investment from “individuals” under the ownership eligibility rules. This new interpretation fails to recognize that many biotech companies rely heavily on both SBIR grants and venture capital to research and commercialize their products.

This interpretation represents an enormous change in the landscape of SBIR funding; prior to 2001, over 75 percent of SBIR grants went to venture capital-backed biotech companies, but now many of those companies do not qualify to receive the grants. Many Washington State biotechnology companies are concerned about the future effects of the new SBIR interpretation on their research. Washington State companies received over $9 million in SBIR grants for the first phase of their innovations during fiscal year 2002, and an additional $34 million during the same period for second phase innovations.

At a recent SBA public hearing in Seattle, representatives from the Puget Sound biotech industry testified about the need to correct this inequity in a way similar to what U.S. Reps. Inslee and Graves have proposed.

The SBIR program is an important source of funding for early stage biotechnology research. Small biotechnology companies rely on Phase I and Phase II grants to fund innovative research in areas where venture capital and other sources of financing are difficult to obtain. The National Institutes of Health, to which most biotech companies apply for SBIR grants, is enforcing the new venture capital rule more vigorously than other federal agencies, and so biotech firms have been placed at an unfair disadvantage.

Key Aspects of Inslee's SBIR Legislation