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Issues

Technology

Congress Must Restore Federal Grants For Biotechs
by U.S. Rep. Jay Inslee

[ Read about a Bothell company receiving a SBIR grant ]

Puget Sound Business Journal

September 3, 2004

Biotech and biomedical companies are a huge boon to our area, and they are doing amazing work, but Congress needs to act to stop a bureaucratic foul-up from restricting their progress.

Currently, many biotech companies with venture capital backing are ineligible to receive Small Business Innovation Research grants for which they had previously qualified. I am working to remove this impediment to invention by passing legislation to re-establish the field of small businesses eligible to qualify for SBIR grants.

Washington state is a microcosm of the inventive spirit driving our economy, from the pioneering aerospace industry to the ever-expansive biotech and high-tech communities.

The 1st Congressional District contains almost half of the biotech and biomedical companies in Washington, and my job often allows me to meet the people responsible for this exciting research. I am extremely impressed by the work done at local companies such as Helix Biomedix, Seattle Genetics, and CombiMatrix.

Unfortunately, bureaucratic problems at the federal level are causing many other small Washington companies to be denied federal funding that would help transfer their ideas from their laboratories into our homes and hospitals.

The problem for biotech companies in obtaining SBIR grants can be traced to January 2001, when the Small Business Administration started interpreting SBIR grant program eligibility requirements in a way that excludes many predominately biotech and high-tech startups.

In order to qualify for SBIR grants, 51 percent of a small business always had to be owned by one or more individuals. However, in 2001 the SBA began interpreting "individuals" to exclude venture capital investors. Now a biotech firm with over 49 percent venture capital control cannot qualify for SBIR grants.

The National Institutes of Health, to which most biotech companies apply for SBIR grants, is enforcing the venture capital rule more vigorously than other federal agencies, and so biotech firms have been placed at an unfair disadvantage.

This change 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.

SBIR grants occupy a crucial link between private research and commercialization by providing startup funding to small businesses, such as emerging biotech companies. The process by which high-tech and biotech firms bring their inventions to the marketplace is often very expensive, and cannot always be solely supported by private capital.

Further, private capital is often unwilling to fund side research projects that lead to innovative new discoveries. SBIR grants can complement the role of private capital by providing an important source of seed money to assist innovators in transforming their ideas into market-ready products.

The benefits of SBIR grants to our local economy are colossal: Over $9 million in SBIR grants was given to Washington companies for the first phase of their innovations during fiscal year 2002, and an additional $34 million was given during the same period for second phase innovations.

Over the past few years I have had the pleasure of notifying local companies that they have won SBIR awards in amounts ranging from $100,000 to $438,000. Unfortunately, numerous local high-tech and biotech companies are trapped in a bureaucratic Catch-22 that makes them ineligible for SBIR grants.

High-tech and biotech firms that effectively attract and retain venture capital should not be excluded from the SBIR program simply because the nature of their research requires large sums of investment. Many startups rely heavily on outside venture capital to fund the years of development involved in testing and gaining approval for their products. Startup costs are often overwhelming; for example, the costs associated with developing a new pharmaceutical, including research, development, and clinical trials, are estimated to be $500 million over 15 years.

Congress should fix the problem created by the exclusion of majority venture capital-backed tech and biotech companies by restoring SBIR grant eligibility to them, and I co-introduced bipartisan legislation to do just that.

HR 4149 will amend the Small Business Act to state that a business shall not be prevented from participating in the Small Business Innovation Research Program solely because the business is owned in part by a venture capital operating company.

Who knows what creative ideas will not come to fruition if our local researchers' ideas do not receive needed seed money during the early years? Congress can help Puget Sound inventors maintain their competitive edge in our increasingly global economy and speed development of potentially life-saving drugs and devices for the benefit of all our families.

Hopefully other members of Congress will recognize the validity of this problem and join supporters in passing this legislation quickly.

U.S. Rep. JAY INSLEE represents the 1st Congressional District in the U.S. House of Representatives.

U.S. Rep Jay Inslee