revolution was led by small firms as we continue to work our way out of recession we've got to look to that same small business community with the proper tools they can help lead all the way back to looking for i will have a better shot at bringing their project to the marketplace as any invents or we'll tell you commercial up using always you know are in an expensive process on our program in the development of cystic fibrosis and other serious life threatening diseases fibrosis is a fatal genetic disease that affects thirty thousand americans it's one of more than seven thousand rare orphan diseases that impact over thirty million americans at the cystic fibrosis foundation we recognize the additional hurdles that we face to develop therapies to treat disease as a rare disease the small market makes it less likely that companies will pursue promising therapies as a life threatening disease we do not have time to wait to overcome this hurdle the foundation pioneered a new business strategy dubbed venture philanthropy through which we directly invest much as a venture capitalist would in research and development we collaborate with biotechnology and pharmaceutical firms large and small to reduce their financial risk and enable them to join our effort in the past five years we have invested over six hundred  the symptoms of cystic fibrosis as well as promising products to target the genetic defect of the disease itself and working to advance innovative drug development for those who suffer with the disease are venture philanthropy model mirrors the success of the f program we applaud the committee for a steadfast support of this important resource innovative research and ask that you continue to develop this program to research for cystic fibrosis and other rare diseases s p r grants offer critical financial resources for promising therapies that may not have high potential for commercialization but are nonetheless vital to people with rare disease the story of our recent partnership with all nara pharmaceutical illustrates h funding either through our venture philanthropy model or the s v r program can advance promising therapies which would otherwise be abandoned by the market we believe that on our a small company cambridge massachusetts would be well suited to develop an enzyme for cystic fibrosis yet this indication was not a part of their business model the foundation reached out to omar with the offer of financial support to consider all naras principal products like the trunk of a tree established and well funded from a variety of sources including venture capital as dr tony mentioned we asked on our in effect to grow a new branch for cystic fibrosis our funding or s t r program funding as well provided the company the stability needed to take on the increased risk of this new branch the result was a positive new direction for the company for new jobs and a promising new treatment for people with cystic fibrosis we thank the committee for recognizing the importance of the  program to rare disease research through the reauthorization call for a special focus on rare disease related topics s v r grants provide the necessary capital and stability companies need to pursue promising new approaches or to grow new of their established business model support is essential to foster more rare disease as these therapies are often secondary products or new uses for the company's larger more commercialized product in our fight against transition should be the centerpiece of the program this new coalition will be known as the council on small business innovation and research and is intended to provide an opportunity to present alternative viewpoints to the sources of capital to be successful in the one principle that should be guiding the program and that's moving technology into the marketplace ownership of companies by venture capital firms should not be guiding our discussion regarding reform of the program in fact venture capital firms and other private capital resources should be available to as firms to grow their technology development the only ground rule should be that large corporations should not directly benefit from a small business program the issue that should be focused on an opinion is that of technology transition let me comment for a moment on the venture capital issue a let me underline the word compete madam chairwoman your critics frequently state that your objective is to attain one hundred percent control of the market by majority the proposed legislation does not say that what it does as taking a stake in their company if there existed the possibility of eventually transitioning technology to the marketplace in fact concerned that its ability to raise capital in the private markets could be damaged by the continued program should focus on the development of projects that have potential for transitioning to the market subjective and believes it is key to the efforts undertaken for reform the proposed legislation further establishes a reporting mechanism for federal agencies to report on the success of their commercialization efforts this last provision is especially as much of the reform debate has been hampered by inadequate data  process one of the major components of our design is essential innovation in addressing security problems which have been the major contributor to social controversial in the public scrutiny in the past years at the requirements of documentation one of which is a letter from the existing potential customer support or potential customers to support the invention of such technology however our customers procedures that have already been done we recommend that small enterprises which are able to secure independent validation of their technology should be allowed to bypass and apply directly  o of divergence incorporated science based company that focuses on solutions in the prevention and control of past infections and infestations the company's technologies have applications in plant protection animal health and human health prior to joining di divergence worked for monticello for twelve years we held several positions including director of mergers and acquisitions during his time in that position he led the best pitchers which with proceeds totally roughly two billion prior to this position derrick with the company's acquisition and licensing program in the plant biotechnology and seeds area leading several major acquisitions totaling more than two point five billion as well as numerous licensing transactions there is a member of the board of directors of the st louis regional chamber and growth association was chairman of the plant and life sciences network for ours in two thousand and eight he's also a board member of missouri biotechnology industry association and the st louis life sciences project derek i appreciate all of our work you do in st louis and i look forward to your testimony today welcome to washington d c good morning thank you congressman a and madam chairwoman the committee thank you very much for the opportunity to appear before you today i'm going to speak just briefly with regard to my views and i have no doubt for thousands of other companies as well first a bit of background divergence is a life science startup company in congressman akin's district in fact with twenty seven full time employees our research is focused on discovering safe and effective products for plants protection animal health and human health most of the products in development arising from divergence research are focused on the identification treatment and prevention  by round worms also known as nematodes divergence began operations in late one nine hundred ninety nine and has raised proximately thirty six million dollars since its inception roughly sixty percent of this amount has come from equity investors both individuals and venture capital firms twenty percent of come from corporate relationships in the final twenty percent upwards of seven million dollars has come from research grants of research grants five point five million dollars have come in the form of r grants divergence has received nine grants from the national science foundation nine grants from the u s department of agriculture and seven grants from the national institutes of health and all diversions has received fifteen phase one grants eight phase two grants and to follow on graham the life sciences company faces many challenges and its investors often take sizable financial risks the science is difficult and the timeline to significant value creation is usually lengthy s v r grants play three major roles for companies first they lessen the risk to investors by reducing the shareholder dilution and increasing the funds available for early stage projects this means that more companies get started and more companies reach the proof of concept stage with their research second s p r grants provide a validation of the science the fact that the granting process includes peer review as a component of the program is quite significant investors potential employees collaborators and others respect this rigorous review process third s v r grants provide an incentive and a source of pride to the scientific employees the work in life sciences companies is a long difficult and often frustrating word of receipt of a grant provides a real boost to a team s p r grants provide important benefits for our society as a whole to as the name suggests they offer they foster innovation in impactful market areas in each grant application a company is asked to describe its scientific concept and the preliminary data to the marketplace the program is designed to reward companies that are innovative and impactful such innovation is essential for the us to remain a world leader in life sciences and the benefits to our people throughout the i look forward to the opportunity to engage with morning and a dialogue about the program and the pending legislation to be clear however i am not an expert on the intricacies of the granting program or governmental agencies strongly hel concept of risk and assumption of risk a small company is inherently forced to take some pretty significant risks and therefore is willing to i think  think more broadly and doesn't have the baggage of institutional memory or projects that are already in existence to shed before it can go on to do new things so it's a combination of trying to reward it investors who are taking significant risks in the first place and then also that lack of institutional baggage and understand that when an investor invest in a company like ours that party is looking for a return of perhaps ten times on its investment when an investor invests in a major publicly traded company obviously they're hoping that the market which is not anywhere close to a ten x return in almost every  the same issue we've heard some some great things about the benefits of the program i had the opportunity to speak at a breakfast to about a thousand participants in the u s navy's s p r program a couple of weeks ago and they gave it high marks i have and i want to thank particularly the panelists for making the trip here today but also for being the ones who are out there on the front lines making this program work in practice producing the innovations and creating the jobs in the marketplace and indeed the whole reason why we create and are concerned about making sure that we get this program right i think most of my questions have been satisfied by your testimony and some of the other questions answered but i have seen heads nodding at various times during  one of the other of your testimony i just want to see if you could just sort of show me by show of hands if you all agree that making it easier for venture capital to play a role and dovetail with the  creating the innovation that drives our economy and look forward to can you continue working with all of you other small business and foundation representatives and our our chairwoman in making this program even better thank you i get back the science we also want to look at the viability of the company that we may be partnering with and i mentioned before venture capital is also a great marker that we have a viable partner that we have someone who's been proven t like to focus on the larger economic benefit of the programs in my home state of kansas fifty five thousand people are employed by nearly thirteen hundred bio science establishment some of which are small businesses that have used the dollars of economic benefit accrue in the local economy kansas companies receive seventy six point nine million dollars in grants from two thousand two thousand and two producing approximately three hundred and eighty five million dollars in economic that product to the market almost every company would again having that program in place with the opportunity to provide supplemental grants will not only be added it will be particularly the ones where the companies employment decisions are going to be affected to be quite honest with you for a six month grant that by the time you take out administrative expenses associated with the grant you  may be talking about sixty to eighty thousand dollars you can't responsibly hire somebody for that period of time and therefore the larger grants in the longer term grants are the ones that are going to have more of an effect on hiring i would say but i would also say that that all of these programs stimulate the near term activities that you hope then lead to the kinds of collaboration or venture capital funding subsequently that certification and i was particularly interested in mr rapp the your background had been buying and selling and in these various kinds of businesses start up high tech kinds of things how common  is f b i or an s p r kind of situation with the start ups is something that you see that constantly a pattern that everybody started there had some of that in their beginning or is it may be  that success in the sort of program and attention to it it comes as a result of a mindset within the company of focus on this is an opportunity and i think the companies that have their roots and academia or some of the people come out of academia are more inclined to thinking about these sorts of grants because they're more accustomed to applying for their labs and academic and apply for grants academic history perhaps associated with some of the founders but a significant percentage of the life sciences companies are trying for them we're in an incubator and i'd say well more than half of our companies are applying and probably close to ha well many of the venture capitalists will provide money for later stage programs particularly in this environment and so this is an opportunity for some additional research projects that could good consensus also on our panel was something back that even with limited supplies of money from a government point of view probably quality would be the thing you'd choose that you really want a good fit you want to you want to have all the parameters right so that you are getting the good outcomes that you're shooting for and how many of them may not be the best way of judging but rather whether or not it really using the tool in the most appropriate way the witnesses today i just want to talk a little bit on the other side of the issue with venture cap was businesses my understanding from all of your answers is that you are all in support of providing a majority on venture capital the opportunity to fully participate in all as our program there has been the other side of the coin as many who do not believe that this is a good thing i come from the third district  pennsylvania the northwestern part of pennsylvania we don't have a lot of venture capital in my district but what we do have some great small businesses who are working on innovative research and the concern that has come in front of me is that concern that there will be less money available funding available for those who are truly small business and  time to kind of gauge the impact that this has on truly small business because i think there could be consequences when you look at venture capital as they have staff and ability be you know a limit for the first two years on putting a cap on the ability for to enter into the grand so that you could gauge the impact of the consequences on areas one little thing and again i'm looking from the single company perspective but i have seen in the state of someone who has been charged with responsibility for working with companies