Doing business with the NIH

Gil Ben-Menachem, Steven M Ferguson, and Krishna Balakrishnan

US National Institutes of Health Office of Technology Transfer, 6011 Executive Boulevard, Suite

325, Rockville, Maryland 20852-3804, USA.

Abstract

Young biotech startups can benefit hugely from the US National Institutes of Health (NIH), not least

because of the agency's non-dilutive funding, guidance, and opportunities for collaboration.

Increasingly, however, there is a fair bit of misunderstanding about what the NIH can and cannot do

for a biotech entrepreneur.

The NIH licensing landscape has changed significantly during recent years. With increasing

industry consolidation, large pharmaceutical firms are no longer looking to directly license

early stage technologies for commercialization, and the number of NIH licenses signed with

small and medium-sized biotech companies is on the rise. Unlike five to ten years ago, when

all or most of the high revenue products based on NIH licenses came from large pharmaceutical

firms, a majority of the latest success stories tend to be from biotech or other non-pharma

companies. Some examples are Kepivance (palifermin) from Amgen, Velcade (bortezomib)

from Millennium, Synagis (palivizumab) from Medimmune and Taxus Express (paclitaxeleluting coronary stent system) from Angiotech1

.

Several other products are being developed by younger firms with the help of the NIH. The

new reality is that commercial partners, especially small, innovative ones, are essential to the

NIH's role of helping to facilitate the formation of novel healthcare products for the public.

From new or invigorated activities in technical assistance to technology licensing to financial

considerations, the NIH has an extensive menu of options that bioentrepreneurs can use in their

product development efforts.

Recent NIH licensing practices have been adapted and expanded to take advantage of these

new realities. This is reflected in the sharp increase in corporate licensing activity from NIH

over the past two years—now in excess of 300 transactions per year—with a particular focus

on smaller firms.

Box 1 NABI biopharmaceutical's NIH link

StaphVAX, produced by North American Biologicals (NABI) Biopharmaceuticals, is a

Staphylococcus aureus polysaccharide conjugate vaccine currently in phase 3 trials in the

US. It is based on technology developed in the lab of John Robbins at the National Institute

of Child Health and Human Development (NICHD), one of the NIH institutes that has a

large portfolio of childhood vaccines. The vaccine technology was licensed to Univax

Biologics, then a small local firm, which also recruited a postdoctoral fellow from the

NICHD lab.

The platform was further used to develop additional conjugated vaccines such as the NicVax

as an aid to smoking cessation. The products then proceeded to Univax, an incubator, and

balki@nih.gov..

NIH Public Access

Author Manuscript

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Published in final edited form as:

Nat Biotechnol. 2006 January ; 24(1): 17–20.

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then further developed with a CRADA. From there, the product migrated through a merger

with NABI, a publicly traded company.

Many groundbreaking technologies emanating from NIH laboratories are of a basic research

nature and considered early stage, and they provide a wealth of untapped opportunities for

bioentrepreneurs (see Box 1). In this article we will try to provide a functional guide to

bioentrepreneurs about the various access points for doing business with NIH. We'll review

some of the unique features of the NIH licensing program, discuss financial issues like grants

and contracts, and use examples of successful collaboration with industry to demonstrate how

working with NIH can help bioentrepreneurs in terms of finance, technology transfer, product

development and validation, access to investigators and know-how. We'll also try to dispel

some of the myths surrounding NIH's ethics policies (see Table 1).

Show me the money

As most entrepreneurs already know, the NIH can provide startups with nondilutive funding

through the Small Business Innovation Research (SBIR) and Small Business Technology

Transfer (STTR) Programs2. The NIH SBIR program is the most prolific funding source in the

Federal Government for a bioentrepreneur, and as an added bonus, it comes with virtually no

strings attached.

The SBIR program was established in 1982 by the Small Business Innovation Development

Act to increase the participation of small, high technology firms in federal R&D activities.

Under this program, departments and agencies with R&D budgets of $100 million or more are

required to set aside 2.5 percent of their R&D budgets to sponsor research at small companies.

In 2005 NIH's combined SBIR and STTR grants will total $640 million. As a major mechanism

in achieving the NIH roadmap goals of enhancing public-private partnership, the SBIR and

STTR grants present an excellent funding source for small biotech companies. Recently a

spirited debate is underway in the research and venture capital communities on whether it is

appropriate for SBIR awards to be given to small companies in which venture capital has

controlling interest (that is, more than 51% stake)3. The Small Business Administration (SBA)

has yet to make a final ruling on this issue.

Phase I grant support, also known as a feasibility study, is normally funded at $100,000 for 6

months (SBIR) or $100,000 for 12 months (STTR). Phase II support is available to Phase I

recipients and provides two-year awards of $750,000 (SBIR) or $500,000 (STTR). To foster

the best quality applicants, the NIH SBIR program provides prospective applicants with a

wealth of information, including advice documents4, free workshops and conferences5, and

easy access to the program officials who can answer more in-depth questions6. Those who

hope to receive an SBIR grant from the NIH must convince the agency that the proposed

research is unique, creates value for the general public at large through advancements in

knowledge and treatment of disease, and is relevant to the overall goals of NIH. It is important

to contact the program officials ahead of time within the particular component of NIH from

which funding is sought to determine whether the proposed research plan fits these criteria.

Applications are evaluated by a peer group of researchers drawn from industry and academia.

It is, therefore, important that applicants do not include proprietary information. The success

rate for well-written SBIR grants is ~25-30%. More than the mere funding, SBIR-funded

projects have earned the seal of approval from a panel of expert peer reviewers, which will

facilitate further fund-raising efforts. Unlike private financiers who evaluate a business plan

for its economic returns, NIH reviewers determine whether an SBIR grant application to NIH

is significantly aligned with the agency's public health mission. However, like any other attempt

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by a biotech startup that seeks funds, an SBIR proposal should describe a sound and innovative

approach to solving an unmet medical need, and applicants must prove that a committed R&D

team that can successfully achieve its objectives is in place.

Early market intelligence

Another valuable NIH resource for bioentrepreneurs is the CRISP7 (Computer Retrieval of

Information on Scientific Projects). This is a searchable database of federally funded

biomedical research projects conducted at universities, hospitals and other research

institutions. CRISP can be queried to find prospective collaborators or scientific advisors from

a universe of prequalified, NIH-funded group of researchers.

For a small company with limited scientific depth, this list can provide the comfort of NIHreviewed investigators, and provide insight into funded research plans and strategies that are

being contemplated for the next three to five years. The database can be queried based on

institutions, disease indications, names of primary investigators, type of grants and state. Thus,

when properly used, it can provide a wealth of information regarding NIH-funded projects in

a specific area.

CRISP provides a heads-up about promising new areas of research, and indicates the scientists

whose work should be monitored. It can also be used by biotechs to identify potential customers

or key contacts.

Flexible IP licensing terms

Contrary to the perception that the NIH is only interested in working with academics, the NIH

affords favorable treatment to small businesses and creates an attractive playing field for them

to get into new areas of product development. For example, startups can negotiate to have

patent prosecution of licensed technologies managed by the NIH. This is particularly useful

for small firms that may not yet have internal counsel or the resources to retain a top intellectual

property (IP) law firm.

Another feature of the NIH licensing program is that unlike many university-based license

agreements, the NIH licenses do not require sponsored research agreements. Typically, this

requirement may add significant costs to R&D programs which can impose a burden on cashstrapped small companies.

When licensing technologies from the NIH, entrepreneurs should also be aware that equity

dilution will not be part of the negotiations. This feature becomes important as companies try

to raise capital through additional rounds of financing. Likewise, biotech startups entering

license agreements with NIH do not give up any co-marketing rights, nor do they forsake any

downstream developmental rights. Research tool licenses negotiated through the NIH carry no

grant-backs or reach-through rights. For instance, when a research tool technology is licensed

to a company by NIH, the licensee is not required to grant back any usage rights to the

improvements that it may develop subsequent to the license agreement. Also the licensee is

not required to share with NIH any future profits that may be made as a result of improvements

to the original discovery. In other words, IP derived from new discoveries made with NIHlicensed tools will remain clear and unencumbered.

The overlooked role of OTT

The NIH licensing program represents one of the largest and most successful technology

transfer efforts in the US biomedical field, having entered into almost 2,500 license agreements

in the previous 18 years (FY 1988 to FY 2004), and having generated more than $500 million

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in royalty revenues8

. Recently we undertook a market research study to better understand the

profile and needs of NIH licensees. The main focus areas of that study were an examination

of the different ways by which potential licensees became aware of the NIH technologies that

were available for licensing, and whether there were any particular mechanisms of interaction

that were preferred by different customer segments.

One interesting observation that came out of this study related to how small companies scout

for new licensing opportunities from NIH. Although large companies (with bigger resources)

were found to rely more on their familiarity with inventors’ publications and their personal

contact with the inventor community, small businesses relied more on the marketing messages

that originated from the NIH Office of Technology Transfer (OTT)9.

The marketing messages from NIH that were found most useful by potential licensees consisted

of brief one-page summaries of the new NIH inventions available for licensing. The NIH

disseminates this information in a timely fashion through our website10,11 and our electronic

Listserv12. In addition to getting up-to date information from these sources about the NIH

licensing opportunities, biotech startups can also get in touch with individual licensing

specialists in our office whose areas of licensing practice may be most closely related to the

company's focus areas13. Indeed the role of OTT in technology transfer ranges from invention

disclosure, patenting, and technology marketing to license negotiations and postlicensing

communications with licensee companies. Bioentrepreneurs have many points of access to

NIH licensing professionals at several of these stages of technology transfer.

Free advice and training

Outreach to prospective bioentrepreneurs is important to the NIH. Many postdoctoral fellows,

who are concluding their scientific training at the NIH may have the passion to start a biotech

company, but usually lack the required business expertise. Scientists can exploit some of the

NIH programs that target prospective bioentrepreneurs.

These programs include training in technology transfer through internships and fellowships

offered at the Office of Technology Transfer14, graduate-level courses in technology transfer

and in business development, where scientists can develop their business plans based on NIH

technologies, and discussion groups such as the Bioscience Business Interest Group that help

entrepreneurs with career development and networking15.

The NIH could be your first customer

Among the little known facts about doing business with the NIH, few are more overlooked

than the commercial role that NIH plays as customer to a vast and growing number of biotech

firms. With an intramural staff of about 17,000 employees, laboratories spread across the nation

(with the Bethesda campus housing a majority of the labs), and an annual intramural budget

of about $2.7 billion (FY 04), the NIH is perhaps the largest US consumer of bioscience

research reagents and instruments. A variety of mechanisms for selling products and services

to the NIH are possible, including stocking in government storerooms.

Box 2 title: GenVec's NIH link

CRADA is a mechanism by which a company can establish a long-term relationship with

NIH. When properly nurtured, such collaborations can result in substantial value creation

for the company. GenVec originally signed a CRADA with the Vaccine Research Center

at the National Institute of Allergy and Infectious Diseases in October 2001. This CRADA

was aimed at the development of adenoviral vectors expressing modified HIV-1 genes.

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As the collaboration progressed, the relationship between GenVec and the NIH expanded

to include ancillary contracts with a potential value of $30 million for manufacturing

adenovector-based preventative AIDS and SARS vaccine candidates for the Vaccine

Research Center. “In addition to the important revenue that these contracts provide, they

help companies build infrastructure, further develop technology platforms, and gain

valuable experience in manufacturing, quality and regulatory functions that may be

applicable to other areas of their business,” GenVec officials have stated.

Selling to NIH can be seen as a daunting task for biotechs because of the US Government's

complex acquisition process. However, there are a few simple steps that companies can take,

such as establishing a blanket purchase agreement with NIH and getting their goods and

services into the NIH stockroom. Once these steps are completed, it is much easier for NIH

scientists to buy from such companies, and if the quality of goods and services provided by a

particular biotech company is superior, an NIH scientist can justify buying from that source.

Companies that provide products and services to NIH laboratories can not only generate cash

flow and revenues to fuel R&D, but also begin to demonstrate their commercial acumen to

would-be partners and investors (see Box 2).

The annual NIH Research Festival is an excellent starting point for companies hoping to sell

products to the NIH16. This event is held every fall at the Bethesda campus and during spring

on the Ft. Detrick campus. Part scientific, part social, part informational and part inspirational,

this three-day event draws a variety of small-to-medium-sized bioscience companies. These

events attract almost 6,000 NIH PhDs, many of whom come to these gatherings to buy the

latest research tools.

Biodefense in your future?

Firms capable of developing products and services that focus on medical countermeasures to

chemical, biological or radiological threats can receive grant or contract money through Project

Bioshield. This project, which was signed into law on July 21, 2004, aims to protect the

American public from various weapons of bioterrorism. Over the next 10 years, ~$6 billion

will be committed to these efforts.

Awards granted through project Bioshield are not limited to academia. In fact, out of the ten

grants and two contracts recently awarded by the National Institute of Allergy and Infectious

Diseases (NIAID), totaling ~$27 million, five grants and two contracts were awarded to private

companies.

These first grants and contracts, which range in duration from 12 to 18 months, respond to a

key objective of the NIAID biodefense research agenda that emphasizes the development of

new and improved medical products against ‘Category A’ agents—those biological agents

considered by the Centers for Disease Control and Prevention to pose the greatest threat to

national security.

Can NIH scientists work with biotechs?

There is a perception among many industry professionals that the implementation of new ethics

rules at NIH means that NIH researchers can no longer interact with the private sector.

Although it is true that NIH investigators cannot engage in outside consulting with biotech and

pharmaceutical companies in their personal capacity, without prior approval, the fact is that

technology transfer activities are actually among the official duties in which NIH scientists are

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encouraged or required to participate. These activities may include the reporting of new

inventions from the lab, and assisting technology transfer staff with patenting, marketing and

licensing interactions with companies. NIH scientists can also officially collaborate with

industry scientists through Cooperative Research and Development Agreements (CRADAs),

Clinical Trial Agreements (CTAs), and Material Transfer Agreements (MTAs).

In a CRADA arrangement, which could last for several years, NIH scientists and company

scientists can engage in mutually beneficial joint research where each party provides unique

resources, skills and funding, and where either partner may not be able to solely provide all

the resources for successful completion of the project. In such an arrangement, the scope of

the research work to be carried out and the license options granted to discoveries emanating

from the joint research are clearly spelled out.

A CTA would typically involve a compound or therapeutic modality, which is proprietary to

a company that desires the clinical trial infrastructure that NIH possesses. NIH generally enters

into these agreements only in cases where such trials would be difficult or impossible to run

in other places. The NIH is also particularly interested in clinical trials involving orphan

diseases that affect 50,000 or fewer people each year. An MTA is a popular mechanism for

exchanging proprietary research reagents, which is used by scientists worldwide. NIH scientists

actively use this mechanism to share reagents with scientists in other nonprofit organizations.

Box 3 Overseas entrepreneurs and NIH

In its quest to spread the NIH technologies as widely around the globe as possible, the NIH's

international license efforts have expanded beyond Canada and Europe to countries such

as India, China, South Africa and Brazil. In fact, the NIH is particularly interested in nonUS firms that can bring their unique strengths to the table by directly addressing their local

markets, healthcare needs and diseases.

Most foreign biotechs can conduct business with the NIH Office of Technology Transfer.

In fact, approximately 17% of NIH licenses now go to overseas-based companies. The key

challenge to foreign firms is the US regulation, which requires that goods intended for US

sales must be “substantially” manufactured domestically. Foreign businesses can meet this

requirement by hiring a US contract manufacturer or corporate partner to produce the goods

intended for the US market. When circumstances warrant, the NIH can grant a waiver to

the US manufacturing clause as long as there is an appropriate and reasonable justification.

Of the three collaborative mechanisms described above, a CRADA is perhaps the most

comprehensive and far-reaching. Such agreements can facilitate financial support for an NIH

lab, while providing the collaborating company with preferential access to the NIH scientist's

future work and expertise during the research or clinical collaboration. The easiest way for a

bioentrepreneur to begin to access this expertise is to simply approach the agency officially

through the various technology development coordinator offices located in the individual

institutes within NIH17.

Working with the NIH from abroad

Although a US-based government agency, the NIH's technology-licensing activities

increasingly have a worldwide scope. Patent protection is sought in major non-US markets for

discoveries made in NIH laboratories with license agreements to non-US firms now

representing more than one out of every six licenses signed. Of particular note is the emerging

biotech industry and entrepreneurial culture in countries such as India and China, which has

also led to the growth of licensing activity in those areas by NIH for such products as vaccines

that substantially serve those regional needs and markets (see Box 3).

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To facilitate this effort, the NIH has added international technology transfer professionals, who

focus their outreach and training efforts on non-US biotech and R&D organizations.

Conclusion

The NIH realizes that for its work to have full impact, the research findings generated in its

laboratories must be translated into goods and services that benefit society by improving public

health and by reducing the burdens of disease. Clearly this cannot be done without active

partnerships with private industry.

Simultaneously there is a growing realization on the part of industry about the unique attributes

of NIH research—attributes such as high-quality science, cutting edge discoveries in areas of

research that may not be pursued in other laboratories and the agency's single-minded

dedication to improving public health. Savvy bioentrepreneurs can come to NIH not only for

money in the form of SBIR grants, but also for product development leads through various

partnership mechanisms.

In addition, the NIH laboratories can be seen as an early adaptor customer that embraces new

biomedical research products, and as a source of expertise and resources that may not be

available in other places. At the same time there have been a number of myths that may have

prevented some bioentrepreneurs from fully realizing the value of their interactions with NIH.

Academics the world over already comprehend and appreciate the full value that NIH brings

to their own work and to public health. But the full value of the NIH can only be realized if its

utility is fully understood and engaged not only by academia, but also by the private sector.

References

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3. http://science.house.gov/publications/hearings_markups_details.aspx?NewsID=176http://

science.house.gov/publications/hearings_markups_details.aspx?NewsID=176

4. http://grants.nih.gov/grants/funding/sbirsttr_tidbits_april2004.dochttp://grants.nih.gov/grants/

funding/sbirsttr_tidbits_april2004.doc

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conferences.htm

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grants/funding/sbirsttr1/SBIR_STTR_ContactInfo.pdf

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13. http://www.ott.nih.gov/contactus/contact_us.aspxhttp://www.ott.nih.gov/contactus/contact_us.aspx

14. http://www.ott.nih.gov/training/training.aspxhttp://www.ott.nih.gov/training/training.aspx

15. http://www3.nci.nih.gov/bbig/http://www3.nci.nih.gov/bbig/

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1. .

The relationship between the US National Institutes of Health and biotech industry has come

under the spotlight recently.

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Table 1

Top five myths of doing business with the NIH

Myth Reality

Small companies need not apply For the past several years, over 50% of the NIH's license agreements and nearly

all of the product commercialization deals have been with small businesses as

a result of the NIH's licensing practices, which favor small companies.

Increasingly, breakthrough products based on NIH discoveries emanated from

working with small to mid-sized companies, entrepreneurs, venture capitalists

and angel investors.

The NIH requires sponsored-research agreements The NIH employs many flexible and creative licensing options to fit the needs

of bioentrepreneurs and does not require sponsored-research agreements.

Dealing with the NIH is not for amateurs or the timid Small companies can have consultations with NIH licensing staff at any point.

This is especially useful for NIH's first-time partners who are generally not

familiar with the licensing landscape. Similarly, the NIH SBIR program

provides extensive customer support to grant applicants in the form of free

workshops and access to program managers.

Companies cannot simultaneously obtain a license to an NIH invention and

an SBIR grant

Although it is true that money received from an SBIR grant cannot be used to

fund work done by NIH scientists during a CRADA project, it is perfectly

acceptable to use SBIR money to further develop an invention previously

licensed from NIH. In fact such use of multiple NIH resources may be an

attractive way for small companies to invigorate their product pipelines.

Ethics rules now prohibit NIH scientists from working with biotechs Translational research is one of the three pillars of the NIH Roadmap. To fulfill

this commitment, the NIH needs active partnerships with industry. To achieve

this, NIH scientists are encouraged to collaborate with industry scientists under

official duty mechanisms.

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