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SUBCOMMITTEE HEARING ON SBIR:

ADVANCING MEDICAL BREAKTHROUGHS

SUBCOMMITTEE ON INVESTIGATIONS 

AND OVERSIGHT 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 13, 2008

Serial Number 110-70

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

SUBCOMMITTEE ON INVESTIGATIONS & OVERSIGHT

JASON ALTMIRE, PENNSYLVANIA, Chairman

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

VACANT, Ranking 

LYNN WESTMORELAND, Georgia

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Altmire, Hon. Jason ................................................................................................. 1

Graves, Hon. Sam .................................................................................................... 3

WITNESSES

Goodnight, Ms. Jo Anne, National Institutes of Health ....................................... 4

Rick, Ms. Amy Comstock, Parkinson’s Action Network ....................................... 6

Billingsley, Mr. Mel, Ph.D., Life Sciences Greenhouse, on behalf of Pennsylvania BIO .............................................................................................................. 9

Stefansic, Mr. James, Ph.D., M.B.A., Pathfinder Therapeutics, on behalf of 

AdvaMed ............................................................................................................... 11

Franano, Mr. Nicholas, M.D., Proteon Therapeutics ............................................ 14

APPENDIX 

Prepared Statements: 

Altmire, Hon. Jason ................................................................................................. 26

Graves, Hon. Sam .................................................................................................... 28

Goodnight, Ms. Jo Anne, National Institutes of Health ....................................... 29

Rick, Ms. Amy Comstock, Parkinson’s Action Network ....................................... 44

Billingsley, Mr. Mel, Ph.D., Life Sciences Greenhouse ........................................ 48

Stefansic, Mr. James, Ph.D., M.B.A., Pathfinder Therapeutics ........................... 53

Franano, Mr. Nicholas, M.D., Proteon Therapeutics ............................................ 59

Statements for the Record: 

Franano, Mr. Nicholas, M.D., Proteon Therapeutics, referenced testimony 

of Mr. Douglas A. Doerfler, President and Chief Executive Officer, 

MaxCyte, Inc. ....................................................................................................... 63

(III) 

(1)

SUBCOMMITTEE HEARING ON SBIR: 

ADVANCING MEDICAL BREAKTHROUGHS 

Wednesday, February 13, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON INVESTIGATIONS & OVERSIGHT

Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Jason Altmire [chairman of the Subcommittee] presiding. 

Present: Representatives Altmire and Graves. 

OPENING STATEMENT OF CHAIRMAN ALTMIRE 

Chairman ALTMIRE. I call this hearing to order. Mr. Graves is 

going to be joining us shortly, but I don’t want to delay the proceedings any more. If we start into the testimony and he arrives, 

I’ll halt it at the end of who is ever speaking and we’ll allow him 

to make his opening statement at that time. 

I am calling this hearing this morning through the Subcommittee 

on Investigations and Oversight and we will continue to review the 

Committee on Small Business Investment Research Program. 

This hearing examines how SBIR is laying the foundation to 

fight disease and advance medical breakthroughs. Through this initiative to date nearly $600 million has gone to small firms researching national health and wellness priorities. There are many 

examples of health care therapies that have been developed as a 

result of SBIR funding. These include vaccines for biodefense and 

food safety, novel anesthesia delivery devices to relax children during medical procedures and improved monitors to control blood glucose levels. 

SBIR has also spearheaded the discovery of safer methods for 

laser vision correction, needle-less infusion patches to deliver drugs 

such as insulin and improved research tools for studying dementia. 

These examples make it clear that SBIR is on the cutting edge of 

improving the quality of health care. We must, however, take steps 

to make it more responsive to today’s medical challenges. This includes expanding the number of companies replying to research solicitations. This is an important issue for at least two reasons. 

First, the National Institutes of Health reports an alarming decrease in SBIR applications since 1994; and second, a recent National Academies of Science study recommends that all federal 

agencies increase their efforts to encourage women and minorityowned businesses apply for SBIR awards. 

2

This Subcommittee will also focus on initiatives that the NIH 

has developed to support the successful commercialization of SBIRfunded research. The Pipeline to Partnership database, NIH’s pilot 

program in conjunction with the manufacturing extension partnership and the Agency’s decision to support promising projects with 

multiple SBIR awards are initiatives that other participating agencies should consider as potential avenues to encourage higher rates 

of commercialization. 

Finally, we will consider how to further encourage research in 

fields that suffer from chronic under-funding including orphan diseases which are not receiving the capital they need to advance new 

therapies. 

Going forward, the Committee will look at ways to address these 

funding shortfalls. The region I represent in western Pennsylvania 

boasts some of the best medical research and development in the 

nation and last year the State brought in nearly $75 million in 

SBIR grants, ranking ninth nationally. 

We have tools and infrastructure necessary to lay the groundwork for the development of innovative medical technology, equipment, and therapies. RedPath Integrated Pathology, a small company based in Pittsburgh, Pennsylvania, is a prime example of how 

the SBIR program can take an innovative idea to corporate success. 

RedPath was awarded an SBIR grant that enabled it to compete 

and validate key aspects of the molecular-based tests that could facilitate earlier, more personalized and more definitive cancer diagnosis. 

The positive result of this research led RedPath to introduce 

Pathfinder TG, a diagnostic tool that is now being used to combat 

one of the leading diseases affecting the American public. It also 

spawned an enterprise that created more than 40 highly-skilled 

jobs in just four years with a goal of doubling its growth this year. 

However, without the initial grant from SBIR, RedPath may never 

have been able to survive and grow into the successful company 

that it is today. 

This is just one example of medical breakthrough technology that 

is a result of SBIR illustrating the importance of the program and 

all it has to offer. Should we fail to support our innovative researchers and technological advancements we will lose the technological edge that allows this nation and our economy to expand, 

and in RedPath’s case to improve patient care. 

With the Committee working to reauthorize SBIR this year today’s hearing will provide testimony central to the SBIR program’s 

on-going effectiveness. During this time, it’s important that we 

modernize the program so that it can create the medical breakthroughs of tomorrow, while still promoting job creation in our 

local communities. 

Over the last 25 years, the SBIR program has contributed to the 

emergence of some of the world’s most innovative and successful 

life science companies: Amgen, Biogen, and Chiron are all graduates of the SBIR program. At it’s most effective, the SBIR program provides seed funding that will provide the next decade’s 

Amgen with its start, while also incorporating America’s small life 

science research firms to help reduce the burden of illness on the 

American public. 

3

So I thank the witnesses for being here today and look forward 

to all of your testimony. 

And at this time, if he’s ready, I recognize Mr. Graves for his testimony. 

OPENING STATEMENT OF MR. GRAVES 

Mr. GRAVES. Thank you, Mr. Chairman. Thank you very much. 

Good morning, everyone. I’d like to welcome all of you to this hearing on the Small Business Innovative Research Program or SBIR, 

and its role in the development and commercialization of innovative health care technologies. 

I’d also like to extend a special thanks to each of our witnesses 

who have taken the time to provide this Subcommittee with their 

testimony. I also especially would like to welcome Dr. Nicholas 

Franano who is the Founder and Chief Scientific Officer for 

Proteon Therapeutics, Incorporated, a biotech company located in 

Kansas City, Missouri. Welcome, Doctor. I appreciate you being 

here. 

As part of the 2000 SBIR program reauthorization, Congress required the National Academy of Sciences, the National Research 

Council to conduct a comprehensive review and assessment of the 

SBIR program. Using the NRC report as a starting point last 

month, the House Small Business Committee started its review of 

the SBIR program which was last fully examined by this Committee in 1999 and reauthorized in 2000. It should be noted that 

the core finding of the NRC report is that the SBIR program is 

sound in concept and effective in practice. 

Today’s hearing represents a continuation of this Committee’s 

work to review and reauthorize the SBIR program and we’ll focus 

on how SBIR reauthorization can better structure the program to 

address its role as a vehicle in the early stage development of innovative medical technologies, therapies, products and drugs. 

Created in 1982, the development of the SBIR program is not 

only critical to the unique needs of each of the participating federal 

agencies, but also to our national economy. Small biotech businesses play a key role in innovative research resulting the commercialization of cutting edge medical technologies. For the small business biotech entrepreneur, it is a vehicle that provides essential 

early stage development funding for promising biotech drugs with 

the added benefits of ensuring there is no dilution of ownership 

and that no repayment is needed like in traditional modes. 

Agile investors, venture capital investors, and other early stage 

investors rely on the data developed from this early stage discovery 

and initial development to establish a promising proof-of-concept in 

order to make investments to support the further development of 

such technologies. 

At last month’s hearing, it was pointed out that the SBIR program’s current eligibility requirements effectively prevent some 

small business biotech firms from participating in this program. 

One of the structural barriers is based on the biotech industry’s 

need for access to large sums of capital. This and other barriers can 

prevent pursuit of innovative medical therapies, causing a good 

amount of these products never be fully developed and marketed. 

4

Today’s hearing is part of the Committee’s fact-finding process to 

find ways of making the SBIR program more efficient and effective 

in its role in innovative health care research resulting in the commercialization of cutting edge biotech technologies. 

Mr. Chairman, I look forward to working with you on this important issue. Again, thank you to each of you for being here today. 

I know some of you traveled a fair distance and I appreciate it. 

Thanks, Mr. Chairman.

Chairman ALTMIRE. Thank you, Mr. Graves. And I’m going to 

recognize the witnesses one at a time. We’ll give the introduction 

and then the witness will speak and then we will introduce the second witness and so forth. 

So at this time I want to recognize—well, let me explain the light 

system first. You’ll have five minutes to give your remarks when 

you see the green light. That means you’re okay. when you see the 

yellow light you have one minute left; if you could start to sum up 

your remarks at that time and at the red light, your five minutes 

would be up. 

At this time I would like to introduce Ms. Jo Anne Goodnight 

who serves as the Small Business Innovation Research and Small 

Business Technology Transfer Program Coordinator at the National 

Institutes of Health. NIH is the primary federal agency for conducting in supporting medical research and administers one of the 

federal government’s largest SBIR programs. 

During her 25 years of service, in addition to her positions at 

NIH, Ms. Goodnight has held positions at the USDA and the Food 

and Drug Administration. 

Welcome, Ms. Goodnight, and we look forward to your testimony. 

STATEMENT OF MS. JO ANNE GOODNIGHT, SBIR PROGRAM 

COORDINATOR, NATIONAL INSTITUTES OF HEALTH, BETHESDA, MD 

Ms. GOODNIGHT. Thank you. Good morning, and thank you for 

the opportunity to discuss the NIH SBIR program and its contribution to the development of important medical advances. 

Part of a complex innovation ecosystem, the SBIR program provides dedicated funding for small businesses to conduct early stage 

research and development on innovative projects with commercial 

potential for medical solutions and breakthroughs. 

Overall, the SBIR program has complemented NIH’s mission to 

advance science while reducing the burden of illness on public 

health. However, NIH is committed to maintaining the integrity of 

its SBIR program and ensuring continued development and dissemination of technologies for the benefit of all. 

The NIH SBIR program is ideally suited for stimulating technological innovations funding early stage high-risk research and advancing medical breakthroughs. As mentioned, Altea Therapeutics 

is developing the passport system, a needleless infusion patch for 

painless delivery of drugs such as insulin and vaccines, such as 

Hepatitis B antigen through the skin. 

NIH-SBIR projects are stories of discovery. We’ve all read headlines such as these: a three-year-old grabs a frying pan of boiling 

hot oil off the stove. The tip of an 80-year-old woman’s housecoat 

5

catches on fire as she reaches for a tea kettle. Twenty years ago, 

second and third-degree burn injuries from such situations were 

routinely fatal. With NIH support, Integra Life Sciences Corporation developed an artificial skin system called Integra Matrix 

Wound Dressing, a wound care product that helps create a scaffold 

for damaged cells to regenerate and capillaries to grow. This product is saving and improving lives of millions of affected Americans. 

Also, as already mentioned in your opening statement, RedPath 

Integrated Pathology is focused on early detection of cancer, using 

a technology that will result in an important advancement in personalized medicine for resolving diagnostic dilemmas. 

It is important to note that the NIH SBIR program funds a wide 

diversity of promising ideas and companies beyond drug development and therapeutics. Examples include medical devices, assistive 

technologies and research tools which are described in more detail 

in my written statement. 

Many of these scientific advances have focused on more common 

diseases: cancer, diabetes, heart. Let me now focus on the less common diseases often called orphan diseases. An orphan disease may 

be a rare disease defined in general as any disease, syndrome, or 

disorder affecting fewer than 200,000 people in the United States. 

NIH supports research in rare diseases and related conditions and 

awards to SBIR and STTR recipients help facilitate NIH’s research 

mission in regard to these rare diseases. 

Since 1983, the NIH, SBIR, and STTR programs awarded about $630 million for orphan or rare disease projects. This is nearly 10 

percent of the $6.5 billion awarded for those projects during that 

period. 

Some projects underway include the development of a malaria 

vaccine, a potential treatment for amyotrophic lateral sclerosis, 

commonly known as Lou Gehrig’s Disease and potential treatments 

of patients of autism of Tourette’s Syndrome. 

Although the NIH SBIR program remains a vibrant and robust 

program, over the past few years the number of new small business 

concerns participating in the program has been deceasing and the 

number of applications declining. There are outreach efforts and 

program enhancements. We are aiming to recruit more SBIR applicants that have innovative research ideas that could improve 

human health. 

We participate in national, regional and state conferences all 

around the country, especially those focused on increasing the participation of small firms owned by women or socially-disadvantaged 

individuals. Our participation in Maryland’s Minority Research and 

Development Initiative, SBIR from Awareness to Awards and Commercialization, and Alabama A&M University’s 2008 SBIR Conference are just two recent examples. 

We’re also very excited about our tenth annual NIH SBIR Conference to be held in Atlanta on July 22nd and 23rd. To reach a 

broader audience, we’ve started using other outreach avenues, including interactive video conferencing and webinars. And we find 

the NIH small business research funding opportunities web site to 

be key in communicating information such as programs, procedures, technical assistance and partnering opportunities such as 

NIH pipeline to partnerships. 

6

Recruitment efforts may be impacted if incentive opportunities 

and program enhancements are not clearly identified or understood. One major challenge for small businesses is the long gap between the end of Phase 1 and the beginning of Phase 2, so to address this challenge we offer several gap funding programs and the 

opportunity for applicants who are unfunded to resubmit their application twice. We’re continually assessing new avenues to recruit 

more applicants and make them more aware of our programs. 

Turning now to the topic of programs aimed at helped SBIR 

awardees cross the proverbial commercialization ‘‘Valley of Death’’, 

currently we offer three programs, a technology Niche Assessment 

Program for Phase I awardees; and for Phase II awardees, a commercialization assistance program and a manufacturing assistance 

program. Under CAP, just one example is a company developing a 

technology for creating living blood vessels, a medical advancement 

that holds promise for coronary bypass and lower limb amputation 

candidates and hemodialysis patients. This company has raised $17 

million in private equity financing to fund some of their clinical 

studies. 

In conclusion, I want to re-emphasize that NIH is dedicated to 

improving the health of Americans through medical research and 

we’re looking to small businesses to help us face new challenges 

and to produce not only new knowledge, but also products that will 

allow people to live longer and healthier lives. We’re confident that 

our continuing research outreach efforts and actions to modernize 

the NIH SBIR and STTR programs will be helpful in that regard. 

This concludes my statement, Mr. Chairman. I will be pleased to 

answer questions you may have. 

[The prepared statement of Ms. Goodnight may be found in the 

Appendix on page 29.]

Chairman ALTMIRE. Thank you, Ms. Goodnight. I would now like 

to introduce Ms. Amy Comstock Rick. She is the Chief Executive 

Officer of the Parkinson’s Action Network. Before joining PAN in 

2003, she served as the director of the U.S. Office of Government 

Ethics, having accepted the nomination to the Senate confirmed position in 1999. Prior to her appointment to the Office of Government Ethics, Mrs. Rick was associate counsel to the President in 

the White House Counsel’s Office. Welcome, Ms. Rick, and we look 

forward to your testimony. 

MS. AMY COMSTOCK RICK, CHIEF EXECUTOR OFFICER, 

PARKINSON’S ACTION NETWORK, WASHINGTON, D.C. 

Ms. RICK. Thank you. Thank you, Chairman Altmire, Congressman Graves for inviting me to testify on behalf of the Parkinson’s 

Action Network about the SBIR program. 

The Parkinson’s Action Network represents the entire Parkinson’s community on public policy issues, so I am here on behalf of 

the Michael J. Fox Foundation, the Parkinson’s Alliance, the Parkinson’s Disease Foundation, the National Parkinson’s Foundation, 

and the American Parkinson’s Disease Association. 

Quite briefly, let me give you a picture of Parkinson’s disease. It 

is the second most common neurological disease. It is a chronic, 

7

progressive disease that results from the death of the dopamineproducing cells in the brain. 

We don’t really know the cause yet, although we think it’s a combination of genetic and environmental and there is no cure. And in 

fact, the treatment that we currently have it’s quite sobering. The 

treatment that we currently have was approved about 40 years 

ago. It is still the primary treatment and it is only a symptomatic 

treatment. We have nothing that slows the progression of the disease. And in fact, the symptomatic treatment only tends to work 

well for five to eight years. 

I tell you this to get a picture of the Parkinson’s community and 

the want and sometimes desperation for better therapies for Parkinson’s disease. 

Before I begin to discuss the SBIR program specifically, it is 

helpful, I believe, for me to explain the context in which the Parkinson’s community views all NIH, National Institutes of Health 

programs. As you know, I am sure, NIH is the largest single source 

of Parkinson’s disease research dollars in the world. And the basic 

discoveries coming out of NIH, of course, are very important. But 

it is our belief, as I’ve testified before the House Appropriations 

Committee in the past, that NIH should focus more of its resources 

on therapeutic outcomes rather than basic research. And again, if 

you’ll bear with me for a second to talk a little bit, the drug development time line can be phenomenally long. The fastest might be 

15 years depending on where you begin with your basic research 

idea. It could be 40. And it begins with NIH funded research, and 

of course ends with the pharmaceutical companies shepherding 

their products through, hopefully through the door in approval by 

FDA. 

But that’s a very long time-line and where there is a drop-off 

after NIH funded research at academic institutions with basic research, where the expectation in our country is that the private 

market, the free market companies, would pick up those bright, potentially bright ideas and move them through the pipe line. But in 

fact, there is nobody who shepherds these ideas through and it is 

very possible that a potentially promising therapy or bright idea 

might drop off or languish for some time before a company, private 

researcher, privately funded researcher picks it up and then can 

move it through. 

I tell you this because it is that potential drop off that is referred 

to as the ‘‘Valley of Death’’, which is quite sobering for the Parkinson’s community. And in fact, the Parkinson’s Action Network’s position for a number of years has been to try and get the NIH to 

move more into that black hole, that ‘‘Valley of Death’’ to translate 

more basic discoveries into possible therapies. In fact, we have not 

seen that kind of movement at NIH and with recent flat-funding 

for NIH, Dr. Zerhouni has even testified that the cuts will have to 

come in the area of translating discoveries from the laboratory to 

patients. 

In my position as the CEO of the Parkinson’s Action Network, 

I often will have to explain to people with Parkinson’s that in fact, 

in our country, there is no process for shepherding drugs and 

bright ideas directly through and that sometimes a potential therapy can languish while waiting for a company to pick it up and run 

8

with it. So having said this about our, the Parkinson’s Action Community’s vision of a greater need to focus more resources on turning young and bright ideas into therapies, it should be clear while 

the Parkinson’s communities is so strongly supportive of the SBIR 

program. The SBIR program supports cutting edge research where 

other sources of funding are difficult and if not impossible to obtain. 

But in fact, as we look at it, it is not just a question of funding 

sources. It is actually for some of what we believe the SBIR program funds, it is the difference between this research happening 

and not happening. Having stated our strong support for the NIH 

SBIR program, however, I do want to offer a recommendation for 

the future. As this Committee is well aware and as Ms. Goodnight 

referred, there was a 2003 SBA ruling regarding SBIR eligibility 

based on majority ownership by individuals and this has had, in 

our view, a negative impact on the biomedical research community. 

It is my understanding that since that ruling application have 

dropped precipitously, about 12 percent in 2005, 15 percent in 

2006, and then 21 percent in 2007. And given the increase in most 

applications at NIH, it is fair to assume that this drop is a direct 

result of the eligibility ruling. 

From a patient perspective, it does not seem logical and it is in 

fact scary to eliminate from eligibility research projects that otherwise merit funding because of the financial structure of the company. And the reasoning, quite frankly, even becomes more muddled to us when you talk about that fact that we’re focusing on the 

companies that are being excluded are in fact the very same companies that are attracting venture capital funding. So they are 

clearly considered to be efficient, moving forward. They’re doing 

something well if they’re attracting funding and then we eliminate 

them from federal funding. 

It is also scary because when we talk about high-risk funding, 

that SBIR can fund, Parkinson’s Disease, as I’ve said, is a disease 

of one million people and that is not considered to be a large market. Alzheimer’s disease is four and a half million, for example. So 

we are the population that is sometimes considered high risk. Not 

the science, but we’re not a big market. 

I do want to quickly before I wrap up give you a sense of the impact of the SBIR program. There, as I’ve told you, Parkinson’s disease is still being treated very much as is it was in 1967. That is 

kind of scary. But we have a clinical trial right now going on Phase 

II. Spheramine actually takes retinal cells that do have an impact 

on dopamine production and injects them surgically into the brain 

and it promotes additional dopamine production in the brain. It is 

still early, but so far the results are promising and the community 

is excited about it. 

But the early research for this now Phase II clinical trial was 

funded by an SBIR grant, the animal research as well as Phase I. 

And we fear and it is our understanding, before 2003, that this research would not now be funded and we fear then that it would 

have languished as others do. 

As PAN continues working towards better treatments and cures 

for Americans, we respectfully seek the support of this Committee 

for the SBIR program. SBIR is an essential program for funding for 

9

patient-oriented research, currently languishing in what we call 

the ‘‘Valley of Death.’’ We respectfully request your support to include, however, revision to not eliminate small companies simply 

based on their financial structure. 

Thank you again for this opportunity to testify and my more 

complete written record has been submitted. 

[The prepared statement of Ms. Rick may be found in the Appendix on page 44.]

Chairman ALTMIRE. Thank you, Ms. Rick. 

I would now introduce Dr. Mel Billingsley from my home state 

of Pennsylvania. He is President and CEO of the Life Sciences 

Greenhouse. The Life Sciences Greenhouse of central Pennsylvania 

has a goal to advance the life sciences within the Commonwealth 

of Pennsylvania. The organization supports new and expanding 

commercial entities in Pennsylvania through direct investment and 

selective delivery of business development services. Dr. Billingsley 

also serves as Professor of Pharmacology at Pennsylvania State 

University’s Milton S. Hershey College of Medicine and Professor 

of Biotechnology and Entrepreneurship at Penn State’s Harrisburg 

Campus. Dr. Billingsley is testifying on behalf of the Pennsylvania 

Biotechnology Industry Organization and I welcome Dr. Billingsley. 

We look forward to hearing you. 

STATEMENT OF MR. MEL BILLINGSLEY, PH.D., PRESIDENT 

AND CEO, LIFE SCIENCES GREENHOUSE, HARRISBURG, PA, 

ON BEHALF OF PENNSYLVANIA BIO 

Dr. BILLINGSLEY. Thank you Chairman Altmire, Ranking Member Graves, and other Member of the Committee for giving us this 

opportunity to address the importance of the SBIR program for the 

development of medical innovations in our country and in our state 

in specific. 

I represent the Life Sciences Greenhouses of Pennsylvania, my 

fellow CEOs John Manzetti of Pittsburgh, Barbara Schilberg of 

BioAdvance, and also Pennsylvania Bio which is an organization 

that represents over 300 companies involved in the life sciences, 

medical devices and the like. 

I also represent the State of Pennsylvania which is one of the 

larger funded entities from the National Institutes of Health representing the fifth highest state of NIH basic research funding in 

the past year. 

What I’d like to point out are the needs of the emerging companies and how SBIRs help them, some of the issues that are raised 

as mentioned in the ‘‘Valley of Death’’, some of the issues raised 

by eligibility and possibilities of how to fix them by being more 

flexible and allowing larger amounts that are determined by individual programs which support the SBIR program. 

Emerging companies are incredibly fragile. It takes a large sum 

of money and a lot of time and a lot of risk to bring a drug or a 

therapeutic device to the market. Pennsylvania Greenhouses were 

formed specifically to aid that process and we have seen, as you 

can see in our written testimony, incredible demand for our services. We’ve invested well over $35 million into over 100 separate 

small companies, all of which have leveraged over $500 million of 

10

follow-on investments in a range of these companies. This is a leverage greater than 10 to 1, and it has provided 2600 new, sustaining jobs in Pennsylvania. 

Federal funding like the SBIR programs have been critical to 

these developing companies by both validating their technology and 

leading to additional investments from outside sources such as ourselves and venture capital. We need venture capital to advance 

therapeutics because of the incredible costs and time. In addition 

to the time, the cost of bringing a therapeutic, even in an orphan 

area, are in the tens of millions of dollars to advance a clinical 

trial, far beyond that which could be provided by an SBIR program. 

Let me give you an example of three companies successfully 

funded by SBIRs in the State of Pennsylvania. In the Philadelphia 

area, Yaupon Therapeutics, supported by BioAdvance, has garnered well in excess of $10 million of federally-sponsored SBIR 

funding including $700,000 for orphan drug development for a specific drug for lymphoma. They’ve been successful and have now 

gone on to get $15 million in venture funding. Azevan, supported by LSGPA, received $800,000 in phase two 

support from NIMH to develop a drug for treating aggression. They 

are now venture funded and are proceeding to the clinic. And in 

Pittsburgh, which has an aggressive SBIR training program, they 

developed a series of companies, one of which is the company 

Cohera. Cohera is developing a surgical glue for use in intra-surgical procedures, now has SBIR funds and leveraged that into venture-backed funding to develop their product for the clinic. 

Clearly, though, improvements are needed for successful programs. One is obvious: the eligibility for venture-backed programs 

needs to be reconsidered and restored. It is the case that venture 

funding is necessary and in fact, the sign of approval that a company is moving forward. As mentioned before, excluding these companies is counter intuitive and illogical. 

The second point is that there are needs for larger grant programs. Specific cases are best administered by the programs that 

are funding them such as the NCI or the NIH. The set amounts 

that are used span across the agencies from DOD to NIH; it is not 

a one size fits all and I believe that providing flexibility within the 

institutes themselves gives greater jurisdictional control and a 

greater sense of the funding needs. 

To give you a specific example of venture-backed company being 

excluded from the SBIR program—BioRexus was a successful 

Philadelphia-based bio company that was developing a protein drug 

for diabetes. It became venture backed but subsequently, in that 

same time frame, had a program to develop a botulism anti-toxin 

that was highly favored by the DOD. They could not pull down that 

SBIR funding; that program came to a grinding halt, even though 

BioRexis was successful. 

And as we all know, companies have failed on their first attempts. Cephalon and Centocor are two prime examples, of highly 

successful companies where both first drugs failed. So to limit the 

program to just one time, one shot at goal really limits the chance 

of the company’s success and is illogical. 

‘‘Valley of Death.’’ We have a saying in the Greenhouse, ′′build 

bridges not piers.′′ So we’re trying to build a bridge over the ‘‘Valley 

11

of Death’’, not a pier to drop people off in deep water and what 

often happens is that the funds provided by the SBIR and other entities at the early stages are not sufficient to cross the valley, so 

companies wind up at a critical period in the middle of a very deep 

pond of water. 

So, we think that programs such as the NSF phase two B program that provides additional funding, highly competitive, selective, but matched by outside capital, may be the way to think about 

developing programs that can bridge this. 

So in summary, I would say that the SBIR program has had an 

unbelievably positive impact on the development of novel medical 

therapeutics, on health and well being. These investments are worthy and they are peer reviewed. They get a cache of scientific respectability and, importantly, they provide the fundamental basis 

for other investors, like ourselves and venture groups, to provide 

the next stage of funding in order to develop successfully. 

So we welcome the opportunity to weigh in on these issues and 

thank you for your time. 

[The prepared statement of Mr. Billingsley may be found in the 

Appendix on page 48.]

Chairman ALTMIRE. Thank you, Dr. Billingsley, and as you probably all noticed the vote buzzer went off while you were speaking. 

So we have one vote. It’s a procedural vote and then we’re going 

to run back. I’m going to recess for the vote and I will say at 10:45, 

we will reconvene. Thank you very much. 

(Off the record.) 

Chairman ALTMIRE. This hearing will come back to order. I was 

pretty close. We may have continuing procedural votes, it appears 

throughout the day, so we’re going to try to move quickly, but 

please take your time and say what you have to say. When you 

hear the buzzer, don’t hurry up. We’ll worry about the schedule. 

So at this point, I would like to thank Dr. Billingsley for his testimony and Dr. James Stefansic is our next witness. He is the 

Chief Operating Officer at Pathfinder Therapeutics, a medical device company focused on improving patient outcomes during therapeutic procedures through the use of medical imaging. 

Before joining Pathfinder, Mr. Stefansic, am I pronouncing that 

correct? Dr. Stefansic worked as a research assistant in the Surgical Navigation Apparatus Research Lab, a division of the Center 

for Technology Guided Therapy in the Department of Biomedical 

Engineering at Vanderbilt University. 

Dr. Stefansic is testifying on behalf of AdvaMed. Welcome and 

we look forward to hearing your testimony. 

STATEMENT OF MR. JAMES D. STAFANSIC, PH.D., M.B.A., CHIEF 

TECHNOLOGY OFFICER, PATHFINDER THERAPEUTICS, INC., 

NASHVILLE, TN, ON BEHALF OF ADVAMED 

Dr. STEFANSIC. Thank you, Mr. Chairman. We thank the Subcommittee for holding this important hearing today on the SBIR 

program and its role in advancing medical breakthroughs. I’m 

going to talk a little bit about my experiences as a company that 

receives several SBIR grants. 

12

First, let me tell you a little bit about AdvaMed. Pathfinder is 

a member of AdvaMed, the Advanced Medical Technology Association which represents over 1,600 of the world’s leading medical 

technology innovators and manufacturers of medical devices, diagnostic products, and medical information systems. Over 70 percent 

of AdvaMed’s member companies are relatively small, with sales of 

less than $30 million a year. Our constant innovation leads to the 

introduction of new technologies that prevent illness, allow early 

detection of diseases, and treat patients as effectively and efficiently as possible. 

Pathfinder is a surgical technology company focused on the 

world’s first image guided surgery systems for soft tissue applications. Pathfinder was incorporated in July 2004 through a partnership with Vanderbilt University, where the initial technology was 

developed by six current and former clinical and engineering faculty members, including myself. With support and guidance from 

Vanderbilt, Pathfinder was fortunate to acquire a very modest seed 

round investment to launch the company. In 2005, Pathfinder was 

awarded a $1.5 million SBIR grant from the National Cancer Institute. These funds had been used to develop the SurgiSight image 

guided therapy platform for multiple applications with an initial 

focus on liver surgery. In 2006, Pathfinder received a second SBIR grant worth $1.9 

million to conduct a three site clinical trial. One of our sites, by the 

way, is the University of Pittsburgh Medical Center. With our 

Linasys device, which is an image guided liver surgical system that 

can be used to pinpoint and accurately resect or ablate tumors located deep within the organ. Essentially, this like a GPS system 

for surgery. Our greatest achievement to date was being granted 

FDA clearance in late December 2007 for our Linasys device. Pathfinder now has overcome much of the technology and regulatory 

risk associated with bringing a new medical device to market. But 

these risks would not have been conquered without both SBIR 

grants and the modest seed round investment in the company. 

The costs of these risks can be staggering and are often not supported in full by early stage venture capital or angel funding. To 

place the SBIR’s value in perspective, note that seven of our eight 

current employees are funded at least in part by the SBIR grant. 

Considerable R&D expenditures, in addition to some corporate 

overhead and other expenses, have been and continue to be covered 

with SBIR funding. Still, many challenges remain to ensure that 

our technology could improve the lives of those suffering from abdominal cancer, and those challenges will continue to require a 

combination of both SBIR and other funding sources such as venture capital 

First, we will continue to need funds for all the overhead side of 

the business, beyond research and development, including accounting, legal, quality, regulatory, marketing, and sales issues. These 

activities are critical to the success of the company in bringing new 

technologies to patients. They are largely not covered by SBIR 

funding. 

Second, we will continue to need SBIR funding for further research and development to develop the next applications of our 

image-guided technology. Unfortunately, the 2003 interpretation of 

13

SBA regulations may exclude Pathfinder from seeking SBIR grants 

even though we are still in need of assistance. The SBA’s ruling is 

completely at odds with the intent of the SBIR program to assist 

small businesses like ours with enormous tasks of developing promising early-stage technologies so they can be brought to market for 

the benefit of patients. 

It also overlooks the nature of venture capital investment today. 

Venture capitalists are becoming more and more risk averse. They 

are now investing in later stage companies in order to reduce their 

risk profile and focus on companies that are already generating 

revenue or have completed human clinical trials. 

Unfortunately, because we have continued to be provided with 

bridge financing of our seed round venture capital investors, Pathfinder will very soon no longer be eligible for any additional SBIR 

funding given the change of our ownership structure. We hope Congress will address this issue soon so companies like Pathfinder can 

continue to grow and bring technologies to market for the benefit 

of all patients. 

I do want to commend the NIH and NCI for their additional initiatives to help bring small companies, to help small companies get 

their novel technologies to market. For example, Pathfinder has recently benefited from the NIH SBIR manufacturing assistance program. This assistance will not only ensure that we meet all necessary national and international regulations in the manufacturing 

of the Linasys device, but also improve the overall quality of our 

facility. 

Although this program is beneficial, it is very small compared to 

a phase two SBIR grant and will not fill in all the gaps necessary 

to commercialize our medical technology. We believe that addressing the venture capital issue should be a top priority if Congress 

intends to help small companies like Pathfinder that rely on SBIR 

funding to develop new medical technologies for patients. 

We thank you, Mr. Chairman, Chairwoman Vela ́zquez, and Congressman Graves for your leadership in the reauthorization of the 

SBIR program and for your strong support for restoring SBIR eligibility for small businesses like ours that also have venture capital 

investment. We also want to thank Congressman Chabot for his 

willingness to work with us to resolve this important issue. 

We look forward to working all of you to ensure that small businesses will continue to drive medical innovation in developing 

promising new technologies for patients. Thank you. 

[The prepared statement of Mr. Stefansic may be found in the 

Appendix on page 53.]

Chairman ALTMIRE. Thank you, Dr. Stefansic, and Mr. Graves 

wanted me to again recognize Dr. Franano. Dr. Nicholas Franano 

is founder and Chief Scientific Officer at Proteon Therapeutics. 

Founded in 2001, Proteon Therapeutics is a privately-held biopharmaceutical company developing novel pharmaceuticals to address the medical needs of patients with renal and vascular diseases. Proteon Therapeutics’ first drug candidate is in development 

for the improvement of blood flow following vascular surgery procedures. 

14

Dr. Franano holds an M.D. and an M.A. in Biomedical Research 

from Washington University, St. Louis, and a B.S. in Cell Biology 

from the University of Kansas. 

Welcome, Dr. Franano. 

STATEMENT OF NICHOLAS FRANANO, M.D., FOUNDER AND 

CHIEF SCIENTIFIC OFFICER, PROTEON THERAPEUTICS, 

INC., KANSAS CITY, MO 

Dr. FRANANO. Thank you, Chairman Altmire, Ranking Member 

Graves and other Members of the Committee. I do thank you for 

the opportunity to share some thoughts with you today and I think 

it’s an excellent topic and excellent panel. I concur with almost everything that’s been said today and would like to provide some personal experiences that might help highlight the issues that we’re 

discussing today. 

I’ve been in that position where you make an invention. And it’s 

a really interesting thing that happens. I was a biologist, went to 

medical school. Was recruited to Hopkins by Dr. Zerhouni when he 

was in the Radiology Department there, now the Chairman of the 

NIH and he provided me the opportunity to do a substantial 

amount of laboratory work while I was in my residency training. 

And so some days I would go to the Interventional Radiology Suite 

and do patient care and other days I would go to the laboratory 

and it was a great environment in that I could see problems in the 

clinical side and then think about how to solve those problems on 

the research side. 

So in interventional radiology, we’re basically glorified plumbers. 

We open up blood vessels and keep them open. I mean you like to 

think it’s exciting, but it’s really plumbing at its basic level. With 

expensive tools. And so the big problem we have is often the pipes 

are too small and so we put in stents and we use balloons and we 

do bypass grafts, we do all these mechanical things, because we 

have patients who can’t get enough blood flow and not enough 

blood flow is bad in a lot of situations. 

So what you find is you do an angioplasty. You do a stent. You 

do a bypass graft. All that fails. You amputate a person’s leg and 

you put it in a bucket and that really drives home failure. Nothing 

is worse than having a patient come to your office with a problem 

and is wheeled out of the hospital without a leg. That tends to really focus your mind on why you’re failing. 

So when I was in the laboratory, I started looking at how the 

body naturally dilates blood vessels and discovered a drug that 

could dilate blood vessels without any mechanical effect at all, 

which was very exciting to me and Hopkins was very excited and 

we filed patents and I left to go into private practice. I started a 

family. I went back to Kansas City and the thought was a biotech 

company is going to pick this up and develop it. 

When it came time to file the world-wide patents they have offered the technology to several biotech companies, but none had 

picked that up and the message was there wasn’t enough data to 

support a $50 million investment in the drug at an early stage. 

And so Hopkins asked if I wanted to buy the technology back and 

start a company myself which was a very provocative thought to 

me. When I had the invention I knew right away that this would 

15

work. I was absolutely convinced that this would work. I’d seen it 

with my own eyes. I had—couldn’t find a problem with it. So— but 

it’s a very difficult kitchen table conversation to have with your 

husband or wife that I’m going to quit my job which is paying well, 

and I have a baby on the way and I’m going to quit my job. I’m 

going to borrow money from my friends and family and start a 

biotech company with the hope that things are going to work out. 

That’s a tough conversation to have. 

My wife was supportive, remarkably, but a big question was how 

are you going to fund the first year? And how are we going to live 

while you go chase this idea? And so the SBIR program for me was 

an argument that I could use to say I’m going to apply for these 

grants and if we’re successful in getting the grants, there will be 

some money to get the company off the ground and that was a really big part of it for me and one of the things I would emphasize 

to the Committee is people have novel and innovative ideas all the 

time. 

Today, as we sit here, somebody is having a novel idea that could 

lead to an important therapy that could help people. And then the 

question becomes can I—how hard is it for me to start a company 

and commercialize that technology? The barrier is getting people 

started and the SBIR program can help get people started. 

So we did apply for those grants. We were successful. We got 

$157,000 grant and then a $100,000 follow-on grant and we were 

able to use that grant money to build out our own laboratory which 

was absolutely vital for our company to get its venture capital financing and move this product into clinical development. Without 

that initial grant, we would not have built out our laboratory and 

we would not have I don’t believe been able to get the venture capital investment that got our drug into the clinic. 

So absolutely, the program was vital to Proteon. I think we’re a 

success story. Our drug is going to go into clinical development this 

year. It looks very good. But we are again caught in the same problem others are now as we have some innovative new drugs that we 

would like to develop. And I’m going to go to a board meeting later 

today and I’m going to advocate that the company devote a substantial amount of money to one of these new programs. And I’m 

a decent vote counter. I’m going to lose that argument, so I’ve made 

the argument before and lost and I’m going to make the argument 

again. The venture capitalists invested $19 million in Proteon and 

they devoted that money to our lead drug program and it’s very 

hard for me as Chief Scientific Officer to get $50,000, $100,000, 

$150,000, $200,000 for a new program when we need $50 million 

more to develop our lead. 

And so normally prior to the rule change I would have applied 

for an SBIR grant and gotten that program started, but now I 

can’t, so I can’t move the new technologies forward, but I can’t 

leave them behind. So I do think that it’s surprising the drop off 

in SBIR grants. I think that should be a warning. That’s a canary 

in the coal mine that there’s something wrong with the company. 

And I think eligibility is a big part of that. So I would encourage 

the reauthorization of the program with the changes in eligibility 

to go back to the old rules because I think technologies are not 

16

being developed and that has both a human and a financial impact 

on the country. 

I think venture-backed companies are the most innovative companies and we’re 20 people. We have a little lab off the plaza in 

Kansas City. We’re a small business. Four years ago, we were in 

my basement. The idea that we look just like a small business 

looks except that we have some very powerful investors. 

And I think it seems unfair to me that the rules allow—say that 

we’re not a small business, that somehow the employees of our venture capitalists and the employees of the other companies that they 

invest in somehow count towards our total to me is I think nonsensical. I think really stretches the credibility of the people making 

that argument. 

I couldn’t go and get help from a company that our venture capitalists invest in. They’re not part of us any more than I could go 

to another place. So I would concur with the prior remarks and 

would say that although it’s been a success for us, I think that the 

program can be more successful if we went back to the old rules. 

Thank you very much. 

[The prepared statement of Dr. Franano may be found in the Appendix on page 59.]

Chairman ALTMIRE. Thank you. And I was going to—I’m still 

going to talk about how Mr. Graves and I work together hand in 

hand on this bill. It’s a great example of bi-partisan cooperation. 

Chairwoman Vela ́zquez and Ranking Member Chabot, same thing. 

Unfortunately, on the floor today, we’re debating an issue on which 

there is some disagreement. So that is why these procedural votes 

are taking place and I do apologize, but I believe, is there a vote 

on—okay, there’s another vote and I have a lot of really good questions, so I’m going to have to make it suspenseful for you and go 

vote and maybe find Mr. Graves or maybe have a surprise person 

if I can find someone to come back. But I have questions, so if any 

of you have to leave or your staff have to leave, I understand and 

I apologize for this, but I will return to reconvene the hearing at 

approximately 20 after 11. Thank you. 

(Off the record.) 

Chairman ALTMIRE. We will reconvene, and you can imagine my 

excitement. I came back and there is a huge line over there. 

There’s a lot of TV cameras and I thought wow, we’re generating 

a lot of interest. Then I heard it is because Roger Clemens is testifying in the next room over. So when you leave, you may want to 

go the other way. I recommend it. 

(Laughter.) 

Thank you for waiting. Sorry, and I’m told there may be further 

votes that are going to be coming up shortly. 

My first question is for Ms. Goodnight, and again, thank you all 

very much for your testimony. Ms. Goodnight, research has found 

that SBIR grants encourage University based Ph.D. researchers to 

found companies. Of course, running a company demands skills 

that not all Ph.D. researchers possess. How important are available 

business skill training initiatives to the eventual success of a company founded with an SBIR award? 

17

Ms. GOODNIGHT. Those types of skills are extremely important 

and so much so that we offer a commercialization assistance program to assist those companies that don’t necessarily have the 

business savvy on seeing products that have done well and met certain milestones through the R&D reach the marketplace. And so, 

for example, our commercialization assistance program is about a 

nine or ten month entrepreneurial business skills and strategic 

training that helps businesses kind of focus on what their strategy 

will be to bring that idea to the marketplace. 

It is actually a really rigorous program and the companies realized very early on that they have certain milestones and homework 

assignments that they need to accomplish to succeed in this program. But it is useful and it does help them either to realize they 

need to bring on other employees to help address those business aspects. We can’t forget the B in the SBIR program. 

Chairman ALTMIRE. Thank you, and with all these questions, if 

any of the other panelists have comments they want to make, feel 

free to jump in. Is there anyone who wants to weigh in on that? 

Dr. Billingsley? 

Dr. BILLINGSLEY. Well, I think it is critical whenever you get to 

the point—

Chairman ALTMIRE. If you could turn your microphone on. Is it 

on? 

Dr. BILLINGSLEY. I think so. 

Chairman ALTMIRE. Okay, good. 

Dr. BILLINGSLEY. Critical whenever you get to the point of commercialization that the equivalent talent and business skills are 

matched with the equivalent talent in science. I’ve noticed we have 

an MBA/Ph.D. here and that’s certainly one way to go. But it does 

take somebody who is seasoned in drug development or in device 

development in order to carry it forward to get a successful company. A lot of what happens is there is a transition, usually a time 

of first significant institutional financing, where the investors and 

the Board change, and I believe, people become, founders become 

chief science officers and people who are more experienced run it. 

It is very critical. 

Dr. STEFANSIC. Can I add something there too? 

Chairman ALTMIRE. Certainly. 

Dr. STEFANSIC. If you think about the goals of the SBIR program, 

it’s in my opinion, if a company gets an SBIR, they have to start 

thinking about those business things right away. They can’t put 

those things on the back-burner, and a lot of times you don’t have 

anybody with any business acumen working for the company. The 

PI is so focused on getting the technology to market they don’t 

think about regulatory, quality issues, all of those other issues that 

a small business almost has to think of from the beginning, and 

this is where if you have the venture backing behind it, that could 

bring in the seasoned management that Dr. Billingsley talked 

about to sort of help accelerate both tracks, both the research track 

and the business track. 

Dr. FRANANO. I would say that the number of potential people 

who could be entrepreneurs in this business is much larger than 

the number of people currently making a run at it. There are a lot 

of natural entrepreneurs out there. I think sometimes the industry 

18

tends to focus so much on experience that it misses the people who 

have real potential, but who need that first start of understanding 

a business plan. There is a lot of competence, but not experience. 

I find that in biotech, those people can be really powerful entrepreneurs if given the right opportunity and the right initial training and mentoring. 

Because in biotech, I think people ask me, well, how much im- pact can the small business, SBA program have? It’s $100 million 

dollars to get a drug to market. What does $100 or $150,000 dollars 

really mean, or a million for a phase II. Biotech companies do really well with small teams. 

Innovation in biotech comes from teams of five or ten or fifteen 

people and that’s one of the areas where biotech has a huge advantage over pharma. It’s hard to get a really innovative drug through 

a thousand person department, even if you have $5 billion. Because 

everything gets chopped down to the lowest common denominator, 

and that’s why if Pfizer, I mean, I don’t want to imply, pharma has 

done a lot of great things, but they have enormous research budgets, huge numbers of people, and are producing precious few novel 

drugs; whereas, these biotech companies which are small and have 

very limited budgets are actually producing a lot of the innovative 

products and I think it goes down to in biotech, small teams are 

very innovative and the SBIR program can assemble those small 

teams to get something like our compound from heresy initially, 

which a lot of innovative therapies are to interesting. That’s what 

your program does is take something outside of the box that someone has invented and make it—move it on the path, give it enough 

data for the data-driven people to go. That looks really interesting, 

I’ll invest. 

And so I think that programs that can assist entrepreneurs, get 

people with an entrepreneurial mindset on the path to being an entrepreneur is very helpful. 

Chairman ALTMIRE. Ms. Goodnight. 

Ms. GOODNIGHT. I’m just sitting here thinking back to the days 

when I was at the National Cancer Institute and we had one company, Endocyte, who Dr. Phil Low had started. And he was working on his basic R&D, had an idea of using the vitamin folate for 

treating or even potentially curing ovarian cancer. And he was 

really in this conundrum. Do I start my own company? Do I sell 

everything off to investors? Do I do go outside of my home state 

of Indiana? What to do? 

And he actually had support through the university and through 

some of their facilities that they provide to entrepreneurs and they 

even have things like entrepreneurial leave models. So he was able 

to start his own company, but he did impart a very important piece 

of advice. He said I do really good basic research and R&D to get 

the science done under this SBIR. But I don’t have the business 

acumen, so he hired a CEO and he hired people who could take 

care of that of those types of activities. But the point being that 

he also was utilizing resources within the state and so sometimes 

the state can provide some very important resources to help bolster 

some of the business aspects of the program. 

Chairman ALTMIRE. Thank you. Dr. Franano, the guidelines for 

phase one and phase two grant sizes have not increased since 1992 

19

and some observers have noted that the inflation-eroded awards 

allow for significant less research than they did in 1992. Do you believe increasing the average award size is likely to strengthen the 

contributions of SBIR-funded research? 

Dr. FRANANO. I do. I think that we’re do for an inflation adjustment. Certainly, the costs of developing drugs continues to rise certainly above the rate of inflation and so the grants are not providing as much developmental support as they previously were. 

I think the most important—probably of the two phases, I think 

the second phase is more important. That’s where $1 million, you 

take to say it, $1 million doesn’t go as far as it used to— it’s a silly 

thing to say, but for phase two especially, I think some flexibility 

in making larger awards for technologies that are pretty costly, but 

very potentially powerful would be better because the phase two is 

where you really struggle to fit the second part of your program 

into the current structure. 

The $100,000 to $200,000 phase ones are still relevant. I mean 

you adjust them somewhat, but I’d say the second phase is where 

you could really make an impact on companies because the second 

phase grants are harder to write. They’re longer. They require a lot 

more effort and when you start to fold what you can fold in there, 

you realize you come up pretty short most of the time. 

Chairman ALTMIRE. Ms. Rick, as I understand it, when—let me 

just say I’m going to reset the clock also. We’re about four minutes 

over on the first round. We’ll consider this to be the second round, 

just so we can keep track. 

As I understand it, when the NIH develops research project topics for SBIR awards it is in effect directing millions of dollars to 

research to a specific scientific area. 

Do representatives of patient groups like yours have an opportunity to work with the NIH SBIR office with respect to the development of SBIR research topics and interests? 

Ms. RICK. While I understand that that is the case, we have not 

had an opportunity to do that and I will say that I’m torn sitting 

here because I am a representative of a particular disease. 

One of the rules that we live by in my office, however, is that 

we don’t compete diseases. And I think SBIR, while they certainly 

need to receive input on areas of great need and gaps, the SBIR 

applications are, in fact, peer reviewed, and by colleague scientists. 

And I think it’s hugely important that the SBIR program with its 

vision of commercialization focus on the best science with the best 

opportunity. And so sitting here, I will tell you that it is my view 

and the view of many of my colleagues with other diseases that the 

key is creating a culture where we’re getting things out the door. 

And if that means there isn’t an SBIR grant for the next few years 

for Parkinson’s, needless to say I’m sad, but the focus is on the culture and the speed of getting what is needed actually into patients 

and it doesn’t require necessarily equal representation at every moment for every disease. 

I may lose my job now. 

(Laughter.) 

Chairman ALTMIRE. Ms. Goodnight, do you have a comment on 

that? 

20

Ms. GOODNIGHT. I have an important distinction, so NIH is comprised of 27 institutes and centers, 23 of which participate in the 

SBIR and STTR programs. And each of those institutes and centers 

currently has a mandate to address science and health from a perspective, whether it’s a disease area such as cancer or Parkinson’s, 

whether it’s an area of concern such as aging. 

The one unique feature about our agency is our applicants can 

propose research in any areas that relate to our over-arching mission of improving human health and we certainly welcome those 

types of applications that are in addition to any specific topics and 

that’s fairly clearly laid in our solicitation, but perhaps we need to 

be including that even stronger in our outreach efforts. 

Chairman ALTMIRE. Thank you. Similar to the question I asked 

Dr. Franano earlier, this would be directed to Dr. Billingsley, the 

National Academies of Science has recommended increasing the 

SBIR award amounts for phase one and phase two grants. Do you 

believe that an increase in the average dollar amounts granted by 

NIH and other federal agencies with SBIR programs would encourage more life science companies like yours to apply for the SBIR 

awards? 

Dr. FRANANO. The answer in the short phase is yes. It costs more 

to do more, but I’d also echo the notion of more flexibility with the 

need for larger grants and larger entities at the program and institute level. 

Having read the GAO report, it was a financial analysis across 

the board comparing DOD and NIH as if all SBIR grants were created equal. They’re not. All projects are not equal. They’re not. 

This is a highly regulated, highly risky, long-term commitment 

to bring a product to market whereas for a software or hardware 

project, it’s very short term and it’s market-driven. So that same 

yardstick that was used to analyze those sets of data doesn’t really 

apply and I think the NIH has shown some discretion on occasion 

at increasing amounts of phase two and/or the notion that there 

are other ways in which this can be done to support pre-clinical 

trials. 

Let me give you a real particular number. It takes at least $1 

million to do some pre-clinical toxicology on a compound in order 

to prepare it to be submitted to the FDA for approval as an investigational new drug. That’s almost a fixed cost of doing business. 

And that’s low. 

Dr. FRANANO. Try $5 million. 

Dr. BILLINGSLEY. Well, it depends on the compound, but it’s at 

least that much money must be generated. So there are increasing 

costs and you don’t want to undercut the value of the need for that 

kind of toxicology. 

So yes. 

Dr. FRANANO. And often, I think it’s that initial money that is—

that will lead you to the larger investment that can bring your 

drug into clinical development and put it on the way to patients is 

that investors are very reluctant to invest until they see that the 

drug or the device works and that it has an acceptable risk in 

terms of toxicity. And it’s really hard to generate that data with $50,000 and $100,000 investments from your friends and family. That’s a lot of 

21

friends and family. I don’t have that many. So that grant programs 

sometimes can step into that breach and provide some additional 

investment that can help you get to the point where you are ready 

for that large investment to take you to the next level. 

Dr. BILLINGSLEY. And there are related programs also by the federal government such as the National Toxicology Program, the 

RAID program or Rapid Access to Investigational Drugs through 

different agencies, that may dovetail and may help alleviate some 

of the pain, but that takes a fair amount of coordination between 

and among the agencies. So it is an expensive proposition. It has 

not gotten cheaper to develop a drug or device. 

Chairman ALTMIRE. Thank you. Ms. Rick? 

Ms. RICK. Can I just add something that a concept that we talk 

a lot about in the Parkinson’s community is time. Obviously, we’ve 

discussed the drug development time line and how long it is. But 

anything that this program can do to shorten, a year and a half 

or two years, that it might take for someone to find private funding 

if they can for a stage of development, to the extent that SBIR can 

come in and fully or partially fund that, can be the difference for 

a person with Parkinson’s between being Stage III and Stage IV. 

It can be the difference between working and not working, being 

in a wheel chair and not being in a wheel chair. 

In fact, the people who are being diagnosed with Parkinson’s disease today, and there’s people out there being diagnosed today, 

probably will not even benefit with our current time line from the 

drugs that are just being thought of now. It takes too long, 15 or 

20 years for drug development, 15 or 20 years you live post diagnosis. So whatever we can do with this program to shorten the 

time line makes a huge difference in people’s lives. 

Chairman ALTMIRE. Thank you. I will ask one more question and 

several Members of the Committee who couldn’t be here today expressed interest in communicating directly with you with their own 

questions, so please look for some questions through the mail or 

through your offices that other Members may have and if you could 

respond in a timely way, that would be appreciated. 

Last question for Ms. Goodnight. It can cost a small company 

thousands of dollars to prepare and submit a well-written phase I 

application. Undoubtedly, the cost of preparing the application is 

prohibitive for a number of potential applicants, similar to what 

we’ve talked about. Has the NIH considered developing a preliminary application process whereby an applicant provides a relatively 

brief white paper and receives an assessment of the likelihood of 

success before they go through the full application process? 

Ms. GOODNIGHT. We haven’t used that type of a process and it 

could be that the reviewers would not necessarily see all of the details in the research plan for assessing the full scientific and technical merit of the proposed research. What we have done is to try 

to work with states who offer these Phase 0 programs to help companies prepare more competitive applications. We do a lot of outreach to do some one-on-one assistance, and also I think the electronics submission process, although in the beginning it may have 

been somewhat difficult, analogous to the first time you ride a bicycle, it has actually helped to simplify that whole process. 

Chairman ALTMIRE. Okay, any other comment on that? 

22

Dr. BILLINGSLEY. I think from our state, representing Pennsylvania, there are several programs that have been initiated to deal 

with this initial barrier. Some of it is mechanical and technical 

submissions through egov.com. Others are more substantive, what 

people want to see, and offering pre-review. It is a barrier, several 

thousand dollars to do that, but hopefully that is not a complete 

barrier to entry. It would be of concern if a company could not find 

either the resources or several thousand dollars of consultants that 

could help them to do that. 

But I would agree that the real value of the SBIR review process 

is the peer review, which needs the full scientific vetting. Without 

that, you don’t have the kind of the blessing of peer review, as 

painful and lengthy as it may be. 

Chairman ALTMIRE. So as I understand it, you’re both expressing 

concern that if you go through the process that I described in the 

question, that you would leave out, you would have an initial decision that might leave out someone who really did have a chance 

of success? 

Dr. BILLINGSLEY. Correct. If they wrote the white paper in a way 

that was either too descriptive or not technical enough, it could be 

dismissed out of hand, and I don’t know who would be comfortable 

to make a scientific decision based on a white paper. 

Chairman ALTMIRE. How about if you had a process where anyone could submit a grant, that you could submit a pre-grant where 

you would get an award of two or three or five thousand dollars 

and a road map for how to prepare a grant as a way to lower the 

barrier for someone to at least get interested in the program and 

start the process, that you didn’t have to go through that as prescreen, but that it was available to those individuals. Because that 

would allow, if it was a three thousand dollar grant, someone could 

use that then to hire a consultant to help them write the grant. I’m 

all for anything that lowers the barrier for that person sitting in 

their office to start a company, because that is a huge barrier that 

we don’t think about much. There’s a lot of people out there thinking about starting a company who aren’t. And anything we can do 

to make those stairs flatter and shorter to get up to the top, to 

make those first few steps, would be good. So you were you thinking about that, where they might be some small assistance that 

you would submit a one-page saying I’ve got this kind of idea for 

a grant application, but I need some assistance in getting the grant 

together and could you administer a small check like that? I don’t 

know. 

Chairman ALTMIRE. It sounds like that’s what we’re trying to get 

over that first hurdle to allow especially the smaller companies the 

ability to move forward in a reasonable and cost-effective way, but 

we don’t want to diminish their chances of success if they really do 

have a chance of making it through the process. Obviously, it’s 

worth their while to submit the full application. 

Did you have a comment, Ms. Goodnight? 

Ms. GOODNIGHT. Sorry, just a real quick comment. We really encourage our applicants to contact our program staff, our program 

administrators to call and talk about their idea. They’re not playing the role of peer review, but they certainly can give some good 

23

guidance on whether it’s an area of research that we would likely 

support if the proposal is deemed to be scientifically meritorious. 

I’m also thinking back to the days when the federal and state—

what was it called, FAST, Federal And State Technology program, 

I believe, was in existence and that again went back to the states 

in providing assistance to small companies for a very small amount 

of funds to prepare those proposals. And so there are still, even 

today, after FAST has ended, a number of states who are providing 

that type of assistance. 

Dr. STEFANSIC. I just want to add something. Most scientists that 

write a grant, especially if you’re in the academic setting, you can 

almost expect that you’re going to have to submit it at least twice. 

You need that initial feedback. 

I think one thing that the NIH has done and the NCI and some 

of these federal institutions in having the electronic submission 

program, from what I understand, this cycle, this first cycle is moving more quickly. So you get feedback back and you can resubmit—

you can maybe hit the next cycle instead of having to wait two cycles. So that—having that in place, I think, will help a lot. And it’s 

the same program for the SBIR or for academic grants. So getting 

that—I think getting that peer-review feedback though is really, 

really important because you can’t really in a one page or summary 

or a white paper. It’s really going to be very difficult to determine 

the scientific validity of what’s being presented. 

Ms. RICK. There are other Parkinson’s disease research centers 

at NIH and that program does accept letters of intent, early on before the grant application process and my understanding is that 

that’s been very helpful to people either to weed out some who 

don’t spend a lot of money and time filling out a grant application 

and it’s not going to go anywhere, or people with great ideas and 

may not be that good at it. 

The point is to start the dialogue and it sounds like they do that 

at SBIR to help someone through the process to the bright ideas 

are not lost for what is in the application as opposed to the quality 

of the idea. And that open dialogue, as long as it can advertised 

and people know it is available is what is important, I think. 

Chairman ALTMIRE. Thank you, and I know I said that was my 

last question, but I do have one more. For Ms. Goodnight, again. 

The majority of SBIR awards go to firms based in technology-rich 

states and localities. Is the NIH taking steps to encourage more life 

science researchers and biomedical firms from states and regions 

that win few SBIR grants to apply for future awards? 

Ms. GOODNIGHT. We are and we are doing that through our outreach at various workshops and conferences held throughout the 

United States. We have actually offered to go to states like Wyoming to do some hands on workshops just to help them get over 

that, you know, black box kind of impression that they might have. 

We’re also doing those types of things so they understand there is 

this opportunity to revise and resubmit their application, because 

we want to see those states who have not participated in the past 

to really take advantage and take advantage of every opportunity 

to improve an application if it is not funded the first time through. 

Chairman ALTMIRE. And if you could talk about the SBIR program, FAST, where states were given the opportunity to apply for 

24

federal grants to support efforts to build their state’s applicant 

pool, and during the years this initiative received funding, in your 

view, did it expand the number of SBIR applicants from states that 

win fewer awards? 

Ms. GOODNIGHT. I believe it did. We could certainly probably look 

more to the states to give those metrics, because that was part of 

their proposal as I recall in having to review those. So that was a 

program that was supported through the Small Business Administration and administered by those, but I definitely think that it 

was helping to improve the applicant pool in those states. 

Chairman ALTMIRE. That was a question that was of great interest to a Member of the Committee who is unable to be here today, 

so just for your staff that are here, you may be receiving further 

questions about that issue. 

Dr. FRANANO. We got assistance from the Missouri Fast organization, which was outstanding in addition to Jo Anne’s work at 

NIH has been great. Our head of research and development, I 

think has talked to you several times and come back with glowing, 

you know, feedback, that the program that you put together really 

makes the program accessible. Because there can be a black box 

phenomenon for people who are approaching a big program like 

this for the first time and to the extent that you do outreach and 

you send out your newsletters and you are accessible for people 

who are just getting started without making them feel foolish. 

Because when you start, you are raw and you, you know, it is 

a bit embarrassing how bad your first business plan is and how 

bad your first grant is and I think the organization does a nice job 

in making people feel like everybody is bad the first time, you 

know. I guess Roger Clemens is next door, right? You’re going to 

give up home runs in the minor leagues. It’s good for people to 

have that accessibility to the program, because I do think that the 

goal of encouraging the formation of new businesses and the development of new technology is an important goal for the country for 

people and for our economy, and to the extent that these are really 

high-risk ventures, and I think it is fair for the taxpayers to share 

in the risk of this high-risk or early-stage development, because 

they will, in the end, get the rewards. I think it is a reasonable 

thing for the taxpayer to invest in, because I often find that our 

individual angel investors are really philanthropic, early stage investors. They are people who have made a fair amount of money 

at a business and are investing because they would love the idea 

that they invested in something early that had a big impact on people’s lives. They are really being, I never tell them that, I always 

tell them that they’re going to make money. But at base they know 

that I think they’re going to make money, but at some level it is 

philanthropy, and it is asking a lot of individual angel investors to 

accept the risk when the benefit of the technology is going to benefit everyone. 

So I do think to the extent that the SBIR program can help 

spread that risk to the population that’s going to benefit from, and 

I think it is a legitimate use of the taxpayer’s money. 

Chairman ALTMIRE. Just to continue the mutual admiration society and wrapping it up, I do want to again recognize Mr. Graves, 

who is one of the leaders in the entire Congress on these research 

25

issues and biotech and life sciences firms are important to him and 

his District, and I’ve worked very closely with him on those issues 

and I really wanted to thank him in his absence for helping set this 

hearing up and for his leadership on the issues. I want to thank 

the entire panel. I apologize for the couple of breaks we had to 

take, which were beyond our control. I know you have other commitments on your time, and the fact that you stayed the whole 

time and your staff was here, I really appreciate it on the behalf 

of the committee. Thank you, and this hearing is now adjourned. 

[Whereupon, at 11:49 a.m., the hearing was concluded.]

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