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[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]

 
                     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

                                 ______

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

WILLIAM JEFFERSON, Louisiana         STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina         ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas              SAM GRAVES, Missouri
RICK LARSEN, Washington              TODD AKIN, Missouri
RAUL GRIJALVA, Arizona               BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine               MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois               STEVE KING, Iowa
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin                LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania          DEAN HELLER, Nevada
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  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 GONZALEZ, Texas              VACANT, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

        .........................................................

                                  (ii)

  
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                            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)

  

                     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 minority-owned 
businesses apply for SBIR awards.
    This Subcommittee will also focus on initiatives that the 
NIH has developed to support the successful commercialization 
of SBIR-funded 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.
    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.
    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 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.
    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, progressive disease that results from the death 
of the dopamine-producing 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 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 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 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 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.
    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 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 Velazquez, 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 bio-pharmaceutical 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.
    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 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 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 Velazquez 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?
    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 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 
impact 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 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?
    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 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?
    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 pre-screen, 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 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 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 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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