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TMCNet: House Measure Reauthorizes BIO-Backed SBIR Grants

[April 25, 2008]

House Measure Reauthorizes BIO-Backed SBIR Grants

(BioWorld Today Via Acquire Media NewsEdge) WASHINGTON - The House approval last week of a measure to reauthorize the Small Business Innovation Research (SBIR) program was a positive step for the biotech industry. The question now is if the Senate will follow suit.

In a 368-43 vote Wednesday night, the House passed H.R. 5819, which reauthorizes the SBIR program. The Senate has yet to introduce a companion bill, but several members of that chamber, led by Sen. John Kerry (D-Mass.), chairman of the Senate Small Business and Entrepreneurship Committee, have been working on legislation.

The SBIR program, which is set to expire Sept. 30, was created in 1982 under the Small Business Innovation Development Act to provide competitive grants to small businesses in the U.S. to encourage exploration of new technologies.

If the bill expires, government agencies could stop funding new SBIR research and development.

To be eligible for SBIR grants, the Small Business Administration (SBA) requires firms to be at least 51 percent owned by one or more individuals who are U.S. citizens or permanent resident aliens. A firm, together with its affiliates, can have no more than 500 employees.

Under SBA rules, if the agency determines that a venture capital company is affiliated with the firm, not only are the employees of the venture capital company included in the size determination, but so are the employees of all other firms that the venture capital company is invested in.

If a majority of a firm's equity is held by multiple venture capital operating companies, regardless of the size of any single company's share, it is not considered independently owned and operated and therefore precluded from being considered a small business by the federal government.

However, if enacted, the House legislation would allow small firms that are majority-venture backed to again participate in the SBIR grants program.

"Congress has recognized the capital-intensive needs of emerging biotechnology companies, whose development of a single new therapy often costs hundreds of millions of dollars and takes more than a decade to reach patients," said Jim Greenwood, CEO of the Biotechnology Industry Organization (BIO).

"BIO and patient advocacy groups around the world are especially pleased that the House reinstated the eligibility of small biotechnology companies with majority venture capital investment to compete for SBIR funding," he said in a statement. "Both venture capitalists and the government's SBIR program intend to fund the most promising science. These two sources of funding should work in a complementary manner to bring new therapies and innovations to the marketplace, ultimately to benefit patients and consumers," Greenwood added.

The bill was opposed by small business groups, including the American Small Business League and the National Small Business Association (NSBA), who argued that the legislation would give wealthy investors access to billions of dollars in federal small business contracts and grants.

While Section 201 of H.R. 5819 would continue to prohibit larger venture capital firms from owning a controlling interest in an SBIR grantee, it would allow two or more VC firms to own the entire firm.

"Such syndicates easily could assume de facto control over SBIR companies through joint ownership, control or operation agreements or third-party control of multiple VCs," the NSBA said in a statement.

Most significantly, the group said, the bill removes critical large-business participation restrictions from the SBIR program, "all but eliminating small business" from the SBIR program.

While the NSBA said it had "grave concerns" with the specifics of the legislation, it supported the bill's passage, stating that "it is imperative that the program soon be reauthorized." n

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Copyright ? 2008 Thomson BioWorld, All Rights Reserved.

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