MBC Applauds Passage of SBIR Reauthorization in US House of Representatives

April 30, 2008

MBC Played Advocacy Role to Help Biotech Companies Become Eligible for Federal Grants Once Again

On Wednesday, April 23, the U.S House of Representatives voted overwhelmingly in favor of legislation that would once again let MBC member companies with venture capital funding compete for federal small business grants. The final tally was 369 - 43 in favor of Small Business Innovation Research (SBIR) Reauthorization. SBIR grants had been an essential source of early stage funding until 2003, when a Small Business Administration rules change barred some companies with venture backing from program participation. In last week's decision, eight of the ten House members from Massachusetts voted in favor of the MBC position rescinding that rules change and prohibition against venture capital backed firms.

"This is a big win for MBC member companies that are in need of capital for development of new innovative medicines," commented MBC President Robert Coughlin. "This is a clear indication that our congressional leaders recognize that the SBIR program is perfectly suited to help MBC members in their pursuit of solutions for unmet medical needs, and that our members deserve to compete for SBIR funding."

The MBC has been working on SBIR since the 2003 rules change, but the issue gained fresh momentum in the last few weeks when Congresswoman Nydia Velazquez (D - NY), House Chair of the House Small Business Committee, introduced a bill that would modify the eligibility rules affecting venture capital backed small companies. If passed, HR 5819 will increase access to critical, early-stage sources of funding for small businesses, including small biotechnology firms with venture backing, thus facilitating economic growth, job creation, new breakthrough therapies for patients in need, and American economic competitiveness in the global economy.

Introduction of the Velazquez bill was well aligned with the MBC's reinvigorated federal action plan, spearheaded by Coughlin. Last month, as he and MBC staff advocated for industry positions on Capitol Hill, they were able to discuss the SBIR issue in depth with members of the Massachusetts Congressional delegation. The MBC also engaged in an intensive letter writing campaign. (See sidebar, copy of letter MBC sent to MA Congressional delegation on SBIR issue.)

Tom Mathers, President and CEO of Peptimmune, Inc., in Cambridge, noted that promising therapies for hemophilia and Alzheimer's disease developed at two companies he has headed languished because of lack of SBIR funding. Mathers, who recently joined with MBC in meeting with members of the Massachusetts Congressional delegation, hailed the vote as a boost both for companies and for patients.

"Given the established infrastructure of VC backed companies, the SBIR grants would translate immediately into job creation," said Mathers. "A Phase I SBIR grant of $400,000 to my company would provide an opportunity for us to hire 2-3 new employees immediately." Mathers continued, "The irony about this limitation is that foundations that sponsor some research will only provide grants that are in VC backed companies…this VC investment serves as validation of the technology or management within the company!"

In 2003, the Small Business Administration ruled that companies more than 51% controlled by venture capital firms were ineligible for SBIR grants under an arcane interpretation of SBA ownership rules. The rule also impacted companies whose venture capital supporters had portfolio companies whose employees combined surpassed 500, another interpretation of the "affiliate" rule that has impacted our small member companies.

Specifically, HR 5819 would allow an SBIR applicant to be majority owned by VCs, with some conditions: a VC could not own greater than 51% of the company; no single VC has majority control of the board; and, the biotech could have ownership by no more than 2 corporate VC's (with a total of 20% ownership collectively). The last condition was developed due to concerns by House Members about "large companies" participating in the program.

MBC will now shift focus to the Senate, where the Small Business Committee has yet to mark up its SBIR reauthorization bill. Senator John Kerry of Massachusetts is chair of the Senate's Small Business Committee, and MBC will continue our efforts, and work with Senator Kerry and his able staff to advocate that venture backed companies from Massachusetts need and deserve to compete for SBIR funding.

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