[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 ______ U.S. GOVERNMENT PRINTING OFFICE 39-790 WASHINGTON : 2008 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001 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) ? 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.]