AN ASSESSMENT OF THE SBIR PROGRAM AT THE NATIONAL INSTITUTES OF HEALTH

Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program

Policy and Global Affairs

Charles W. Wessner, Editor

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

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Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Policy and Global Affairs Charles W. Wessner, Editor

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the Councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by Contract/Grant No. DASW01-02-C-0039 between the Na- tional Academy of Sciences and the U.S. Department of Defense, NASW-03003 between the National Academy of Sciences and the National Aeronautics and Space Administra- tion, DE-AC02-02ER12259 between the National Academy of Sciences and the U.S. Department of Energy, NSFDMI-0221736 between the National Academy of Sciences and the National Science Foundation, and N01-OD-4-2139 (Task Order #99) between the National Academy of Sciences and the U.S. Department of Health and Human Services. The content of this publication does not necessarily reflect the views or policies of the Department of Health and Human Services, nor does mention of trade names, commercial products, or organizations imply endorsement by the U.S. Government. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-10951-2 International Standard Book Number-10: 0-309-10951-5 Limited copies are available from the Policy and Global Affairs, National Research Coun- cil, 500 Fifth Street, N.W., Washington, DC 20001; 202-334-1529. Additional copies of this report are available from the National Academies Press, 500 Fifth Street, N.W., Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu. Copyright 2009 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a man- date that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examina- tion of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the Na- tional Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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Committee for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Chair Jacques S. Gansler (NAE) Roger C. Lipitz Chair in Public Policy and Private Enterprise and Director of the Center for Public Policy and Private Enterprise School of Public Policy University of Maryland David B. Audretsch Charles E. Kolb Distinguished Professor and President Ameritech Chair of Economic Aerodyne Research, Inc. Development Henry Linsert, Jr. Director, Institute for Development CEO Strategies Columbia Biosciences Corporation Indiana University W. Clark McFadden Gene Banucci Partner Executive Chairman Dewey & LeBoeuf, LLP ATMI, Inc. Duncan T. Moore (NAE) Jon Baron Kingslake Professor of Optical Executive Director Engineering Coalition for Evidence-Based Policy University of Rochester Michael Borrus Kent Murphy Founding General Partner President and CEO X/Seed Capital Luna Innovations Gail Cassell (IOM) Linda F. Powers Vice President, Scientific Affairs and Managing Director Distinguished Lilly Research Scholar Toucan Capital Corporation for Infectious Diseases Eli Lilly and Company Tyrone Taylor President Elizabeth Downing Capitol Advisors CEO on Technology, LLC 3D Technology Laboratories M. Christina Gabriel Charles Trimble (NAE) Director, Innovation Economy CEO, retired The Heinz Endowments Trimble Navigation Trevor O. Jones (NAE) Patrick Windham Founder and Chairman President Electrosonics Medical, Inc. Windham Consulting 

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PROJECT STAFF Charles W. Wessner Sujai J. Shivakumar Study Director Senior Program Officer McAlister T. Clabaugh Adam H. Gertz Program Associate Program Associate David E. Dierksheide Jeffrey C. McCullough Program Officer Program Associate RESEARCH TEAM Zoltan Acs David H. Finifter University of Baltimore The College of William and Mary Alan Anderson Michael Fogarty Consultant University of Portland Philip A. Auerswald Robin Gaster George Mason University North Atlantic Research Robert-Allen Baker Albert N. Link Vital Strategies, LLC University of North Carolina Robert Berger Rosalie Ruegg Robert Berger Consulting, LLC TIA Consulting Grant Black Donald Siegel University of Indiana South Bend University of California at Riverside Peter Cahill Paula E. Stephan BRTRC, Inc. Georgia State University Dirk Czarnitzki Andrew Toole University of Leuven Rutgers University Julie Ann Elston Nicholas Vonortas Oregon State University George Washington University Irwin Feller American Association for the Advancement of Science i

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POLICY AND GLOBAL AFFAIRS Ad hoc Oversight Board for Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Robert M. White (NAE), Chair University Professor Emeritus Electrical and Computer Engineering Carnegie Mellon University Mark B. Myers Anita K. Jones (NAE) Senior Vice President, retired Lawrence R. Quarles Professor Xerox Corporation of Engineering and Applied Science School of Engineering and Applied Science University of Virginia ii

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Contents PREFACE xiii SUMMARY 1 1 INTRODUCTION 10 1.1 Small Business Innovation Research Program Creation and Assessment, 10 1.2 SBIR Program Structure, 11 1.3 SBIR Reauthorizations, 12 1.4 Structure of the NRC Study, 13 1.5 SBIR Assessment Challenges, 14 1.6 Structure of This Report, 18 2 FINDINGS AND RECOMMENDATIONS 19 3 SBIR AWARDS AT NIH 42 3.1 Introduction, 42 3.2 Phase I Awards, 43 3.2.1 Number of Phase I Year 1 Awards, 43 3.2.2 Phase I—Award Size, 43 3.2.3 Phase I New Winners, 45 3.2.4 Phase I—Distribution Among the States and Within Them, 48 3.2.5 Phase I Awards—By Company, 53 3.2.6 Phase I Awards—Woman- and Minority-owned Firms, 55 ix

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x CONTENTS 3.2.7 Phase I Awards—By IC, 59 3.2.8 Phase I—Extended Awards: Year 2 of Support, 59 3.2.9 Phase I—Supplementary Funding, 59 3.3 Phase II Awards, 61 3.3.1 Phase II—Extended Awards, 61 3.3.2 Competing Continuation Awards, 62 3.3.3 Phase II Awards—By Company, 63 3.3.4 Phase II Awards—By State, 63 3.3.5 Phase II Women and Minorities, 68 3.3.6 Phase II—Awards by IC, 70 3.4 Phase I Applications, 70 3.4.1 Phase I Applications—By IC, 70 3.4.2 Resubmissions, 70 3.5 Phase II Applications, 72 3.5.1 Success Rates, 72 3.5.2 Phase II—Resubmissions, 72 3.6 Contracts at NIH, 74 3.7 Program Announcements and Requests for Applications, 74 4 NIH SBIR PROGRAM—OUTCOMES 79 4.1 Introduction, 79 4.2 Commercialization, 80 4.2.1 Proposed Commercialization Indicators and Benchmarks, 80 4.2.2 Sales and Licensing Revenues from NIH SBIR Awards, 81 4.3 Agency Mission, 110 4.3.1 Targeted Populations, 110 4.3.2 Agency-identified Requirements and SBIR Contracts, 112 4.3.3 Identifying Mechanisms for Supporting Public Health Through Qualitative Approaches, 113 4.3.4 Education, 115 4.3.5 Cost Savings, 115 4.3.6 Visionary and Long-term Research, 115 4.3.7 Niche Products, 116 4.4 Support for Small, Woman-owned, and Minority Business, 117 4.4.1 Small Business Shares of NIH Funding, 118 4.4.2 The Decision to Begin the Project, 121 4.4.3 Company Foundation, 122 4.4.4 Company Foundation and Academia, 122 4.4.5 Growth Effects, 122 4.4.6 Support for Woman- and Minority-owned Businesses, 123

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xi CONTENTS 4.5 SBIR and the Expansion of Knowledge, 125 4.5.1 Patents, 125 4.5.2 Scientific Publications, 127 4.5.3 SBIR and Universities, 128 5 PROGRAM MANAGEMENT AT NIH 130 5.1 Introduction, 130 5.2 Background, 130 5.3 Outreach, 131 5.3.1 Attracting the Best Applicants, 132 5.3.2 Applications and Awards from Underserved States, 134 5.3.3 New Applicants, 135 5.3.4 Conclusions, 136 5.4 Topics, 137 5.4.1 Standard Procedure at NIH—The Omnibus Annual Solicitation, 137 5.4.2 Procedures for Program Announcements (PAs) and Requests for Applications (RFAs), 137 5.5 Selection, 138 5.5.1 Study Sections, 139 5.5.2 Selection Procedures, 141 5.5.3 Post-meeting Procedures, 142 5.5.4 Positive and Negative Elements of NIH Peer Review Process, 143 5.5.5 Confidentiality and IP Issues, 144 5.5.6 Metrics for Assessing Selection Procedures, 145 5.5.7 Funding Cycles and Timelines: The NIH Gap-reduction Model, 152 5.5.8 NIH Selection Initiatives, 153 5.6 Fast Track at NIH, 154 5.7 Funding: Award Size and Beyond, 156 5.7.1 Larger Awards at NIH, 156 5.7.2 Supplementary Funding, 157 5.7.3 Duration of Awards, 158 5.7.4 Award size: Conclusions, 160 5.8 Commercialization support, 161 5.8.1 Background, 161 5.8.2 Overview, 161 5.8.3 The Commercialization Assistance Program (CAP), 162 5.8.4 Niche Assessment Program (NAP) (for Phase I winners), 164 5.8.5 Outcomes and Metrics, 165 5.9 Evaluation and Assessment, 166

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xii CONTENTS APPENDIXES A NIH SBIR Program Data 171 B NRC Phase II and Firm Surveys 241 C NRC Phase I Survey 267 D Case Studies 275 E Bibliography 425

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Preface Today’s knowledge-based economy is driven in large part by the nation’s capacity to innovate. One of the defining features of the U.S. economy is a high level of entrepreneurial activity. Entrepreneurs in the United States see opportu- nities and are willing and able to take on risk to bring new welfare-enhancing, wealth-generating technologies to the market. Yet, while innovation in areas such as genomics, bioinformatics, and nanotechnology present new opportunities, converting these ideas into innovations for the market involves substantial chal- lenges.1 The American capacity for innovation can be strengthened by addressing the challenges faced by entrepreneurs. Public-private partnerships are one means to help entrepreneurs bring new ideas to market.2 The Small Business Innovation Research (SBIR) program is one of the largest examples of U.S. public-private partnerships. An underlying thesis of the program is that small businesses can be a strong area for new ideas, but that they likely will need some support in their early stages, thus the desirability for public- private partnerships in the small business, high-technology arena. Founded in 1982, SBIR was designed to encourage small business to develop new processes and products and to provide quality research in support of the many missions of the U.S. government. By including qualified small businesses in the nation’s R&D effort, SBIR awards are intended to stimulate innovative new technologies 1 See Lewis M. Branscomb, Kenneth P. Morse, Michael J. Roberts, Darin Boville, Managing Technical Risk: Understanding Priate Sector Decision Making on Early Stage Technology Based Projects, Gaithersburg, MD: National Institute of Standards and Technology, 2000. 2 For a summary analysis of best practice among U.S. public-private partnerships, see National Research Council, Goernment-Industry Partnerships for the Deelopment of New Technologies: Summary Report, Charles W. Wessner, ed., Washington, DC: The National Academies Press, 2002. xiii

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xi PREFACE to help agencies meet the specific research and development needs of the nation in many areas, including health, the environment, and national defense. As the SBIR program approached its twentieth year of operation, the U.S. Congress asked the National Research Council to conduct a “comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet federal research and development needs” and make recommendations on still further improvements to the program. 3 To guide this study, the National Research Council drew together an expert committee that includes eminent economists, small businessmen and women, and venture capitalists, led by Dr. Jacques Gansler of the University of Maryland (formerly Undersecretary of Defense for Acquisition and Technology.) The membership of this committee is listed in the front matter of this volume. Given the extent of “green-field research” required for this study, the Steering Committee in turn drew on a distinguished team of researchers to—among other tasks—administer surveys and case studies, and to develop statistical information about the pro- gram. The membership of this research team is also listed in the front matter to this volume. This report is one of a series published by the National Academies in re- sponse to the Congressional request. The series includes reports on the Small Business Innovation Research Program at the Department of Defense, the De- partment of Energy, the National Aeronautics and Space Administration, the National Institutes of Health, and the National Science Foundation—the five agencies responsible for 96 percent of the program’s operations. It includes, as well, an Overview Report that provides assessment of the program’s operations across the federal government. Other reports in the series include a summary of the 2002 conference that launched the study, and a summary of the 2005 confer- ence on SBIR and the Phase III Challenge of Commercialization that focused on the Department of Defense and NASA. PROJECT ANTECEDENTS The current assessment of the SBIR program follows directly from an earlier analysis of public-private partnerships by the National Research Council’s Board on Science, Technology, and Economic Policy (STEP). Under the direction of Gordon Moore, Chairman Emeritus of Intel, the NRC Committee on Government Industry Partnerships prepared eleven volumes reviewing the drivers of coop- eration among industry, universities, and government; operational assessments of current programs; emerging needs at the intersection of biotechnology and information technology; the current experience of foreign government partner- ships and opportunities for international cooperation; and the changing roles of 3 See SBIR Reauthorization Act of 2000 (H.R. 5667-Section 108).

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x PREFACE government laboratories, universities, and other research organizations in the national innovation system.4 This analysis of public-private partnerships included two published studies of the SBIR program. Drawing from expert knowledge at a 1998 workshop held at the National Academy of Sciences, the first report, The Small Business Innoa- tion Research Program: Challenges and Opportunities, examined the origins of the program and identified some operational challenges critical to the program’s future effectiveness.5 The report also highlighted the relative paucity of research on this program. Following this initial report, the Department of Defense asked the NRC to assess the Department’s Fast Track Initiative in comparison with the operation of its regular SBIR program. The resulting report, The Small Business Innoa- tion Research Program: An Assessment of the Department of Defense Fast Track Initiatie, was the first comprehensive, external assessment of the Department of Defense’s program. The study, which involved substantial case study and survey research, found that the SBIR program was achieving its legislated goals. It also found that DoD’s Fast Track Initiative was achieving its objective of greater com- mercialization and recommended that the program be continued and expanded where appropriate.6 The report also recommended that the SBIR program overall would benefit from further research and analysis, a perspective adopted by the U.S. Congress. SBIR REAUTHORIZATION AND CONGRESSIONAL REQUEST FOR REVIEW As a part of the 2000 reauthorization of the SBIR program, Congress called for a review of the SBIR programs of the agencies that account collectively for 96 percent of program funding. As noted, the five agencies meeting this criterion, by size of program, are the Departments of Defense, the National Institutes of Health, the National Aeronautics and Space Administration, the Department of Energy, and the National Science Foundation. HR 5667 directed the NRC to evaluate the quality of SBIR research and evaluate the SBIR program’s value to the agency mission. It called for an as- sessment of the extent to which SBIR projects achieve some measure of com- 4 For a summary of the topics covered and main lessons learned from this extensive study, see National Research Council, Goernment-Industry Partnerships for the Deelopment of New Technolo- gies: Summary Report, op. cit. 5 See National Research Council, The Small Business Innoation Research Program: Challenges and Opportunities, Charles W. Wessner, ed., Washington, DC: National Academy Press, 1999. 6 See National Research Council, The Small Business Innoation Research Program: An Assess- ment of the Department of Defense Fast Track Initiatie, Charles W. Wessner, ed., Washington, DC: National Academy Press, 2000. Given that virtually no published analytical literature existed on SBIR, this Fast Track study pioneered research in this area, developing extensive case studies and newly developed surveys.

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xi PREFACE mercialization, as well as an evaluation of the program’s overall economic and noneconomic benefits. It also called for additional analysis as required to support specific recommendations on areas such as measuring outcomes for agency strat- egy and performance, increasing federal procurement of technologies produced by small business, and overall improvements to the SBIR program. ACKNOWLEDGMENTS On behalf of the National Academies, we express our appreciation and recognition for the insights, experiences, and perspectives made available by the participants of the conferences and meetings, as well as survey respondents and case study interviewees who participated over the course of this study. We are also very much in debt to officials from the leading departments and agencies. Among the many who provided assistance to this complex study, we are espe- cially in debt to Kesh Narayanan, Joseph Hennessey, and Ritchie Coryell of the National Science Foundation, Michael Caccuitto of the Department of Defense, Robert Berger and later Larry James of the Department of Energy, Carl Ray and Paul Mexcur of NASA, and—particularly relevant for this volume—Jo Anne Goodnight and Kathleen Shino of the National Institutes of Health. The Committee’s Research Team deserves major recognition for their in- strumental role in the Research Team’s preparation of this report. Special thanks are due to Robin Gaster who led the NIH assessment of the program for the Committee and made many valuable analytical contributions to the Committee’s deliberations. Thanks are also due to Paula Stephan of Georgia State University and to Andrew Toole of Rutgers University, who conducted numerous case studies and were active and effective contributors to the Committee’s analysis. Without their collective efforts, amidst many other competing priorities, it would not have been possible to prepare this report. NATIONAL RESEARCH COUNCIL REVIEW This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures ap- proved by the National Academies’ Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the process. We wish to thank the following individuals for their review of this report: Richard Bendis, Innovation Philadelphia; William Bonvillian, Massachusetts Institute of Technology; Michael Gallaher, Research Triangle Institute; Marsha

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xii PREFACE Schachtel, Johns Hopkins University; and Michael Squillante, Radiation Mea- surement Devices, Inc. Although the reviewers listed above have provided many constructive com- ments and suggestions, they were not asked to endorse the conclusions or recom- mendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Robert Frosch, Harvard University, and Robert White, Carnegie Mellon University. Appointed by the National Acad- emies, they were responsible for making certain that an independent examina- tion of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. Jacques S. Gansler Charles W. Wessner

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