3
SBIR Awards at NIH

3.1
INTRODUCTION

This chapter reviews awards made by NIH. The analysis uses data supplied by NIH, and as such reflects some of the advantages and disadvantages of NIH methods of capturing and providing data.

NIH provides data separately for each year of an award, and awards cannot in all cases be connected consistently across award years. Some analysis is therefore presented by award year, rather than by award. Thus, in some cases, our analysis is based on indirect estimates rather than directly on primary data. (These cases are identified below.)

In addition, NIH, citing confidentiality concerns, has not provided NRC with complete access to NIH data. This also means that there may be some areas where NRC analysis is incomplete or not possible.

Finally, NIH has been working since 2005 to correct some problems in the NIH data related to the distribution of awards to woman- and minority-owned businesses that were originally identified by the NRC study.1

While about 95 percent of all NIH SBIR awards are grants, a small number of SBIR contracts are awarded each year. These are selected based on the same review criteria but using procedures different than the SBIR award review cycle,

1

Note: Following discussions with the NRC staff, the NIH made an effort to recalculate the data for woman and minority owners’ participation in the SBIR program. In September 2007, the NIH provided corrected data, which is shown in Appendix A and in several figures in this report. However, apparent anomalies in the NIH data on the participation of women and minorities in 2001-2002 could not be resolved by the time of publication of this report.



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3 SBIR Awards at NIH 3.1 INTRODUCTION This chapter reviews awards made by NIH. The analysis uses data supplied by NIH, and as such reflects some of the advantages and disadvantages of NIH methods of capturing and providing data. NIH provides data separately for each year of an award, and awards cannot in all cases be connected consistently across award years. Some analysis is therefore presented by award year, rather than by award. Thus, in some cases, our analysis is based on indirect estimates rather than directly on primary data. (These cases are identified below.) In addition, NIH, citing confidentiality concerns, has not provided NRC with complete access to NIH data. This also means that there may be some areas where NRC analysis is incomplete or not possible. Finally, NIH has been working since 2005 to correct some problems in the NIH data related to the distribution of awards to woman- and minority-owned businesses that were originally identified by the NRC study.1 While about 95 percent of all NIH SBIR awards are grants, a small number of SBIR contracts are awarded each year. These are selected based on the same review criteria but using procedures different than the SBIR award review cycle, 1 Note: Following discussions with the NRC staff, the NIH made an effort to recalculate the data for woman and minority owners’ participation in the SBIR program. In September 2007, the NIH provided corrected data, which is shown in Appendix A and in several figures in this report. However, apparent anomalies in the NIH data on the participation of women and minorities in 2001-2002 could not be resolved by the time of publication of this report. 

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 SBIR AWARDS AT NIH and they are designed to meet specific technical needs of NIH Institutes and Centers (ICs).2 This chapter focuses primarily on awards. 3.2 PHASE I AWARDS 3.2.1 Number of Phase I, Year One Awards While funding for NIH and thus for the NIH SBIR program has substantially increased in recent years, the number of Phase I, year one awards awarded has not.3 In fact, the number of Phase I awards grew by about 25 percent between 1999 and 2004, before falling by 18.5 percent in 2005.4 It is possible that the decline shown in Figure 3-1 represents an important shift in the NIH SBIR pro- gram, as fewer Phase I awards might indicate an effort to concentrate resources of fewer, larger, Phase I awards or on Phase II. 3.2.2 Phase I—Award Size Unlike almost all other agencies and units, NIH does not strictly cap the size of Phase I and Phase II awards. Instead, NIH has applied for and received a blanket waiver from the SBA SBIR administrator. Figure 3-2 shows that the mean size of Phase I, year one awards has increased substantially at NIH in recent years. Even though there was no change in the Congressionally mandated maxi- mum award size, the mean size of a Phase I, year one award5 increased by ap- proximately 70 percent between 1998 and 2005, reaching $171,806 in the latter year. A comparison of Figures 3-1 and 3-2 shows that the post-1999 increase in NIH SBIR funding has been directed more at increasing the size of Phase I awards than at increasing their number. This is consistent with the opinion ex- pressed by some NIH SBIR staffers that funding should be more heavily con- centrated on the highest-quality applications. This effect is more pronounced for Phase II awards, as we shall see below. In fact, NIH now consistently makes Phase I awards that are substantially 2 ICs are the administrative unit at NIH. There are now 27 ICs—such as the National Cancer Insti- tute—and 23 provide SBIR awards. 3 Because NIH counts awards separately by award year, it is important to differentiate between the first year of an award and subsequent years, which are treated by NIH for data purposes as separate awards. 4All awards data in this chapter are based on data provided privately by NIH to NRC, drawn from NIH awards databases. Provided by NIH SBIR Program Coordinator. Because SBA data is main- tained differently, cross-checks against the SBA database are not possible. 5 NIH differentiates between the first and second years of a Phase I award. In some cases (see be- low), NIH Phase I awards are supported into a second year; however, this second year of support is not typically at a level comparable to the first year, and is therefore excluded from this analysis.

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 SBIR AT THE NATIONAL INSTITUTES OF HEALTH 1,400 1,200 Number of Phase I Grants 1,000 800 600 400 200 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Fiscal Year FIGURE 3-1 Number of Phase I awards at NIH, 1992-2005. SOURCE: National Institutes of Health. 3-1 larger than SBA guidelines. The percentage of awards made at or below $100,000 has fallen from 99.7 percent in 1997 to 40.1 percent in 2005. A comparison of the mean and median size of Phase I awards suggests that the growing mean results from a few large awards. The median award size stayed constant at $100,000 from 1995 to 2002; only in FY2003 did it rise to $106,000. However, by 2003, 16.7 percent of awards were for at least $200,000. 200,000 180,000 Mean Award Size (Dollars) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Fiscal Year FIGURE 3-2 Phase I, Year One: Mean award size, 1992-2005. SOURCE: National Institutes of Health. 3-2

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 SBIR AWARDS AT NIH 100 90 Phase I Award Size (Thousands of Dollars) 80 70 0-100 >200 60 Percent 175 - 200 50 150 - 175 40 120 - 150 100 - 120 30 20 10 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year FIGURE 3-3 Oversize Phase I awards at NIH, 1992-2005. SOURCE: National Institutes of Health The role and implications 3-3 changing size of NIH awards are discussed of the separately in Chapter 5—“Program Management.” Converted to grayscale with patterns added for clarity 3.2.3 Phase I New Winners The percentage of new entrants in the SBIR program is an important indica- tor of its openness. The figures underscore that the NIH program is not limited to a subset of possible awardees. Three data sets are especially relevant: the percentage of applications from firms that have previously not won SBIR awards6; the percentage of awards going to firms that have not previously won; and the success rate of previous winners vs. new applicants.7 These data are discussed below. 3.2.3.1 New Applicants NIH tracks firms that have not previously won SBIR awards at NIH. Some of course will have applied unsuccessfully during previous solicitations; others may have won at other agencies, so the data on previous nonwinners at NIH do not show firms that are necessarily completely new to the SBIR program. However, analysis of previous nonwinners at NIH provides useful metrics for determining the openness or inclusiveness of the program. Overall, the data show that a very substantial number of applications con- tinue to come in from firms that have not previously won SBIR awards at NIH, 6Whiledata on applications by new applicants, as opposed to previous nonwinners, would be help- ful, these data are not currently available. 7The “success rate” here is calculated as winning applications as a percentage of all applications.

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 SBIR AT THE NATIONAL INSTITUTES OF HEALTH and that more than a third of SBIR awards go to previous nonwinners. The NIH SBIR program is substantially open to new entrants. The data in Figure 3-4 show that since 2000, an average of 61.8 percent of all Phase I applications are from firms that have not previously won SBIR awards at NIH. This is strong evidence that the opportunities inherent in the NIH SBIR program for the small business biomedical research community are widely un- derstood, and are not limited to a small subset of firms. These data are especially impressive as the number of previous winners has continued to grow sharply during that period, as described immediately below. 3.2.3.2 New Winners Among all companies winning a Phase I award, an average 41.6 percent are first time winners in the NIH SBIR program. At least 35 percent of awards went to previous nonwinners in each year since 2000, although that share has declined from 47 percent in 2000. This decline might partly reflect the fact that the number of previous winners has increased sharply during this period, and that many of these new “previous winner” firms continue to apply for more awards. 3.2.3.3 Success Rates The NIH data permit a comparison of success rates (share of applications that are successful) between new applicants and previous winners. Here there is 65 64 63 62 Percent 61 60 59 58 57 56 55 2000 2001 2002 2003 2004 2005 Fiscal Year FIGURE 3-4 “New” Phase I applicants (percent of all applicants), 2000-2005. SOURCE: National Institutes of Health. 3-4

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7 SBIR AWARDS AT NIH 50 45 40 35 Percent 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 Fiscal Year FIGURE 3-5 Percentage of winning companies new to the NIH SBIR program, 2000- 2005. SOURCE: National Institutes of Health. a clear difference: Previous winners have 3-5 a success rate more than twice that of previous nonwinners. This may be because previous winners are in a sense al- ready certified as bona fide research companies, while the “previous nonwinners” category includes the entire range of applicants. Moreover, previous winners are likely to have a better understanding of the selection process, and to be able to write applications that better address concerns raised by reviewers. 60.0 50.0 40.0 Percent Success rate of new applicants 30.0 Success rate of previously successful applicants 20.0 10.0 0.0 2000 2001 2002 2003 2004 2005 Fiscal Year FIGURE 3-6 Phase I success rates of previous winners and nonwinners, 2000-2005. SOURCE: National Institutes of Health.

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 SBIR AT THE NATIONAL INSTITUTES OF HEALTH The declining rates for both populations since 2001 reflects an increase in the number of applications from 2001-2004, as well as the more recent (FY2005) decline in the absolute number of Phase I awards. 3.2.4 Phase I—Distribution Among the States and Within Them One of the persistent questions about SBIR is the extent to which awards are distributed among the states. Unsurprisingly, NIH Phase I SBIR awards go disproportionately to states with well-established traditions of life-science entre- preneurship (see Table 3-1). For example, California and Massachusetts together account for 34.7 percent of all Phase I awards between 1992 and 2005. The top five award-winning states received approximately 51 percent of all awards between 1992 and 2005, ranging from a high of 57.9 percent in 1994 to a low of 47.3 percent in 2002. Concentration at the top is mirrored in the limited number of awards given to companies in low-award states (see Figure 3-7). The bottom 15 states received 2 percent of all awards 1992-2005, and 1.5 percent in 2005, when six states re- ceived zero Phase I awards, and a further five states received only one. However, outreach efforts by the SBIR program at NIH have supported an increase in the percentage of awards going to the bottom 15 states, which have expanded from barely 0.5 percent of awards in FY1995 to over 3 percent in FY2002 (Figure 3-7). Further analysis suggests that the raw number of awards conceals other significant differences. Although the National Science Foundation (NSF) does not provide data on the number of life scientists in the workforce, it does offer data on life and physical scientists combined. While not a perfect match for the population of NIH primary investigators, this may be a useful proxy for our purposes here. The NSF data show that when awards are denominated by the number of life and physical scientists employed, a few states are very successful, but that many are not. Analysis suggests that the geographical distribution of NIH SBIR awards is understandable. First, Table 3-2 shows that to a considerable extent, awards are made to states which have a high concentration of life scientists. Second, nor- malizing the data by number of life scientists generates results that place New Hampshire, Vermont, and Oregon among the most successful states, even though these states are not the states that receive the most awards. Finally, and perhaps most persuasively, the selection process (discussed in Chapter 5) is such that the geographical location of applicants is unlikely to play any part in decisions, and awardees interviewed for case studies—even from low award states—indicated that they saw no geographical bias in the selection of awardees.

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TABLE 3-1 Phase I Awards—By State, 1992-2005 Number of Phase I Awards by Fiscal Year State 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Grand Total AK 2 1 3 AL 5 11 6 4 7 5 6 10 8 11 9 8 6 4 100 AR 2 1 3 1 2 1 3 4 5 22 AZ 14 11 2 10 8 7 10 11 11 15 26 14 12 8 159 CA 110 114 133 144 117 153 136 201 226 240 238 275 232 178 2,497 CO 8 14 8 12 17 22 20 19 36 22 31 36 34 27 306 CT 17 11 13 13 9 19 12 15 13 13 21 26 19 11 212 DC 4 6 6 6 2 3 6 7 11 11 16 10 5 4 97 DE 2 2 2 2 5 1 6 8 7 4 7 6 4 56 FL 10 11 9 14 11 18 8 11 30 18 23 32 20 16 231 GA 5 3 3 6 8 5 4 4 16 12 12 14 19 6 117 HI 8 5 4 3 3 3 3 2 3 6 3 1 1 1 46 IA 1 1 1 1 3 3 4 5 9 4 2 34 ID 1 1 1 2 4 1 1 1 1 13 IL 13 21 15 22 11 25 22 19 36 35 28 31 22 29 329 IN 5 5 5 6 5 5 3 7 7 9 7 14 11 12 101 KS 1 2 1 1 4 2 4 5 6 4 1 31 KY 2 3 2 1 2 4 1 3 9 13 10 2 4 4 60 LA 3 2 3 1 2 5 2 3 3 2 1 27 MA 91 114 105 100 105 111 120 175 212 193 189 170 152 106 1,943 MD 68 58 52 54 24 60 38 67 63 84 77 114 85 58 902 ME 2 2 1 6 2 1 3 3 2 5 3 2 2 34 MI 15 18 13 17 10 9 22 20 19 35 24 31 27 24 284 MN 11 13 10 21 11 12 16 7 17 21 24 28 18 19 228 MO 6 8 2 1 3 3 4 5 6 8 12 12 10 8 88 MS 1 1 1 1 2 1 1 2 2 1 13 MT 2 1 3 2 3 4 3 1 4 2 25  continued

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TABLE 3-1 Continued 0 Number of Phase I Awards by Fiscal Year State 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Grand Total NC 22 10 15 10 14 21 23 21 32 37 39 35 39 28 346 ND 1 1 2 1 3 8 NE 1 3 1 1 4 2 1 3 3 4 3 3 5 34 NH 4 7 6 3 8 13 4 6 12 18 18 20 7 3 129 NJ 12 20 14 15 21 18 17 27 34 34 42 33 29 23 339 NM 7 2 1 3 1 4 2 8 8 10 8 12 11 4 81 NV 3 1 1 2 3 5 3 18 NY 47 38 32 31 25 28 42 43 62 54 71 53 52 45 623 OH 17 19 12 19 12 26 34 26 39 47 47 50 37 35 420 OK 4 3 2 2 3 2 2 3 7 5 4 5 42 OR 9 11 13 19 16 16 14 18 32 27 34 29 19 12 269 PA 22 19 14 24 21 27 28 24 46 57 56 49 47 41 475 PR 1 1 1 3 RI 1 1 1 3 8 9 10 7 10 8 58 SC 1 1 3 2 3 6 12 8 3 2 41 SD 1 1 1 1 2 2 3 1 1 13 TN 3 3 4 3 2 8 3 2 6 9 8 9 4 4 68 TX 29 25 23 24 22 35 24 39 64 43 46 65 55 37 531 UT 14 11 10 10 7 14 16 14 23 25 23 11 17 8 203 VA 20 23 21 21 14 29 23 22 36 50 37 57 30 20 403 VT 3 6 3 3 1 1 2 3 2 2 8 4 2 40 WA 16 18 17 22 24 30 28 44 48 47 59 48 37 28 466 WI 4 5 12 9 7 10 15 15 16 29 25 27 18 15 207 WV 1 1 2 WY 1 2 3 2 1 4 2 15 Grand Total 636 659 596 666 560 764 725 931 1,233 1,293 1,339 1,393 1,135 862 12,792 SOURCE: U.S. Small Business Administration, Tech-Net Database.

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 SBIR AWARDS AT NIH 3.5 35 30 3 Number of Awards 25 2.5 Percent of Awards 20 2 15 1.5 10 1 5 0.5 0 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Year Number of awards Percent of all awards FIGURE 3-7 Phase I awards to the 15 lowest award-receiving states, 1992-2002. SOURCE: National Institutes of Health. 3-7 3.2.4.1 Concentration Within States Geographic concentration goes considerably further than the state level. Awards are heavily concentrated by zip code. The data for Massachusetts indicate that 590 zip codes received no awards at all, while the top ten zip codes received more than half of all awards. The single top winning zip code at NIH, in San Diego, California, where there is a very high concentration of biomedical firms, received more than twice as many Phase I awards as the second most successful zip code. Concentration can of course be substantially affected by the presence of a single firm: The second most successful zip code in California, Mountain View (94043), received 114 awards, but 69 of those went to a single firm, Panorama Research. 3.2.4.2 Success Rates by State Table 3-3 shows that success rates vary among states. The range is from 0 percent for Alaska to nearly 31 percent for Massachusetts. Table 3-3 shows the relationship between the ranking of states by number of Phase I applications and Phase I awards. Variations in success rates across states could be due to a number of factors, such as:

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 SBIR AT THE NATIONAL INSTITUTES OF HEALTH TABLE 3-2 NIH Phase I Awards per 1,000 Life and Physical Scientists Employed Life and Physical NIH Phase I, NIH Phase I per 1,000 Life Scientists, 2003 2003 and Physical Scientists, 2003 New Hampshire 1,480 14.0 9.5 Vermont 850 6.0 7.1 Massachusetts 20,380 140.0 6.9 Maryland 17,910 90.0 5.0 Oregon 5,870 23.0 3.9 Connecticut 5,670 22.0 3.9 California 64,390 248.0 3.9 Virginia 13,030 40.0 3.1 Ohio 15,100 45.0 3.0 Iowa 3,130 9.0 2.9 Colorado 11,710 33.0 2.8 Indiana 4,070 11.0 2.7 Rhode Island 1,580 4.0 2.5 Michigan 9,390 23.0 2.4 Arizona 5,580 13.0 2.3 Nevada 2,510 5.0 2.0 Wyoming 1,510 3 2.0 Delaware 2,020 4.0 2.0 Minnesota 11,200 22.0 2.0 Washington 16,940 33.0 1.9 New Mexico 3,200 6.0 1.9 Wisconsin 11,220 21.0 1.9 New Jersey 17,530 32.0 1.8 Utah 5,060 9.0 1.8 South Carolina 4,610 8.0 1.7 Maine 1,830 3.0 1.6 SOURCE: National Institutes of Health; and National Science Board, Science and Engineering Indi- cators 00, Arlington, VA: National Science Foundation, 2005. • Level of entrepreneurial activity. • University R&D capacities. • Trained scientists and engineers in the state. • Access to capital. State support activities.8 • Quantifying the impact of any one of these factors, or of other factors, was be- 8 See U.S. General Accounting Office, Federal Research: Ealuations of Small Business Innoation Research Can Be Strengthened, RCED-99-198, Washington, DC: U.S. General Accounting Office, 1999.

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 SBIR AT THE NATIONAL INSTITUTES OF HEALTH TABLE 3-10 Phase II—Top Award Winning States (Percent of all new Phase II awards), 2006 State Percent CA 18.5 MA 13.1 PA 5.9 MD 4.6 OR 4.4 OH 4.1 IL 3.8 TX 3.6 NY 3.3 WA 3.3 SOURCE: U.S. Small Business Administration, Tech-Net Database. in a particular year has declined steadily from 30 in 1992 to 16 in 2002. At the other end of the spectrum, California is the top award-winning state, followed by Massachusetts (see Table 3-10). 3.3.5 Phase II Women and Minorities As with Phase I, several key factors affect the participation of woman- and minority-owned firms in the NIH SBIR program. The data show that the participation of woman- and minority-owned firms in the NIH SBIR program have diverged over the past ten years. While participation of woman-owned firms has trended up since 1998, par- ticipation of minority-owned firms is both very low and declining. The consistent minority-owned participation at less than 4 percent of awards since 2003 is a matter for considerable concern. As noted in Section 3.2.6.4, women account for a large and growing percent- age of recent Ph.Ds in the life sciences. In light of those figures, a participation level of 12 percent for woman-owned firms is still a matter that merits further analysis by NIH. One obvious question is whether these award levels are primarily the result of application patterns, or of success rates. Obviously, application patterns in part stem from Phase I patterns overall, as success at Phase I is a requirement before applying for Phase II. Still, success rates do provide useful information. The data show that minority-owned firms have, as in Phase I, consistently generated lower success rates at Phase II than either woman-owned firms or firms that are neither woman- or minority-owned. Over the past four years (2003-2006), this gap has averaged 9.3 percentage

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 SBIR AWARDS AT NIH 16 14 Percent of all Awards 12 Woman-owned firms 10 Minority-owned firms 8 Linear (Woman-owned 6 firms) Linear (Minority-owned 4 firms) 2 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 Year FIGURE 3-15 Share of Phase II awards to woman- and minority-owned firms, 1992- 2006. NOTE: Following discussions with the NRC staff, the NIH made an effort to recalculate the data for woman and minority owners’ participation in the SBIR program. In Septem- 3-15 new ber 2007, the NIH provided corrected data, which is shown in Appendix A and in several figures in this report. However, apparent anomalies in the NIH data on the participation of women and minorities in 2001-2002 could not be resolved by the time of publication of this report. SOURCE: National Institutes of Health. Awards as Percent of Applications 60 50 40 Woman-owned firms 30 Minority-owned firms Other small businesses 20 10 0 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 Year FIGURE 3-16 Success rates for Phase II applications by woman- and minority-owned firms, 1992-2006. NOTE: Following discussions with the NRC staff, the NIH made an effort to recalculate the data for woman and minority owners’ participation in the SBIR program. In Septem- ber 2007, the NIH provided corrected data, which is shown in Appendix A and in several figures in this report. However, apparent anomalies in the NIH data on the participation 3-16 New of women and minorities in 2001-2002 could not be resolved by the time of publication of this report. SOURCE: National Institutes of Health.

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70 SBIR AT THE NATIONAL INSTITUTES OF HEALTH points (31.3 percent vs. 22.0 percent) as minority-owned firms have succeeded about one third less often than firms that are not minority owned. This is troubling, and warrants immediate attention from NIH. 3.3.6 Phase II—Awards by IC Phase II award distribution by IC follows a pattern similar to Phase I awards. The two largest ICs—NCI and NHLBI—account for 30.8 percent of all awards FY1992-2003, while the five largest IC’s account for 54.9 percent. 3.4 PHASE I APPLICATIONS 3.4.1 Phase I Applications—By IC The number of awards made does not closely track success rates at the level of the IC. Success rates vary very widely by IC, from a high of 29 percent at NS to a low of 5 percent at the Library of Medicine (in 2003). Success rates at the three largest ICs average about 24 percent. It should be noted that the number of applications has declined quite sharply at NIH in 2005 and 2006—down 11 percent and 16 percent respectively. 3.4.2 Resubmissions It is normal practice at NIH to allow companies to resubmit Phase I propos- als. The resubmissions include responses to questions and criticisms from the initial reviewers. This process usually requires a delay of eight or more months, as responses are not usually returned to applicants in time to resubmit during the next funding cycle.16 Figure 3-17 and Figure 3-18 show the percentage of resubmissions in total submissions and the relative success rates for resubmissions and original applica- tions, respectively. Resubmission rates fluctuate somewhat, but the trend since 1992 has been relatively stable; about 20-25 percent of all submissions are resubmissions. Though the success rates of submissions and resubmissions vary by year, resub- missions are overall slightly more likely to be successful than original submis- sions, even though all resubmissions have been rejected at least once and hence are—one might assume—less convincing applications. This suggests that there is often room in proposals for improvements and clarifications that would then permit funding. Perhaps the NIH SBIR program should test mechanisms for improving original proposals, thus saving both the applicant and SBIR staff the time and effort of going through the application process twice. 16 See Chapter 5, Program Management, for more details on funding cycles at NIH.

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7 SBIR AWARDS AT NIH 40 35 30 25 Percent 20 15 10 5 0 92 93 94 95 96 97 98 99 00 01 02 03 04 19 19 19 19 19 19 19 19 20 20 20 20 20 Year Resubmission as percent of applications FIGURE 3-17 Phase I resubmission rates at NIH, 1992-2004. SOURCE: National Institutes of Health. 40 35 3-17 30 25 Percent 20 15 10 5 0 92 93 94 95 96 97 98 99 00 01 02 03 04 19 19 19 19 19 19 19 19 20 20 20 20 20 Year First time success rate Resubmission success rate FIGURE 3-18 Phase I success rates for resubmissions and initial proposals, 1992-2004. SOURCE: National Institutes of Health. 3-18

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7 SBIR AT THE NATIONAL INSTITUTES OF HEALTH 3.5 PHASE II APPLICATIONS 3.5.1 Success Rates The average success rate over all years is approximately 55 percent, and there is no apparent trend in success rates. 3.5.2 Phase II—Resubmissions Resubmissions are still an important part of the application and selection process during Phase II. As shown in Figure 3-19, approximately 30 percent of all Phase II applications are resubmissions. This percentage has remained steady in recent years. These resubmissions can cause a substantial delay in the research of affected companies—in most cases of at least 8 months. Mechanisms for improving the initial selection process to reduce the number of applications where resubmission is needed to clear up minor difficulties should therefore be considered in order to reduce unnecessary delays. Figure 3-20 shows that resubmission success rates are consistently lower than those for initial submissions. This is not surprising, as initial applications will include all applications, while resubmissions will not include the better ap- plications because they were funded initially. It is not clear why this should be true for Phase II and not Phase I, however. Success rates do fluctuate, ranging from a low of 15 percent of 1994 to a TABLE 3-11 Phase II Success Rates, 1992-2005 Fiscal Year All Applications (#) Total Funded (#) Success Rate (%) 1992 551 278 50.5 1993 637 360 56.5 1994 744 351 47.2 1995 780 370 47.4 1996 798 390 48.9 1997 800 468 58.5 1998 827 541 65.4 1999 897 539 60.1 2000 1,023 587 57.4 2001 1,074 683 63.6 2002 1,248 797 63.9 2003 1,299 788 60.7 2004 1,410 792 56.2 2005 1,451 774 53.3 SOURCE: National Institutes of Health.

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7 SBIR AWARDS AT NIH 40 35 30 25 Percent 20 15 10 5 0 92 93 94 95 96 97 98 99 00 01 02 03 04 19 19 19 19 19 19 19 19 20 20 20 20 20 Year Phase II resubmission as percent of applications FIGURE 3-19 Phase II—Resubmission rates, 1992-2004. SOURCE: National Institutes of Health. 70 60 50 3-19 Percent 40 30 20 10 0 92 93 94 95 96 97 98 99 00 01 02 03 04 19 19 19 19 19 19 19 19 20 20 20 20 20 Year Resubmission success rate First-time success rate FIGURE 3-20 Phase II—Success rates for resubmitted and initial applications, 1992- 2004. SOURCE: National Institutes of Health. high of 42 percent in 1997. Since 1997, resubmission success rates have trended 3-20 downward to 27 percent in 2003. In recent years, changes in resubmission suc- cess rates have tracked quite closely with first-time success rates, though at a lower level.

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7 SBIR AT THE NATIONAL INSTITUTES OF HEALTH 3.6 CONTRACTS AT NIH As noted earlier, more than 95 percent of all NIH SBIR awards are grants, not contracts. For Phase I in FY2000, there were 28 contracted Phase I awards, for a total of $2.4 million, in comparison to 969 Phase I grants totaling 114.1 million. Phase I contracts were 2.8 percent of all NIH Phase I SBIR awards. Contracts for Phase II are more prominent, accounting for 28 awards worth $9.1 million, while there were 267 grants totaling $119.7 million. Contracts were 9.75 percent of Phase II awards. Total funding committed for Phase I contracts appears to have increased over time (mostly in line with the general increase in the size of Phase I from $50,000 to $100,000 in FY1998); the number of contracted awards has not increased. Up- dated to 2005, 42 contracts were awarded for a total value of about $5 million. It is worth noting that Phase II contracts are relatively more important, ac- counting for 7.7 percent of all contracts and 5.5 percent of first-year commitments in FY2005. Also, it appears that companies winning Phase I contracts are much more likely to be selected for Phase II contracts than Phase I grantees are to be awarded a Phase II award. Updated to 2005, there were 28 contracts (out of 391 awards), for a total of $21.2 million (out of $409 million total). 3.7 PROGRAM ANNOUNCEMENTS AND REQUESTS FOR APPLICATIONS NIH uses four different funding avenues to support extramural research. Investigator-Initiated Research. Unsolicited: The investigator initiates • the research and submits a award application within an area that is relevant to the NIH. Most applications for NIH support are unsolicited. Program Announcement (PA). Solicited: NIH announces funding oppor- • tunities through award applications or cooperative agreements in a given research area representing a new, ongoing or expanded interest and/or high-priority program; Generally, no set-aside of funds, and applications submitted in response are often considered investigator-initiated in that the applicant has responsibility for the planning, direction, and execution of the proposed project. Request for Applications (RFA). Solicited: NIH solicits research grant • applications for a one-time competition on a specific topic. They describe an IC initiative in a well-defined scientific area to stimulate research in a priority area; SBIR funds are set aside to cover a certain number of awards. Request for Proposals (RFP). Solicited: NIH solicits submissions of • research proposals for a one-time competition on a specific IC topic. SBIR funds are set aside to cover a certain number of awards.

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7 SBIR AWARDS AT NIH RFAs (grants/cooperative agreements) and RFPs (contracts) tend to be used more in problem-oriented research efforts, such as disease-specific programs, especially in their beginning stages (for example, in the early years of the War on Cancer and of research on AIDS and Alzheimer’s disease). There has been an important procedural change with electronic submission of grant applications in that all applications must be submitted in response to a Funding Opportunity Announcement (FOA). FOA is Grants.gov’s terminology for what NIH refers to as Program Announcement (PA), Request for Application (RFA), Program Announcement with special receipt, referral and/or review con- sideration (PAR) and Program Announcement with a set aside (PAS). NIH has issued Parent announcements for the SBIR and STTR program (and developed Omnibus Parent Announcements in November, 2005 for the December 2005 receipt date), for use by applicants who wish to submit, what were formerly termed, “unsolicited” applications. Responding to such an omnibus or umbrella Parent FOA ensures that the correct application package is used and enables NIH to receive the application from Grants.gov. This process in no way diminishes the interest of NIH Institutes and Centers in investigator-initiated, unsolicited research grant applications. Thus an increased use in RFAs could indicate an ICs shift toward identify- ing key areas as “high priority.” However, PAs are, according to NIH staff, better 25 35 Percent of New Phase I Award Dollars Percent of New Phase I Awards 30 20 25 15 20 15 10 10 5 5 0 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year Percent of new Phase I awards Percent of new Phase I award dollars FIGURE 3-21 Phase I—Program announcements, 1997-2005. SOURCE: National Institutes of Health. 3-21

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7 SBIR AT THE NATIONAL INSTITUTES OF HEALTH 8 10 9 Percent of New Phase I Award Dollars 7 Percent of New Phase I Awards 8 6 7 5 6 4 5 4 3 3 2 2 1 1 0 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year Percent of new Phase I awards Percent of new Phase I award dollars FIGURE 3-22 Phase I RFAs, 1992-2005. SOURCE: National Institutes of Health. 3-22 understood as ways to articulate scientific areas NIH supports, but where all ideas are still investigator-initiated/investigator-driven.17 In fact, the data show that SBIR awards have increasingly come from PAs and RFAs. For Phase IIs, RFAs have been used for a minimal share of awards, reaching a maximum of less than 2 percent in 2004 and 2005. PAs have been more important. (See Figures 3-21, 3-22, and 3-23.) The data show that overall, PAs have become an increasingly important component of the award flow within the NIH SBIR program, and that the trend suggests that this importance will continue to increase. This may be of particular importance as PAs can have extra funding or extra years of support attached to them.18 However, it is also apparent RFAs have remained of much lower importance. This is a significant difference, in that RFAs are much more heavily directed by 17 Jo Anne Goodnight, NIH SBIR Program Coordinator, Personal Communication, November 1, 2006. 18 See for example the recent announcement seeking applications for “New Technology for Pro- teomics and Glycomics (SBIR [R43/R44])” (). This provides for up to two years, with $200,000 in support for each year for Phase I, and 4 years and up to $400,000 per year for Phase II. This award was simply the first announcement identi- fied by Google. It was not selected because it was especially large or long term.

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77 SBIR AWARDS AT NIH 16 20 Percent of New Phase II Award Dollars 18 Percent of New Phase II Awards 14 16 12 14 10 12 8 10 8 6 6 4 4 2 2 0 0 1998 1999 2000 2001 2002 2003 2004 2005 Year Percent of new Phase II awards Percent of new Phase II award dollars FIGURE 3-23 Phase II use of PAs at NIH, 1998-2005. SOURCE: National Institutes of Health. 3-23 BOX 3-1 A Note on Data NIH data collection approaches presents some challenges for the purposes of this study. In principle, NIH collects data by award year—which means that each year of an award is separately identified within the database. There are occasionally difficulties in connecting every award year of each award, as grant ID numbers can change, as do other possible connecting fields such as company name and award title. As a result, we have for the purposes on this study developed approximations for award numbers and sizes. Numbers of Phase I awards are estimated by using the first year of SBIR support. Numbers of Phase II awards are estimated by using the second year of support where the award ID indicates that this is a Phase II award. Year two of Phase II support is estimated using year three of support where the award is Phase II, and year three of Phase II support is estimated using year four of support where the award is Phase II. These estimates are undoubtedly not completely accurate. Where companies have received a second year of support during Phase I, the third year of support could be only the first year of Phase II support. In a similar vein, we have generated estimates for average award size by adding the average for different years of Phase II support. It would facilitate fu- ture assessments if NIH would find ways to address these data difficulties as the agency refines its ongoing evaluation and assessment program.

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7 SBIR AT THE NATIONAL INSTITUTES OF HEALTH the agency—proposals made in response to PAs remain, in the words of the SBIR Program Coordinator, “viewed as investigator-initiated.” The data suggest that NIH is moving quite cautiously toward a model where some funding is specifically allocated for agency-directed research, and a much larger amount of funding is distributed so as to encourage research in particular areas.