STTR: An Assessment of the Small Business Technology Transfer Program (2016)

Appendix E

Case Studies

To complement our review of program data, we commissioned case studies of 11 companies that received STTR Phase II awards from the five study agencies. Case studies were an important part of data collection for this study, in conjunction with other sources such as agency data, the survey, meetings with agency staff and other experts, and workshops on selected topics. The impact of STTR funding is complex and often multifaceted, and although these other data sources provide important insights, case studies allow for an understanding of the narrative and history of recipient firms—in essence, providing context for the data collected elsewhere.

Overall, this portfolio sought to capture many of the types of companies that participate in the program. Given the multiple variables at play, the case studies are not presented as any kind of quantitative record. Rather, they provide qualitative evidence about the individual companies selected, and reflect different aspects of the awardee population. The featured companies have verified the case studies presented in this appendix (see Box E-1) and have permitted their use and identification in this report.

ADELPHI TECHNOLOGY, INC.¹

Adelphi Technology, Inc. is a private company founded in 1984 as sole proprietorship by Melvin Piestrup and incorporated 2 years later in 1986. The company produces a range of high energy neutron sources for industrial and

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¹Primary sources for this case study are the interview with Dr. Charles Gary, August 18, 2015, and a review of the Adelphi web site (http://www.adelphitech.com) and related company documents.

research applications. Adelphi is headquartered in Redwood City, CA. For its first ten years, the company focused on the research aspects of SBIR/STTR awards, followed by a further ten years in which it was seeking to identify and develop commercial products.

Dr. Charles K. Gary, Vice President for Operations for Adelphi said that his company, in recent years, has completed its evolution from a research-oriented company into a more product-focused company, and at the same time has focused its attention increasingly on the development and then sale of compact neutron generators (CNGs).

CNGs have a number of advantages over isotopes as sources for neutrons: they can be turned on and off, which makes them in practice safer to handle. They eliminate the significant bureaucratic requirements involved in using isotopes, which for instance require a radioactive materials license while CNGs do not. There are no materials handling issues. CNGs can be provided with a relatively small footprint. And isotopes must be replaced much more

frequently, for which there are disposal costs. So while the cost of the raw source is much higher for CNGs, the overall life cycle cost is lower.

Reduced bureaucratic costs are especially attractive to academics, according to Dr. Gary, as they do not have the resources easily available to ensure compliance. Hence academic labs have been an important initial market.

The focus on CNGs also open the door to broader use of neutron scattering techniques in research and wider commercialization of neutron-based technologies in both new markets (for Adelphi) such as medicine (as an oncology therapy) and security (as a non-invasive sensing technology).

Adelphi operates an onsite neutron laboratory facility at its headquarters in Redwood City. The laboratory supports Adelphi’s own research and development into new generator designs and neutron related applications. The laboratory is also available to customers so they can get first-hand experience with Adelphi neutron sources as they consider incorporating them into their own products.

Adelphi is recognized for its innovative work in the design and development of neutron generators. In 2012, in collaboration with Berkeley’s Lawrence Livermore Laboratory, it won an R&D 100 award for their work developing the company’s DD100 Series of High Output Neutron Generators. In 2013, in collaboration with the University of Florida, Adelphi won a second R&D 100 award for its DD109X High Flux Fast Neutron Source.²

Adelphi maintains research relationships with a broad range of academic, government, and corporate organizations such as the University of California, Berkeley, the University of Florida, Yale University, Indiana University, Rapiscan, Inc., Engility, Inc., and the Savannah River National Laboratory. Adelphi has approximately 10 employees at its headquarters.³

Technology: Neutron Sources

Neutron sources are primary used in materials analysis based on neutron scattering. Because neutrons are electrically neutral, they penetrate matter more deeply than electrically charged particles of comparable kinetic energy. They are, therefore, useful sensors of bulk material properties. In scattering experiments, neutrons cause pronounced interference and energy transfer effects. Because they do not interact well with the electron cloud, interference effects stem from neutron-nucleus interactions.

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²“R&D Magazine 2012 R&D 100 Winners,” R&D Magazine, June 7, 2012, http://www.rdmag.com/articles/2012/06/2012-r-d-100-award-winners; “R&D Magazine 2012 R&D 100 Winners,” R&D Magazine, July 8, 2013, http://www.rdmag.com/award-winners/2013/07/2013-r-d100-award-winners.

³“Our Teammates,” http://www.engilitycorp.com/seaport-e/team-members/.

Until the 1990s, special research facilities were required to generate such neutrons fluxes, either research nuclear reactors or spallation reactors. Researchers applied for beam time to run their experiments at a small group of about 20 research institutions (RIs) globally. The neutron sources developed by Adelphi have much lower capital and operational costs and, although lacking the flux density of these research reactors, are enabling broader use of neutron scattering in research and in industrial applications.⁴

Adelphi neutron sources contain compact linear accelerators that produce neutrons by fusing isotopes of hydrogen together. Deuterium (D), tritium (T), or a mixture of these two isotopes of hydrogen is accelerated into a metal hydride target also containing deuterium, tritium or a mixture. The hydrogen atoms fuse resulting in the formation of helium and a neutron. The energy of the neutrons depends on types of hydrogen isotopes that fused.

The Adelphi technology can produce sufficiently high levels of energetic neutrons for many research and industrial applications. The flux rates of Adelphi’s neutron sources are controllable. Also, the flux is monochromatic (if both the accelerated and target isotopes are the same). For example, deuterium atoms fired at tritium targets produce neutrons with uniform kinetic energies of 14.1 MeV.

The principal industrial applications of neutron scattering are in healthcare and security. In healthcare, boron neutron capture therapy (BNCT) is potentially a new therapy for radiation oncologists. In BNCT, boron-10 is delivered to the tumor, either directly via injection or using antibodies. The tumor is irradiated with a neutron beam. The beam does not interact appreciably with tissue. In the tumor, however, boron-10 transforms into boron-11 which is radioactive and kills the tumor cells. Adelphi has already developed proprietary designs for neutron sources in oncology facilities.⁵

Adelphi is also partnering with government and private entities neutron-based scanning systems for application such as border security, airline-cargo inspection, and investigation of unknown packages. Because fast neutrons (> 1 MeV) have deep penetration of most materials—usually over 1 meter—they have significant advantages over x-rays in non-destructive, non-contact scanning.

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⁴Hammoud, “Introduction to Neutron Scattering,” National Institute of Standards and Technology, http://www.ncnr.nist.gov/staff/hammouda/distance_learning/chapter_6.pdf.

⁵“The Basics of Boron Neutron Capture Therapy,” http://web.mit.edu/nrl/www/bnct/info/description/description.html.

Business Model

Adelphi Technology has supported operations by performing SBIR research and selling products and services. The company generates approximately $1.5 million annually from the provision of products and services related to the design and development of CNGs, including some SBIR/STTR funding.

Adelphi was initially quite dependent on SBIR funding. However in recent years as more products have reached commercialization, the SBIR/STTR share of total revenue has declined. SBIR/STTR now accounts for about one third of company revenues, according to Dr. Gary, down from well over 50 percent in the early years of the company. He anticipates that this percentage will fall further as markets for CNGs mature, and that Adelphi will receive zero SBIR/STTR funding in 2016.

Adelphi typically sells four to five CNG systems annually primarily to academic customers and government research labs, including significant interest abroad. According to Dr. Gary, units cost approximately $200,000-$300,000 although highly customized models can reach $400,000.

Adelphi is also working closely with potential security and healthcare customers to design Adelphi sources as OEM (Original Equipment Manufacturer) parts in their customers’ systems.

Products

Adelphi has designed and developed neutron sources, producing sources with neutron energies ranging up to 14 MeV and output levels of up to 10¹⁰ neutrons per second. Recently, the company has added neutron detectors to its product line for use in security and healthcare applications.

Deuterium—Deuterium sources

The deuterium—deuterium (DD) reaction produces neutrons sufficiently energetic (2.5 MeV) for non-destructive elemental identification in a wide range of analytic applications. Like the deuterium—tritium sources, these systems consist of an accelerator head, a power supply (2kW) and control rack, and a heat exchanger/chiller. Because deuterium is non-radioactive, Adelphi’s DD generators source a continuous supply of deuterium gas from an external tank, resulting in a tube head with almost unlimited lifetime. Other internal components can be easily exchanged by the user as needed due to damage or excessive wear. These generators make excellent fast neutron sources for laboratories and industrial applications that require neutrons with safe operation, small footprint, low cost and small regulatory burden.

Deuterium—Tritium Sources

Deuterium—tritium (DT) sources produce much more energetic neutrons (14.1 MeV) than deuterium—deuterium sources. Thus, DT neutrons penetrate further into objects, for more effective screening and imaging. The DT reaction is 100 times more efficient than the DD reaction, so DT sources have substantially lower operating costs. However, both capital and maintenance costs are higher, and higher energy neutrons require heavier shielding to protect users. Furthermore, because tritium itself is radioactive, the tube head is sealed for user safety. The tritium inside is consumed, and eventually the source must be returned to Adelphi for periodic maintenance, typically after several thousand hours of operation. Also, the customer must register DT sources with the Nuclear Regulatory Commission.

Detectors

Adelphi’s detector work has been motivated mostly by the opportunity presented in security applications where the goal is not only to produce neutrons but also to detect their interactions with matter in real time. Detector projects include liquid Argon large volume detectors, a large area scintillation camera, particle imaging, and phoswich detectors for neutron discrimination.

Patents and Other Intellectual Property

Adelphi Technology is the assignee for the U.S. patents listed in Table E-1.

TABLE E-1 Adelphi Technology Patents

SOURCE: U.S. Patent and Trademark Office.

Adelphi Technologies and SBIR/STTR

Between 1984 and 2014, SBIR/STTR funded 91 projects with Adelphi Technology, Inc. amounting to nearly $19.7 million in funding. Of this, DoE accounted for approximately 41 percent, NIH 25 percent, and NSF 17 percent, with the remaining 17 percent from the DoD, NASA, the Department of Homeland Security, and the Department of Transportation. Dr. Gary observed that typically 30 percent of SBIR funding and 40 percent of STTR funding is used for subcontracts.

Adelphi has extensive experience with the DoE SBIR/STTR program. Dr. Gary observed that DoE SBIR/STTR topics were in some cases clearly derived from the research-oriented interests of topic managers, while in others there was a commercial interest as well. Adelphi had initially won a series of more science-oriented awards but as a result of increasing internal focus on commercialization was now more selective in the topics to which it applied. However, some recent awards on neutron optics were in topics that showed limited commercial potential given market realities for that technology.

Dr. Gary was concerned that some topics were simply not funded at all. He believed that DoE should be careful to ensure that topics were excluded from the solicitation if there was no track record of funding. He also suggested that DoE consider funding broader topics. Currently, too many topics are tightly defined technically, which meant that potentially valuable ideas were not considered.

Dr. Gary said that the topic development process at DoE was quite opaque, and he suspected that for a number of topics the process was largely driven by research scientists within DoE. While this resulted in interesting science, he believed that it lacked alignment with commercial opportunities: not all good science is commercially viable.

DoE currently provides one solicitation annually for each broad area of interest; Dr. Gary said that agencies providing more than one solicitation—such as DoD and NIH—were better attuned to the speed of technical development, and that DoE should consider adding at least one additional deadline for solicitations annually.

More generally, Dr. Gary said that connections with DoE staff were very limited. Project liaisons appeared to have other more pressing responsibilities, and in most cases there was almost no contact between the DoE staff and the PI or company representatives beyond the resolution of contracting issues.

In particular, DoE staff were of little help in finding potential markets for the technology within DoE. This contrasts for example with Homeland Security, which clearly considers itself a potential customer for SBIR/STTR products and hence pays quite close attention to progress on the award. Overall, Dr. Gary said that it was very rare to find a DoE program manager who was interested in the funded project; in most cases they simply sought to ensure that no fraud was being perpetrated and that the science was good.

So far as the review process was concerned, Dr. Gary felt that insufficient information was being provided to applicants—in particular, too many applications were graded as excellent but not funded. It would be helpful to have a more granular review that effectively identified weaknesses when projects were not selected.

Dr. Gary was also a strong proponent of better review feedback more generally. He noted that NIH provides an online resource (ERA Commons) where applicants can find all of their applications and all reviews. In contrast, DoE applicants must apply to have a review sent to them, and the window for this application in limited. This substantially reduced the value of the process for the company and imposed unnecessary burdens.

Finally, Dr. Gary wanted to underscore his appreciation for the DoE payments system, which he believed was the best of all the SBIR/STTR agencies. Funding was available immediately and could be pulled in any amount at any time against work and need. This was extremely helpful for a small business, and contrasted very favorably with other agencies that used a milestone-based system.

STTR

Dr. Gary noted that Adelphi typically works with research institutions that are seeking ways to bring their technology to market. In some cases, Adelphi has identified opportunities. In others—for example a current STTR project—the driver is the university where the researcher is the PI. The work in this case is in a fairly esoteric field with minimal commercial potential, but the project has been highly successful technically.

Dr. Gary said that he was a strong supporter of the STTR program, and believed that companies were best placed to determine whether a project should be SBIR or STTR, based on the needs of the project. He observed that a separate solicitation for STTR was likely to generate poor quality partnerships put together primarily to find funding, and that SBIR/STTR should provide a single opportunity for funding.

So far as funding amounts were concerned, Adelphi would certainly consider applying for less funding if there was some benefit for doing so—for example, a higher likelihood of success. As this was not the case for most agencies. The company instead designed the project to meet the funding available.

CALABAZAS CREEK RESEARCH, INC.⁶

Calabazas Creek Research (CCR) is a private company founded in 1994 by Dr. R. Lawrence Ives, who remains President. The company specializes in the design and development of high power electron beam devices, including electron guns and RF sources. In addition to product and service offerings, CCR also licenses software tools for the design of electron beam devices and waveguide components. These software packages simulate particle trajectories, electromagnetic fields, RF fields, thermal performance and RF radiation.

Dr. Ives founded CCR after previously working at for a large defense contractor. While an employee, he reviewed SBIR proposals, and, after starting his company, immediately sought SBIR funding, winning two DoE projects. In both cases, Phase II’s were subsequently awarded and provided a foundation for the company in both financial and technical terms—the technology developed for one of the awards is still the most advanced in the world, according to Dr. Ives. The projects also provided a commercial return, with about six sales of devices for testing high-powered gyrotrons, at approximately $120,000 each,

CCR is primarily a research and development firm, developing high power electron beam devices and components for clients working in communications, defense, and particle physics research. CCR employees prototype designs in a laboratory leased from Communications & Power Industries, a $350 million manufacturer of components for the defense and telecommunications sectors.⁷

CCR is a virtual company. Aside from the lab space noted above, it rents or owns no office space. Two employees work in the laboratory and the remaining staff, located across the country, work from home offices. Dr. Ives said that the company’s very low cost structure substantially reduces its overhead rate (to slightly more than 20 percent), which allows it to pay wages that are considerably higher than the industry standard. The company offers no paid leave and relies on what Dr. Ives believes to be a much more comfortable and productive environment for its staff.

In addition to providing innovative designs for components in medical and defense systems, CCR provides technology to high energy physics research scientists. For example, CCR partnered with the SLAC National Accelerator Laboratory to improve the performance of cavity resonators in linear

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⁶Primary sources for this case study are an interview with Dr. Ives on August 21, 2015, and a review of the Calabazas Creek Research web site (http://www.calcreek.com) and related company documents.

⁷Bill Silverfarb, “It is rocket science,” The Daily Journal, August 15, 2011, http://archives.smdailyjournal.com/articlepreview.php?id=165168.

accelerators. Stronger electric fields within the resonators allow shorter accelerators, potentially saving millions of dollars in construction costs.⁸

CCR has received substantial recognition for its work. In 2011 the company received an R&D 100 Award for developing Controlled Porosity Reservoir Cathodes that significantly improve cathode performance and lifespan. CCR leadership has also been deeply involved in strengthening the SBIR program. In 2012, Lawrence Ives received the Champion of Small Business Innovation award for his part in 2011’s campaign for the long-term reauthorization of SBIR program funding from Congress.⁹

Because CCR produces world leading technology, its products are in demand outside the United States as well. CCR products can be found in Germany, England, India, Japan, Korea, and China. The company is also developing products to meet DoE’s obligations for the ITER project in France.

Technology and Products

Electron Beam Devices

Although semiconductors have displaced vacuum tubes in many logic and communications applications, there remain important niche applications in television transmitters, satellite communications, material processing, defense, and particle accelerators. Calabazas Creek Research designs and develops a broad range of high power, short wavelength devices and components for these applications.

The principle devices produced by CCR include traveling-wave tubes, klystrons, gyrotrons and keystrokes. They operate by modulating a beam of electrons using a mixture of electromagnetic fields and resonance phenomena to generate high power, high frequency RF waves. Although related, these technologies vary in their characteristics and applications.

Much of CCR’s work is in the development of klystron and gyrotron technologies. In a klystron, cavity resonators modulate a high energy electron beam with an input signal and convert the resulting modulated beam into an output signal. High performance klystrons operate at power levels to 10s of MW and frequencies up to approximately 100 GHz.¹⁰ CCR has designed RF

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⁸“SLAC Partners with Small Businesses to Put Technology to Good Use: DOE-funded Program Benefits Companies, the Lab and Society,” July 29, 2014, https://www6.slac.stanford.edu/news/2014-07-29-slac-partners-small-businesses-put-technologygood-use.aspx.

⁹“SBTC Honors” Champions of Small Business Innovation,’ “February 7, 2012, http://www.nsba.biz/content/printer.4422.shtml.”

¹⁰“How do klystrons work?” Berkeley Lawrence Livermore Laboratory, http://www2.lbl.gov/MicroWorlds/ALSTool/ALS_Components/RFSystem/.

sources producing RF power from a few milliwatts to 200 MW and at frequencies from a few hundred MHz to 1 THz.

Gyrotrons also feature a cavity resonator. The resonator operates in combination with strong magnetic fields to transfer electron beam energy into RF radiation. This radiation can be formed into a beam and emitted at right angles to the direction of the original electron beam. High performance gyrotrons operate in the 1-2 MW CW range and up to 250 GHz.¹¹

As in other electron beam devices, the power of a gyrotron is determined by the energy of the electron beam. Consequently, CCR personnel are skilled in designing different components in these devices (such as electron guns, circuits, collectors, RF windows, etc.). Indeed, one of CCR’s most successful innovations—the sintered wire cathode, which CCR licensed to Ceradyne—is a sub-component in an electron gun.

Corrosion Mitigation

CCR is now actively working on using atomic layer deposition (ALD) to dramatically improve the corrosion resistance of copper cooling channels (the company has long experience in designing cooling circuits). A current Navy STTR program is focused on this effort, and Dr. Ives believes that this may provide a breakthrough technology with many applications.

This STTR is in partnership with North Carolina State University, and Dr. Ives noted that these kinds of arrangements allow a small company such as CCR to enter entirely new technology areas by tapping into university expertise and equipment. ALD requires equipment that CCR does not have and could not afford, even with a Phase II STTR award, but that is readily available at NC State.

Design Services

CCR provides design and development services for many electron beam devices. Additionally, it also licenses simulation and computational tools that CCR has developed to design such devices more effectively.

Design and Development

CCR offers a range of services related to the design of electron beam devices. Broadly, they are: 1) hardware design, 2) software development, 3)

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¹¹“What is a gyrotron?” Bridge 12, http://www.bridge12.com/learn/gyrotron; E. Borie, “Review of Gyrotron Research,” Institut für Technische Physik, August 1991, http://bibliothek.fzk.de/zb/kfk-berichte/KFK4898.pdf.

thermomechanical analysis, 4) electromagnetic analysis, and 5) CAD and other design services. Testing and support services are provided by Communications & Power Industries (CPI)¹² in Palo Alto, CA.

Software

CCR markets intuitive, user-friendly software) for a broad range of electromagnetic and particle simulations to the microwave research community.

Patents and Other Intellectual Property

CCR has historically used patents to protect its intellectual property (IP). (see the list of CCR assigned patents in Table E-2). However, Dr. Ives is concerned that the rising costs of patents, particularly maintenance fees, means that CCR will have to become much more selective about which technologies it seeks to patent.

Dr. Ives was also a strong supporter of the recent DoE initiative to permit companies to spend up to $10,000 per Phase II award for patenting costs. He noted that recent proposed changes in Congress impacting the patenting process would have a highly negative effect on small innovative companies like CCR.

Business Model

CCR is not reliant on SBIR/STTR for revenues. Currently, SBIR/STTR provides about 50 percent of annual revenues, according to Dr. Ives. Its customers have included the U.S. Department of Defense, Department of Energy, the National Aeronautics and Space Administration, Raytheon Company, Titan Pulse Sciences, Inc., NexRay, Inc., KLA-Tencor, Inc., Forschungszentrum Karlsruhe (FZK) (Germany), Communications & Power Industries, LLC., TMD Technology, Inc. (United Kingdom), Japan Atomic Energy Association (JAEA), Stanford Linear Accelerator Center, Naval Research Laboratory, Q-Dot, Inc., ARINC, Inc. Heatwave Laboratories, Inc., Surebeam Corporation, Macrometalics, E-Beam, Inc., Omega-P, Inc., MDS Company, Altair, Inc., H.V. Systems (India), and Samsung (Korea). CCR is also working as a subcontractor to provide an electron gun for a major classified defense program.

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¹²Bill Silverfarb, ““It is rocket science.”

TABLE E-2 CCR Patents

SOURCE: U.S. Patent and Trademark Office.

CCR is also successful in licensing intellectual property developed through SBIR funding. In 2010, Ceradyne acquired the intellectual property rights for “sintered wire” technology that enables the production of a tungsten, reservoir, dispenser cathode with applications in electronic counter measures (ECM), telecommunications, medical devices, defense, and scientific research. The licensed technology improved the cathode current density by a factor of ten and extended cathode lifespan by a factor of two to four times (U.S. Patent #: 7,545,089).¹³

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¹³“Ceradyne, Inc.'s Semicon Associates Division Acquires New Ceramic Impregnated Dispenser Cathode Technology,” July 26, 2010, http://www.ceradyne.com/news/newsreleasedetails.aspx?id=192.

CCR also generates income by providing design services to the microwave R&D community. Technical services have been provided to numerous organizations, including Karlsruhe Institute of Technology (Germany), Communications & Power Industries, LLC, (USA) Northrop Grumman Corp. (USA), Samsung (Korea), Japanese Atomic Energy Agency (Japan), and SLAC National Accelerator Laboratory (USA).

Collaborations

CCR is strongly oriented toward collaboration, particularly with academic research partners. It maintains research relationships with various academic laboratories, such as the Massachusetts Institute of Technology, North Carolina State University, University of Maryland, and Rensselaer Polytechnic Institute. CCR also works with several industrial organizations, including Ron Witherspoon, Inc. and HeatWave Labs, Inc. Its list of recent collaborators includes:

• University of California—Berkeley
• Rensselaer Polytechnic Institute
• North Carolin State University
• University of Maryland
• University of Wisconsin
• Old Dominion University
• SLAC National Accelerator Laboratory
• Fermilab
• Sandia National Laboratory
• General Atomics
• Los Alamos National Laboratory
• Communications & Power Industries, LLC

SBIR/STTR

Between 1995 and 2014, SBIR funded 119 projects with Calabazas Creek Research, amounting to nearly $31.4 million. Of this, DoE , provided about 75 percent, DoD provided 23 percent, with the balance from NASA and NSF.

STTR

CCR sees STTR as an enormously helpful program and finds that, in some cases, it is a better vehicle for company initiatives than SBIR (in which the company also participates extensively).

Dr. Ives noted that STTR provides an appropriate structure for partnering with research institutions and also offers access to the creativity and enthusiasm of graduate students. A recent STTR with North Carolina State University led to student-developed designs being incorporated into CCR products.

CCR had differing experiences with universities. Some, such as NC State, offered realistic licensing terms and welcomed collaboration with small companies. Others did not appear to understand the limited resources of small businesses and required unrealistic up front licensing fees and royalties. Similarly, there are often complexities in dealing with university technology transfer offices that limit commercialization.

Partnering with research institutions results in other challenges. In particular, universities and students want to publish their research. It was therefore, in Dr. Ives' view, important to understand this need and provide opportunities to publish without compromising company intellectual property. Dr. Ives believes this can be accomplished, as the record of publications related to CCR-university collaborations shows.

Dr. Ives said that when he sees interesting topics in a solicitation that are outside the company's range of expertise, he seeks possible collaborators through his extensive network of technical experts and is often able to identify appropriate collaborators.

Recommendations for SBIR/STTR

Dr. Ives said that none of CCR's major accomplishments would have been possible without SBIR and STTR. He then offered a number of comments and recommendation related to SBIR/STTR, and in particular the DoE SBIR/STTR program, from which CCR receives most of its SBIR/STTR funding.

Topic development. Dr. Ives noted that the wording of topics in some cases did not change from year to year, which in his view suggested that the agency was not interested in these areas.

Unfunded topics. Some agencies appears to publish topics in areas that are unlikely to be funded. These are often topics that appear year after year with no awards being made. This is a waste of time for companies that apply. Topics that are systematically not funded should be eliminated.

Phase III. Most agencies do not have a Phase III policy in place that supports commercialization of technology developed in the SBIR/STTR program. Recent experience with a national laboratory suggests that operations within agencies are not following the Phase III directives in the current SBIR law. Phase III is currently not seen as a responsibility of the SBIR/STTR program office, and it do not appear that it is the responsibility of any other

office within the agencies. The exception is the U.S. Navy, which established a Phase III policy and insures it is followed by its operational offices.

More recent focus on commercialization. Dr. Ives said that historically, some agencies appeared to have little interest in commercialization, and that most topics were focused more on addressing technology needs rather than development of commercial products. CCR previously applied for many such topics, and received awards, but realized that it was difficult to build a sustainable business on 6-7 percent profit margins. The company has become much more selective about which SBIR/STTR awards it applies for, with a greater emphasis on commercialization potential.

SBA commercialization benchmarks. Dr. Ives supports the new SBA commercialization benchmarks for awardees with a minimum number of awards. He believes that this will encourage firms to take a more commercial view of their activities.

Letters of intent. Dr. Ives said that the letter of intent (LOI) process provided a good opportunity for companies to explore possible applications without committing substantial resources.

CREARE, INC.¹⁴

Creare LLC is a private company founded in 1961 by Robert Dean, Dr. Dean was an Assistant Professor of Mechanical Engineering at MIT in the Gas Turbine Laboratory, the Head of Advanced Engineering at Ingersoll-Rand Company from and an Associate Professor and later Professor of Engineering at Thayer School of Engineering at Dartmouth, prior to starting Creare. Dr. Dean is now Professor of Engineering, emeritus. The company is an engineering research and development company, which both acts as an engineering consultancy and commercializes proprietary technologies through licensing or through the creation of independent product companies. Creare is headquartered in Hanover, New Hampshire, and has approximately 150 employees.

Creare is a partnership. It has seven principal engineers who own and operate the company. According to Dr. Rozzi, “for someone who wants to get their technology implemented and see their ideas manifested in the world, it’s the ideal place to work—an engineering Disney land.”

The company originally provided expertise in fluid dynamics, serving the turbine machinery and nuclear industries during the 1960s and 1970s. In the 1980s, Creare branched out into the energy, aerospace, cryogenics, and materials

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¹⁴Primary sources for this case study are the interview with Jay Rozzi, Principal Engineer, Dr. Rozzi’s presentation at the National Academies workshop on STTR, May 2015, and a review of the Creare, Inc. website (http://www.creare.com) and related company documents.

processing industries. The 1990s brought growth in software, controls, and biomedical applications. Typical deliverables from an engagement with Creare include analysis with results, experimental data, engineering models, design recommendations, software, numerical solutions, prototypes, and hardware designs.

Although Creare’s founding precedes the creation of the SBIR/STTR program, it has proven to be one of the most adept participants in the program. Well positioned by virtue of its capabilities, Creare was able to navigate the early uncertainties in the program because of strong personal ties between then president Jim Block and Warren Rudman, a New Hampshire senator and a key supporter of the original SBIR legislation. Since 1985, Creare has received over 950 awards, $50 million in SBIR Phase I, $197 million in SBIR Phase II, $3.3 million in STTR Phase I, and $10.2 million in STTR Phase II.¹⁵

Creare’s offices and laboratory facilities cover over 60,000 sq. ft. and are located in Hanover, New Hampshire. The office space includes general seating for engineering, technical, and administrative staff, computer facilities, a dedicated technical library, conference rooms and various community spaces. Over half the facility is dedicated to laboratory space, experimental project rigs, machine shops, and specialized fabrication and test apparatus. These extensive facilities and in-house capabilities have been developed and refined over Creare’s 50+ year history to serve its broad range of clients. Creare’s capabilities enable projects that span development activities in mechanical systems and prototypes, electronics, advanced manufacturing, chemical engineering, nuclear engineering, bioengineering, space-qualified systems, materials development, acoustics, cryogenics, etc. Creare’s laboratories are supplied with standardized buses for electric power and pressurized air that enable a broad range of general experimental work. Extensive clean room facilities enable fabrication, assembly, and testing of space-qualified hardware. Its in-house fabrication capabilities are supported by an extensive machine shop and a fully equipped electronics laboratory. To support clients that require qualified and documented hardware, Creare also maintains a quality assurance program and state-of-the-art inspection facilities. Creare’s labs are staffed with approximately 40 highly skilled electrical and mechanical technicians, machinists and support staff who typically support approximately 100 concurrent experimental projects in its laboratories.

Creare also maintains research relationships with a broad range of university, government, and corporate R&D organizations. As an example, the list of industry partners working with Creare in the area of advanced

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¹⁵“CREARE LLC” https://www.sbir.gov/sbirsearch/detail/263879; National Research Council, An Assessment of the Small Business Innovation Research Program, Washington, DC: The National Academies Press, 2008, p. 268.

manufacturing is both long and notable. Creare has strong relationships with machine equipment companies like KMT, MAG IAS, Fives, Harris Aerostructures, Saint-Gobain, Guhring, Iscar, AMETEK/Precitech, among many others. At the same time, it also works with these numerous prime contractors including LMACo, NGC, BHT, ATK, P&W¹⁶ as well as Tier 1 suppliers.

Engineering Services

Creare provides engineering services to a diverse, international customer base, including both government and industrial clients, in a broad range of industries. At present, disciplinary foci include biomedical and human systems, cryogenics, fluid and thermal systems, sensors and controls, advanced manufacturing, and power systems. The following provides a sense of the disciplinary breadth of Creare’s engineering work.

Cryogenics

Creare is well known in the areas of miniature high-speed turbomachinery and gas film bearings for cryogenic applications. These specialties are supported by the company’s overall expertise in heat and mass transfer, thermal system design and analysis, and the fluid dynamics of multiphase and multi-component flow systems.

Cryogenics projects have included the development of probes for cryosurgical treatment of cancer, superconducting electrical buses for the space station, shipboard liquefaction of helium to cool advanced propulsion systems, and cryogenic cooling systems and packaging for superconducting electronics. Creare also designed, built, and delivered to NASA the cryocooler that fixed the malfunctioning infrared imaging system on the Hubble space telescope. This cryocooler was installed in 2002 and is directly responsible for the over 10-year revival of the NICMOS camera on the Hubble.

Fluid and Thermal Systems

The original disciplinary focus of Creare was fluid dynamics applied to turbines. Long experience in his area provides expertise suitable to any situation, including stationary or rotating machinery, coupled fluid flow, heat, and mass transfer; and chemically reacting flows.

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¹⁶Jay Rozzi, “Cryogenic Machining,” p. 6.

Projects in this area include maintaining uniform temperatures during integrated circuit operation, evaluating the flow fields at the joints in the Space Shuttle solid rocket motors after the Challenger disaster, developing gas lifts for transporting solids mined in the deep oceans, among many, many others.

Sensors and Controls

Creare projects have included a wireless activity monitor for evaluating movement by patients with certain medical conditions, active noise reduction for communications headsets, and next generation catapult slot width measuring systems for U.S. Navy aircraft carriers.

Advanced Manufacturing

Creare develops advanced materials processing and component fabrication techniques, both as end products for clients and as means to build components for other projects. The main focus is to augment current processes to increase overall affordability and product quality. This work again blends strengths in fluid flow and heat transfer, control systems, hardware, and fabrication. Creare’s Advanced Manufacturing Center (AMC) facilities at Creare consist of machine tools, lasers, tool wear measurement systems, tooling, and other associated hardware.

Creare’s focus is not only on the development of innovative solutions, but their implementation in a real-world manufacturing environment. In doing so, Creare provides innovative, yet practical solutions for hat enable sustainable quality improvements and substantial cost savings. These key partnerships enable Creare to develop innovative, implementable, advanced manufacturing solutions for U.S. industry. They have designed programs for laser-assisted consolidation of F-35 thermosetting composites (Air Force Phase II SBIR) and laser-based curing of thermoplastics (Army Phase II SBIR). Currently, Creare is working on a large-scale program with the Air Force to transition laser-assisted consolidation to F-35 Wing Skin production. In addition, they have worked with Lockheed, the F-35 program and other key partners to transition Cryogenic Machining for the affordable machining of titanium components for the JSF.

Power Systems

Creare works across the full scale of power systems and related technologies, from detailed design and prototyping of individual components to overall system analyses with thermodynamic analysis of alternative system configurations. This disciplinary area merges corporate competencies in fluid flow, heat transfer, combustion, cryogenics, machine design, and power electronics.

Examples include design and testing of gas turbines based on a recuperated Rankine cycle, design of evaporators and condensers for thermal-to-electric conversion cells, and development of heat exchanger technology for a pressurized-air energy storage system.

Biomedical and Human Systems

Building on core capabilities in precision fabrication, software development, signal and image processing, sensor design, control systems, and thermal/fluid technology, Creare has undertaken various multidisciplinary projects for biomedical clients. Creare frequently works with clinicians at nearby Dartmouth-Hitchcock Medical Center, a 400-bed teaching and research hospital, and at other institutions such as Harvard Medical School, Memorial Sloan-Kettering Cancer Center, and Duke University.

Creare has developed various biomedical technologies including innovative signal processing algorithms and software for cardiac electrophysiology, cryogenic probes for the surgical treatment of cancer, aerosol technologies for mass vaccinations, and robotic control software for performing telesurgery.

As described above, Creare uses its capacity to integrate core capabilities across multiple disciplines. Two technologies described below illustrate Creare’s ability to combine capabilities in cryogenics, heat flow, and fluid dynamics.

Cryogenic Cooling of Hubble Infrared Imaging Device

Creare began developing technical capabilities related to cryogenic coolers in the early 1980s, based on one of the company’s first SBIR projects. Over 20 years, Creare received more than dozen additional SBIR/STTR projects to develop the technology further. Over the same period, the U.S. government and other clients purchased additional engineering services from Creare that totaled 10 times the magnitude of the initial SBIR funding in this area.

The failure of the cooling system for the infrared imaging device on the Hubble telescope provided an opportunity to demonstrate practical application of this body of technical knowledge. According to NASA, “The Hubble team developed the NICMOS Cryocooler–a state-of-the-art, mechanical, cryogenic cooler that has returned NICMOS to active duty. Using nonexpendable neon gas as a coolant, this closed system delivers high cooling capacity, extremely low vibration and high reliability. It employs a miniature cryogenic circulator to remove heat from NICMOS and transport it to the Cryocooler. The system uses

a tiny turbine turning at up to 400,000 rpm (over 100 times the maximum speed of a typical car engine). The NICMOS Cryocooler is virtually vibration-free–which is very important for Hubble. Vibrations could affect image quality in much the same way that a shaky camera produces blurred pictures.”¹⁷

Cryogenically Cooled Machine Tools

Creare has a long history of developing systems for advanced manufacturing. For example, one of its early spin-out companies, Creonics, manufactured controllers for high performance computer numerical control (CNC) machine tools. Linking to its expertise in heat management and cryogenics, Creare developed an integrated system that enabled the effective, indirect cooling of cutting tools with very small flow rates of liquid nitrogen. Implemented in partnership with MAG-ISA Gbmh, this technology enables higher machining speeds (50 percent reduction in cycle time) with equal or improved tool life. For the Air Force F-35 program, Creare estimated potential savings of $300 million from adoption of this technology.¹⁸

Patents and Other Intellectual Property

Creare is the assignee for 36 patents over the period 1976 to 2015 (see Table E-3).

Business Model

Creare has received extensive support from SBIR/STTR funding. It also generates considerable revenue from engineering service contracts, licensing, and to a lesser extent spin-outs. According to Dr. Rozzi, SBIR/STTR (i.e., non-Phase III work) now accounts for about one-harlf of Creare revenues. Nearly 40 percent of Creare’s total revenues come from Phase III commercialization activities related to past SBIR/STTR programs.

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¹⁷National Aeronautics and Space Administration, “Small Business/SBIR: NICMOS Cryocooler—Reactivating a Hubble Instrument,” Aerospace Technology Innovation, vol. 10 no. 4, July/August 2002, http://ipp.nasa.gov/innovation/innovation104/6-smallbiz1.html.

¹⁸Jay Rozzi, “Cryogenic Machining,” www.nsrp.org/6-Presentations/Joint/100411_Cryogenic_Machining_Background_and_Application_to_Shipbuilding_Rozzi.pdf, p. 18.

TABLE E-3 Creare Patents

SOURCE: U.S. Patent and Trademark Office.

Spin-Offs

Creare has spun out a total of 10 companies in its history. Examples of such companies include the leading supplier of plasma-based metal cutting systems, Hypertherm, as well as a leading computational fluid dyamics software provider, Fluent, which was acquired by ANSYS in 2006. Although Creare remains a small company, these companies generate over 2000 jobs and half a billion dollars annually. ¹⁹ Creare has benefited greatly from these companies’ successes. As a general rule, Creare management has provided generous terms for the use of its technology in order to maximize the chances of successful commercialization.²⁰

Creare has spun off ten companies during its history, and creating spinoff companies is central to its efforts to commercialization SBIR/STTR developed technologies. Several of the spin-off companies have been purchased by larger firms, e.g. Fluent.

Started in 1983, where Creare used early SBIR funding to develop FLUENT™, a general purpose code for computational fluid dynamics (CFD). Creare says that FLUENT™ became the most widely used CFD code language in the world. The company was spun out in 1988, and was purchased by Ansys in 2006.

The most recent Creare spin-off is Edare, which provides manufacturing and product development services intended to transition innovative technologies into low- and medium-volume production. The

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¹⁹“Cryogenic Machining Technology,” http://www.gearsolutions.com/news/detail/7168/cryogenic-machining-technology-from-mag; Jay Rozzi, “Cryogenic Machining Background and Application to Shipbuilding,” NSRP All Panel Meeting, October 2011, http://www.nsrp.org/6Presentations/Joint/100411_Cryogenic_Machining_Background_and_Application_to_Shipbuilding_Rozzi.pdf, p. 4.

²⁰National Research Council, An Assessment of the SBIR Program, p. 270.

TABLE E-4 A Sample of Creare Spin-offs

^a“Dimatix Acquisition by Fuji Reflects Strong Growth Opportunity For Its Innovative Ink Jet Technology,” (June 13, 2006) https://www.fujifilmusa.com/press/news/display_news?newsID=880149.

^b“ANSYS Signs Definitive Agreement to Acquire Fluent; Broadens Capabilities as a Global Innovator of Simulation Software,” (February 16, 2006), http://www.prnewswire.com/news-releases/ansys-signs-definitive-agreement-to-acquire-fluent-broadens-capabilities-as-a-global-innovator-of-simulation-software-55340982.html.

^c“Company Overview,” http://veraxbiomedical.com/company/index.asp; “$28.2M in 7 Rounds from 3 Investors,” https://www.crunchbase.com/organization/verax-biomedical.

^d“About Us,” http://www.edareinc.com/pages/about.html; “Edare, Inc.” http://www.edareinc.com/pages/about.html.

objective appears to be to provide a home for Creare technologies once demand exists for batch production and beyond. Edare will likely focus on niche products: its first commercial product is VacJac™ Tubing, which provides long life vacuum-insulated tubing primarily. This particular technology does not lend itself to the creation of a standalone spin-off single technology company, nor—because of low volumes—is it well suited to a licensing agreement with a large company. Dr. Rozzi said that the Edare model is therefore focused on building a company that at any one time has two to three programs in production, proving low-medium volume manufacturing typically for government clients (although some commercial clients are also anticipated). This low-volume production may

be the end of the transition path for some products, but may also be an important way station on the path to larger volume sales or a licensing agreement once the technology has been fully provide and manufacturing processes rolled out. Dr. Rozzi observed that it is a good model for achieving production of 30 to 50 units, which is hard to do in an R&D environment.

Edare will have two new programs in 2016, according to Dr. Rozzi. One will deliver approximately 40 reduced-footprint swaging machine for the Navy, a project for which Creare will be the prime contractor and Edare will build support and sell those systems to the Navy. The second is not to provide tools to LMACo for noncontact metrology for configuration on aircraft, initially the F-35 Strike Fighter. The system will provide for very rapid noncontact inspections of items such as filled and unfilled fasteners which impact the radar cross-section of the aircraft, replacing current manual procedures.

Licensing

Creare has licensed significant amounts of technology. For example, Phillips Screw Company, AeroVectRx Corporation, Envelop, and MAG-ISA Gmbh have all licensed technology from Creare. Creare has licensed technologies developed in its laboratories such as the cryogenically cooled cutting tool technology now sold by Fives LLC, an spinoff of the former MAG IAS Gmbh, which was acquired by Fives. The exact number of technologies that the company has licensed and the income generated by these licenses, however, is unknown.

Creare often uses multiple funding streams to create new technologies that can have multiple applications, according to Dr. Rozzi. One good example is the development of tools for cryogenic machining of very hard metals, focused on titanium, which used multiple funding streams primarily from Air Force and Navy (along with some additional funding from Army).

The objective was to develop the capacity to machine titanium twice as fast as the current standard. Create met that objective using a new approach and filed multiple patents. The technology is now being commercialized with a partner retrofitting production machines and using the technology to provide new machines as well. Edare is still supplying some of the key components.

Dr. Rozzi said that a direct linear path from Phase I to Phase II to a Phase III transition was very rare. Most technologies—especially those supplied to DoD—required more than just a single Phase II prototype. For example, a measurement device of some kind would almost certainly need certification for production, end user input, multiple iterations, and possibly a qualification process.

SBIR/STTR

Between 1985 and 2015, SBIR/STTR funded 959 projects with Creare, Inc. amounting to over $261 million in R&D support. Of the 96 SBIR/STTR

projects awarded to Creare in 2013 and 2014, 73 percent (70 projects) were funded DoD, 22 percent by NASA, and 5 percent by DoE. Over the 30 years of SBIR/STTR funding for Creare, STTR awards account for 5 percent of the total by value.

According to Dr. Rozzi, Creare utilizes SBIR and STTR in the same way: Creare only applies for SBIR or STTR awards if the company can see a clear path to transition and/or commercialization. This could mean developing a specialty product—e.g., the cryocooler for Hubble and other space programs, or the turbo pumps developed for the first Mars rovers with NASA SBIR funding, which have now been adapted for other space program at NASA such as the Curiosity Mars rover. While these are specialized technologies, Dr. Rozzi noted that Creare is exploring more commercial applications for these technologies.

Dr. Rozzi said that in the 1980s, SBIR and STTR was primarily a research program. TPOCs would have pet technology projects, which would typically have no clear path to transition would usually not generate commercial returns. Beginning in the 1990s, this began to change as Industry research and development (IRAD) budgets began to shrink at DoD and at the prime contractors. As these budgets began to decline, SBIR/STTR came to be seen as a more viable alternative for the development of new technologies and new systems at DoD. The shift in the SBIR/STTR program was largely completed in the years immediately after 2000.

Creare makes it a high priority to “get the right people in the room as early as possible—as early as P1 proposal development, “according to Dr. Rozzi. Creare tries to develop the entire team as early as possible, bringing together primes, government people, and technologists. This team-oriented approach has led to considerable transition success.

Working with Primes

Creare has done a lot of work with many primes over the years, according to Dr. Rozzi. He noted that he personally knew many of the Lockheed staff working on the F-35, which for all its issues is making wonderful use of SBIR/STTR to develop technologies that are getting into production. Because Lockheed allocates little funding for R&D to support production, they leverage SBIR/STTR for that purpose. The work now coming under way at Edare to address non-contract metrology originated in discussions with Lockheed, who had encouraged Air Force to publish a topic, under which Creare won an award to develop the relevant technology solution

Creare gets involved in SBIR/STTR solicitations in two ways, according to Dr. Rozzi. In one respect the company has a lot of hammers looking for nails: existing technologies that can be applied to new problems to generate new solutions—the noncontact metrology technology was originally developed for a biomedical MRI application, a new kind of laparoscope to be used for the exact measurement of the location of of tumors during surgery.

Alternatively, the solicitation may generate ideas in entirely new areas. For example, Creare recently won a Phase I award from Navy to develop tools for ultra high speed friction stir welding. The traditional approach has been to use big machines operating at low rpms. Creare is now working to develop a much smaller tool (approximately the size of a router) using much higher rpms (a factor of 20-30 increase in rpm). Creare sees a very large market for this tool given the enormous number of stir welds required both by Navy and other ship builders.

STTR

Creare has worked to developed a network of potential academic partners, and is usually aware of the best RI partner might be. In some cases this is an FFRDC, although the latter usually want full payment of their contract up front, and require approval of a CRADA.

Dr. Rozzi noted that ITAR presented particular challenges in relation to STTR. Creare took a very conservative view of ITAR restrictions, and indicated that it could be difficult to ensure that universities understood and accepted the relevant restrictions, particularly when there were a considerable number of foreign students in most high quality engineering departments.

Dr. Rozzi also noted that there had in the past been conflicts over publishing results. RIs, academics, and graduate students all wanted to publish, and that had in some cases led to conflicts. However, he also noted that said there were ways to publish without breaching disclosure limitations.

Creare STTR partnerships tended to be aligned with schools that were well known to Creare engineers. For example, Purdue was one of the top partners for Creare, and it was also the school from which Dr. Rozzi has received his PhD. The company had also worked closely with MIT in the past, but not so extensively in recent years. Similarly, another engineer had developed a close relationship with the University of Minnesota.

In most cases, Creare directs the STTR project. However, a number of universities have now set up TTOs and incubators for emergent SBC's. Faculty are being encouraged to form companies and work through the incubator. In these cases, they often seek companies like Creare to partner on STTR proposals, but Creare is very cautious about becoming involved in partnerships where the driver is the faculty member, according to Dr. Rozzi.

Overall, the bar is simply higher for Creare involvement in an STTR as opposed to an SBIR. Dr. Rozzi said that unless the RI is a great partner—and some are—money going to the RI will not generate results that are nearly as efficient as Creare doing the work. STTR works best when Creare is seeking access to unique RI technologies—for example, previous STTR with Purdue provided access to modeling for composites machining. The fact that the RI is not is not fireable and not easily made accountable under STTR means that Creare has to be very careful. STTR also required an IP agreement, so if one is not in place, and if Creare does not have existing contacts with the contracts

staff at the RI, a considerable amount of work is needed before the proposal can even be advanced. So the partnership really has to be worth it, from Creare’s point of view.

Despite these challenges, Creare favors STTR. Working with RIs means that Creare is potentially accessing the best and brightest minds in the United States—Dr. Rozzi sees the program as being like a mini-DARPA, seeking ideas that give the war-fighter an advantage, and believes that STTR has an important role in that over the long term. STTR also offers recruiting benefits, by allowing Creare to work with RI staff and graduate students who are potential employees. Dr. Rozzi said that “we get great people” from these projects.

STTR also differs by agency: Creare did a considerable amount of work for NIH in its early years, especially on hardware of various kinds, but Dr. Rozzi observed that NIH was less interested in hard engineering recently.

Recommendations

Dr. Rozzi said that it might be helpful if the agencies endorsed some of the better model contracts for working with RIs. While some were good to work with, others were very difficult on issues related to IP and payments in particular. He said that this particularly applied to FFRDCs, who were institutionally not interested in SBIR/STTR.

Dr. Rozzi also noted that at DoD in particular, STTR topics tended to be long term and higher technical risk, and that he thought they brought particular value to DoD as a result. Too heavy a focus on immediate commercialization would result in missed opportunities, and he recommended that the agency retain the STTR program and use it to focus on these longer term projects.

EKSO BIONICS, INC.²¹

Ekso Bionics, Inc. (“Ekso”) is the wholly owned subsidiary of a publicly traded company Ekso Bionics Holdings, Inc. (OTCQB: EKSO) headquartered in Richmond, California. Ekso was founded in 2005 by Nathan Harding, Homayoon Kazerooni, and Russ Angold, all members of the Berkeley Robotics and Human Engineering Laboratory at the University of California

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²¹Primary sources for this case study are the interview with Dr. Kurt Amundson, R&D Projects Director, August 21 2015, a review of the Ekso web site, and related company documents and SEC filings. See http://www.eksobionics.com and in particular Ekso Bionic Holdings’ 10-K for 2014 at http://www.sec.gov/Archives/edgar/data/1549084/000114420415017256/v403902_10k.htm.

(UCB). The company has had a number of names over the years: first Berkeley ExoWorks, then Berkeley Bionics, and then Ekso Bionics and now Ekso.

Dr. Kurt Amundsen joined the company in 2007 when he was completing his Ph.D at Berkeley. He moved with the company as it expanded in 2008 to meet the need for more space, and then again to the current space in 2012 after releasing its first commercial medical product. He is now the director of the Ekso Labs group.

Products and Services

Using technology licensed from the UCB and augmented by their own work, Ekso designs and markets wearable exoskeletons with applications in healthcare, industrial, and military markets. Users strap an exoskeleton over their clothing to augment their strength, endurance and mobility. Patients with neurological injuries such as strokes can rehabilitate and walk again; industrial workers are able to perform heavy duty work for extended periods; and soldiers can carry heavy loads over long distances.

Ekso has garnered extensive and positive media coverage. Following its series A round in December 2010, the company was WIRED's “Most Significant Gadget of 2010”, one of Time's “50 Best Innovations of 2010”, and was one of Inc. Magazine’s “5 Big Ideas for the Next 15 Years”. Media interest remains strong with recent stories from 60 Minutes, Forbes, and National Public Radio among others.²²

At present, Ekso has two principal business areas: medical technology and engineering services with plans to accelerate go-to-market plans for their Industrial division after recent Equipois acquisition. The Ekso GT is used by hospitals and clinics on patients with lower extremity weakness or paralysis. Through the end of 2014, Ekso had placed over 110 devices (with a revenue value of $12.0 million) in service with over 80 customers. It has licensed its

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²²“The 10 Most Significant Gadgets of 2010,” December 29, 2010, http://www.wired.com/2010/12/top-tech-2010/?pid=928; Alice Park, “The 50 Best Inventions of 2010,” November 11, 2010, http://content.time.com/time/specials/packages/article/0,28804,2029497_2030618_2029794,00.html; Issie Lapowsky, “Meet the Makers of the Wearable Robot,” October 30, 2012, http://www.inc.com/magazine/201211/issie-lapowsky/big-idea-4-get-millions-out-ofwheelchairs.html; Bruce Upbin, “First Look At A Darpa-Funded Exoskeleton For Super Soldiers,” October 29, 2014, http://www.forbes.com/sites/bruceupbin/2014/10/29/first-look-at-a-darpa-fundedexoskeleton-for-super-soldiers/; Steve Henn, “A Suit That Turns A Person Into A Robot (Sort Of),” June 11, 2015, http://www.npr.org/sections/money/2015/06/11/413406156/a-suit-that-turns-a-person-into-a-robotsort-of?sc=tw; “How the Exoskeleton Helps Veterans Walk Again,” June 21, 2015, http://www.cbsnews.com/news/veterans-affairs-secretary-robert-mcdonald-60-minutes-excerpt/.

technologies to Healthcare Products Gmbh for use in prosthetics and to Lockheed for use in its FORTIS™ exoskeleton.

Ekso also provides engineering services, performing research and development work on military and industrial exoskeletons and related technologies paid for by government grants, “by collaboration partners such as Lockheed, or by engineering services customers such as the U.S. military,”²³ while generating intellectual property. Ekso has had grants from the National Science Foundation, the National Institutes of Health, the Defense Advanced Research Projects Agency (DARPA), and the Department of Defense. This division is cash positive and has generated over 150 international patent cases.

Ekso was taken public on January 15, 2014 through a reverse merger with PN Med Group, Inc., a public medical distribution company. PN Med Group Inc. was renamed Ekso Holdings with Ekso Bionics, Inc. as its sole subsidiary. As of December 31, 2013, the company had 65 full-time employees and 4 part-time employees. Management expects to add between 15 and 20 new employees by December 31, 2015.

EKSO GT™

Exoskeleton systems are highly heterogeneous systems, integrating a broad range of advances in material, electronics, control engineering, sensors, and software development. The Ekso system embodies a variety of innovations. For example, by not requiring power to carry the weight of the exoskeleton, Ekso technology has reduced power consumption for able-bodied exoskeletons by a factor of 1,000. Other larger technology trends that are enabling Exoskeleton technology include ongoing improvements in the energy density of lithium-ion batteries and in on-board computational power as well as cloud based storage for big data and accelerated development of wearable technology.

Ekso’s primary product is currently the Ekso GT, “a wearable bionic suit” that provides individuals rehabilitating after “spinal cord injuries, stroke and other lower extremity” weakness the ability to stand and walk (using a cane, crutches or a walker) “with a full, weight bearing, reciprocal gait.”²⁴ Supervised by a physical therapist, the patient walks by shifting of the patient’s body to activate sensors that initiate steps. Battery-powered motors drive the legs, replacing the patient’s deficient neuromuscular function.

For patients with some motor ability intact (for example, after a stroke or an incomplete spinal cord injury), the Ekso GT allows therapists to teach

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²³Ekso Bionic Holdings’ 10-K for 2014 at http://www.sec.gov/Archives/edgar/data/1549084/000114420415017256/v403902_10k.htm.

²⁴Ibid.

proper step patterns and weight shifts that may allow patients to ambulate more independently.

Clinical evidence suggests that allowing individuals with spinal cord injuries to stand and walk may offer improved post injury medical outcomes and reduce costs. Improvements reported (but not clinically proven) include reductions in readmission, pressure sores and urinary tract infections; improvements in bowel function; and reduced incidence of osteoporosis, pneumonia, cardiovascular disease, and psychological disorder.²⁵

In 2012, Ekso delivered its first exoskeleton for medical and rehabilitation purposes. By the end of 2013, the company had introduced four major upgrades to the product, including variable assist software that allows patients to contribute their own power from either leg to achieve self-initiated walking. Another important upgrade was real time data capture that gathers device information during rehabilitation sessions. This improves monitoring of both patient progression and asset utilization.

Causes of serious and permanent limitation in “mobility include stroke, spinal cord injury, cerebral palsy and multiple sclerosis.”²⁶ According to the company’s 2015 10-K, the potential market for its medical and rehabilitative products is considerable (see Table E-5)

TABLE E-5 Potential Commercial Markets for Ekso Medical Products

SOURCE: Ekso Bionic 2015 10K.

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²⁵“Kessler Foundation Presents Data on Ekso™ at World Congress of Biomechanics Another Step Highlighting Robotic Exoskeleton Technology in Rehabilitation,” Kessler Foundation, May 7, 2015, https://www.kesslerfoundation.org/media/Kessler%20Foundation%20Presents%20Data%20on%20Ekso; “Ekso(tm) clear leader in exoskeleton comparison study,” October 27, 2014, http://www.medica.de/cipp/md_medica/custom/pub/content,oid,49060/lang,2/ticket,g_u_e_s_t/~/Ekso_tm_clear_leader_in_exoskeleton_comparison_study.html.

²⁶Ekso Bionic Holdings’ 10-K for 2014 at http://www.sec.gov/Archives/edgar/data/1549084/000114420415017256/v403902_10k.htm.

Ekso is aggressively pursuing the stroke and spinal cord injury (SCI) rehabilitation segments of this market. The company uses a direct sales force (nine sales people, eight clinicians, five marketers, and three customer service personnel) to reach inpatient and outpatient centers providing stroke and SCI rehabilitation in the United States, Canada, the United Kingdom, Spain, and the German-speaking countries of Europe. Ekso sells to Mexico, Italy, Poland, Turkey, Scandinavia, Ireland, and the UAE via distributer network.

The sales process is complex with multiple stakeholders including among others the clinic CEO/CFO, the medical director, the clinical staff, patients, and the fund-raising director. To build consensus among these stakeholders can take from 3 to 18 months, according to Dr. Amundson.

Because the market of rehabilitative exoskeletons is a new market, the FDA has evolved in how they classify these systems. Ekso initially registered the Ekso product line with the FDA as a Class I 510(k) exempt Powered Exercise Equipment device. In June, 2014, the FDA announced a new product classification for Powered Exoskeleton devices, and in October, 2014, the FDA determined that this new product classification applied to the Ekso GT device. Ekso resubmitted its 510(k) application in December, 2014 and has been collaborating with the FDA to meet the class ll requirements.

Other companies are also producing exoskeletons Cyberdyne, ReWalk Robotics, and Rex Bionics sell ambulatory exoskeletons. Hocoma, AlterG, Aretech and Reha Technology sell treadmill-based gait therapies. All are potential competitors to Ekso in its core rehabilitation segments.

Engineering Services

In addition to further developing it rehabilitation exoskeleton, Ekso is developing systems for able-bodied applications of the technology. In such applications, exoskeleton-enabled individuals become stronger and able to undertake greater effort for longer periods with greater safety. These projects are funded by grants from government, principally the military, and from corporate partners.

Ekso developed an able-bodied exoskeleton, the Human Universal Load Carrier (HULC), in 2008. Designed to enable users to carry up 200 pounds of materiel over long distance and rough terrain, the HULC used Ekso’ low power load carriage technology and hip actuation to assist in moving the user’s legs during walking.

Further development of able-bodied, powered and nonpowered exoskeletons builds on the HULC technology, and Ekso has developed a nonpowered exoskeleton called Ekso Works. Industrial workers wearing this

exoskeleton will perform their tasks with reduced risk of injury from lifting and working with heavy equipment and increased productivity. The company is also undertaking field tests of its exoskeleton in steel production and concrete pouring. Commercialization could begin as early as the fourth quarter 2015.²⁷

For the military market, as part of Tactical Assault Light Operator Suit (TALOS) project, Ekso was also recently awarded a pair of contracts by the U.S. Special Operations Command (SOCOM) to design, build, test, and deliver a next generation military exoskeleton prototype. The goal of project is to develop a self-contained, bullet-proof suit that will provide the wearer superhuman strength. Ekso also participated as a sub-contractor to Boston Dynamics, a company owned by Google, in DARPA’s Warrior Web program. Ekso has also participated in a competitive test of exoskeletons over an 84 mile obstacle course that was sponsored by the Army Research Laboratory.²⁸

Ekso has limited rights to commercialize these able-bodied technologies. In the industrial segment, the company and Lockheed have co-exclusive rights, with Ekso having the right to sublicense technology and Lockheed having the right to sublicense only with Ekso’s consent. In the military arena, “Lockheed and the Company have co-exclusive rights to military markets through 2017. So long as certain annual minimum obligations are met, Lockheed will obtain exclusive rights to the government market after 2017.”²⁹

At present, DARPA, and U.S. Special Operations Command (SOCOM) are the principal customers for contracted engineering services. In 2014 and 2015, SOCOM contracted for $3.1 million in services for its TALOS project, as a sole source follow on to an STTR award.

Patents and Other Intellectual Property

Ekso owns a patent portfolio covering medical exoskeletons, commercial exoskeletons, actuators, and strength enhancing exoskeletons. The portfolio includes six U.S. patents (4 of which are co-owned with the Regents of the University of California), 10 U.S. patents exclusively licensed from the Regents of the University of California, and 6 patent applications currently pending. Thirty-seven applications have been issued as patents internationally in different countries.

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²⁷“Ekso Bionics™ Announces Launch of Ekso™ Labs,” March 28, 2014, http://ir.eksobionics.com/press-releases/detail/64/ekso-bionicstm-announces-launch-of-eksotm-labs.

²⁸Stew Magnuson, “SOCOM’s ‘Iron Man’ Suit Faces Major Technological Hurdles,” January 28, 2015, http://www.nationaldefensemagazine.org/blog/lists/posts/post.aspx?ID=1725.

²⁹Ekso Bionic Holdings’ 10-K for 2014 at http://www.sec.gov/Archives/edgar/data/1549084/000114420415017256/v403902_10k.htm.

TABLE E-6 Ekso Patents

^*Patents marked with an asterisk are co-owned with the Regents of the University of California.
SOURCE: U.S. Patent and Trademark Office.

The core of Ekso’s patent portfolio consists of two license agreements and one amendment with the University of California covering 10 patents exclusively licensed to the company. In consideration for these rights, Ekso paid $5,000 in cash, gave the university 310,400 common shares of Ekso, and currently pays a 1 percent royalty on all sales (excluding products sold or resold to the U.S. government).

Funding

Ekso has relied on a mixture of revenue, debt, equity, and government support to commercialize Ekso GT and develop the other exoskeletons in its product pipeline.

Venture and Angel Investment

Ekso received a considerable amount of early angel funding, according to Dr. Amundson, before turning to the venture community for support in commercializing its exoskeleton technology. A series A round in December, 2010 was followed in June, 2012 with a $9.1 million series B.³⁰ The company

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³⁰“UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM D,” (June 22, 2012) http://www.sec.gov/Archives/edgar/data/1552921/000155292112000001/xslFormDX01/primary_doc.xml.

also a received a NIST ATP award that Dr. Amundson said was “critical to the company—we would not be here without it,” as a hardware-intensive program like Ekso’s requires substantial funding.

Initial Public Offering

Following a year of rapid growth, in Q3 2013 the company was unable to raise a third round of venture capital. The company undertook a reduction in force to reduce its burn rate prior to its IPO. Bridge financing of $5 million in debt enabled the company to become a public company in January 2014 through a reverse merger with PN Medical Group. The IPO raised $22.8 million. ³¹

Licensing

Ekso has had success licensing its technologies. Since 2008, the company has received over $1 million in licensing fees. These include upfront licensing fees from Lockheed for military exoskeleton technology and from OttoBock Healthcare Products Gmbh for technologies used in prosthetics and related areas.

Ekso and SBIR/STTR

Between 2005 and 2014, SBIR/STTR funded 13 projects worth $5.03 million with Ekso and its predecessor Berkeley Bionics. Of this, DoD provided about 65 percent, NSF 32 percent and NIH the remaining 4 percent. Forty-six percent of these funds were STTR and the balance SBIR.

Dr. Amundson said that while he very much appreciated the funding available through the SBIR/STTR program, he had been surprised by the lack of contact with program managers. While they had been helpful when contacted, he believed that they were severely constrained by limited administrative funding: NSF had provided $3 million in funding but no NSF program manager had visited the Ekso facility. He believed that especially when making

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³¹“UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM D,” (November 27, 2013) http://www.sec.gov/Archives/edgar/data/1552921/000155292113000001/xslFormDX01/primary_doc.xml; “UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM D,” (December 4, 2014) http://www.sec.gov/Archives/edgar/data/1549084/000114420414072378/xslFormDX01/primary_doc.xml

significant long-term investments, it would be prudent to meet more frequently in person.

Dr. Amundson also noted that Congress appeared to have little understanding of SBIR/STTR . He wondered whether it might be possible for SBA or the agencies to undertake regular regional tours of SBIR/STTR winners for Congressional staff and representative or senators, to demonstrate directly the impact of funding the benefits that flowed from it.

Dr. Amundson said that DCMA auditing practices had caused considerable difficulty. The requirement that small companies show financial sustainability (i.e. profitability or close to it) for two full future years before they could be approved to receive an award caused difficult for many companies. Ekso was still losing money, and although it still had substantial capital available, that would not guarantee financial coverage for two full years. Other small companies would he believed be in even more difficult circumstances.

Dr. Amundson also noted that his experience with NIH had been challenging in part because the agency—or its selection panels—did not seem to accept that engineering was an important part of innovation, and the while the exoskeletons developed by Ekso were no longer novel in the biomedical sense, they still required substantial and expensive engineering before they could reach the market.

STTR

SBIR and STTR are close to identical, except for the need for an academic partner under STTR, according to Dr. Amundson. Which program is utilized is largely determined by the solicitation.

STTR was especially helpful at the earliest stages of company development, Professor Kazerooni was (and still is) on the faculty at UC Berkeley, and STTR was an important bridge from the university to the company. Key employees (beyond the founders) also came out of the lab at the university. So STTR was initially the perfect bridge program.

As the company had matured and developed new sources of funding, STTR has become somewhat less attractive, Dr. Amundson observed. The company now wants to move fast and is less interested in academic research. It does not wish to be so tightly coupled to university needs and interests.

Ekso currently has an STTR award in conjunction with SRI, which is providing to be a more flexible kind of research institution partner. Ekso is now using SRI to do component level technology development that Ekso does not wish to do (or cannot do) in-house. This frees Ekso resources for more focused work on upcoming products. More generally, Dr. Amundson noted, STTR gives the company a way to adapt research done elsewhere, leveraging for example some of the work that DARPA and others have done with SRI.

NSF funding included two $500,000 STTR Phase II awards and a Phase IIB. These provided steady funding over a number of years to support technical development at the company. More recently, Ekso has received STTR awards from SOCOM at DoD, for work on the TALOS program. The TALOS

program has funded two STTR awards, one based on a solicitation and a subsequent sole source award.

MUONS INC.³²

Muons, Inc. (Muons) is a small private technology company based in Batavia, Illinois, with a wholly-owned subsidiary, Muplus, Inc., that is incorporated in Newport News, Virginia. Muons offers a range of products and services, with a primary focus on particle accelerators for high-energy and nuclear physics discovery science, for secondary beams, and for nuclear power. The company currently typically has between one and two dozen employees, and is owned by its founder, chief scientist, and President Rolland Johnson, who has been involved in particle accelerator research and development for over 40 years.

Dr. Johnson said that he started the company to help DoE accomplish its goals through the SBIR program, which was originally created to allow industry to contribute its intellectual and creative energies to national programs in most branches of the government. Having worked in the national labs for many years, he believed that Muons could do things for the labs that needed extra creativity and more funding. Muons hired the most creative people it could find, who were often near national laboratories and who were unable to relocate.

Muons is very different than other SBIR-STTR companies. Dr. Johnson said that most of its work is providing ideas and concepts for national labs, focusing on identifying projects and technologies that will help the labs, but for which there is no available funding, while other companies mostly transfer technology in the other direction. STTR in particular has been used to meet those needs, perhaps acting as a DoE analog to Lockheed's famed Skunk Works as a source of innovative technologies.

Muons has always had close connections to the National Labs. Dr. Johnson spent most of his career at National Labs, initially Lawrence Berkeley National Laboratory (LBNL) and then Fermi National Accelerator Laboratory (Fermilab), where he worked for 17 years before moving to the private sector to install and commission the CAMD synchrotron light source at LSU and then to the Thomas Jefferson National Accelerator Facility (TJNAF) in Newport News where he also served as a detailee at the Department of Energy in Germantown, MD. After retiring, he built a consulting practice and in 2002 founded Muons. The company's first STTR award was in 2003. Since then, Muons has received

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³²This case study draws primarily on materials published by Muons on the company’s web site, an interview with Rolland Johnson CEO and Founder Au ust 27 2015 and other com an materials

24 Phase II SBIR and STTR awards, and is the largest recipient of STTR awards from DoE.

From its founding in 2002 until 2010, Muons mainly focused on muon collider particle research, and on developing related new technology. It used consulting contracts and SBIR-STTR awards to fund this work. In 2010, the company started exploring Accelerator Driven Subcritical Reactors (ADSR), and this has become a thrust of its commercialization efforts.

Muons workforce varies according to the SBIR-STTR and contracts they are awarded, where fluctuations are mostly accommodated by the number of postdoctoral employees they are able to hire to train in accelerator science who often move on to permanent jobs in national labs. Muons also hires post docs who work within research partner national labs while supported by the company. Muons supports PhD students working on SBIR-STTR grant topics, where three women and one man received their degrees in the last two years. The company is best viewed as primarily a research organization, developing cutting edge technology, although Muons has recent shifted to become more commercially oriented, as has been required by the most recent SBIR-STTR reauthorization legislation. The most significant commercial application is GEM*STAR.

GEM*STAR: Accelerator-driven Subcritical Reactor for Improved Safety, Waste Management, and Plutonium Disposition

Muons has formed and is leading the GEM*STAR Consortium of four companies (Muons, ADNA Corp., Niowave, Inc. and Newport News Shipbuilding), two national laboratories (ORNL and TJNAF), and two universities (Virginia Tech and George Washington University) and has submitted a proposal to DoE Nuclear Engineering for a $50 Million, 5 year funding opportunity titled “Advanced Reactor Industry Competition for Concept Development”.

GEM*STAR is a transformative and disruptive technology that has the potential to revitalize the nuclear power industry and lay the groundwork for a path to a viable future for many centuries. It combines proven technologies to provide a new approach to the safety of nuclear reactors, to the management of nuclear waste, and to the disposition of nuclear weapons materials. The primary technologies involved, a molten-salt reactor and a high-power proton accelerator, are not new and have already been proven in the Molten Salt Reactor Experiment at ORNL and at many accelerator facilities around the world. It is designed to be commercially profitable and politically adoptable.

It can burn spent nuclear fuel, natural uranium or thorium, depleted uranium, and surplus weapons material, all without isotopic enrichment or chemical reprocessing. Burning the waste from current reactors can potentially extend their lifetime and turn a huge liability into highly profitable use. Interestingly, with a fleet of accelerator-driven systems like GEM*STAR there

is enough uranium out of the ground today to supply the current U.S. electrical power usage for more than 1,000 years. Burning the spent nuclear fuel from the current fleet of nuclear reactors is vastly superior to throwing away its enormous internal energy and just piling it in a hole in the ground for 100,000 years.

Safety: Being subcritical, fission stops when the accelerator is switched off and passive air cooling is sufficient to maintain safe reactor temperature. The system design avoids the major problems associated with all of the historical reactor accidents involving radioactive releases.

Nuclear Waste and Pu Disposition: The accelerator beam generates an enormous neutron flux that induces fission power to generate heat and to transmute fission products and heavy actinides into more tractable waste products. The waste stream from GEM*STAR systems is less of a burden on an ultimate geological store than current reactors, and recycling the waste stream in other GEM*STAR systems could potentially make such a store unnecessary. That same neutron flux burns surplus weapons-grade plutonium more completely than other approaches and satisfies the goals of the year 2000 Plutonium Management and Disposition Agreement between the United States and Russia to each dispose of 34 metric tons of weapons-grade plutonium (enough for 17,000 Hiroshima-sized bombs).

Nuclear Weapons Proliferation is addressed by GEM*STAR operation in that neither isotopic enrichment nor reprocessing is required and by its application to destroy nuclear weapon materials.

The Pilot Plant to be designed will first burn natural uranium as a test and then be upgraded to a mission-capable system for disposing of surplus weapons-grade Pu. The heat generated will be used to drive the Fischer-Tropsch process to provide green diesel fuel to the U.S. military at a profit. This approach mitigates some regulatory issues and avoids the need for initial availability to meet the demands of the electrical grid. This project will carry GEM*STAR through completion of the Conceptual Design Report and the Technical Design Report, including engineering drawings sufficient for the licensing process and to begin pilot plant construction. Experimental studies to improve the design will also be performed.

Muons Technologies

While Muons pivoted in 2010 to focus on ADSRs, they are still developing other technologies including:

• Numerical Simulation Programs and Graphical User Interfaces to them
• RF technology, both normal and superconducting
• Magnetron power sources
• Superconducting magnets for high fields and high radiation environments

Muons’ particle physics simulation programs, G4beamline and MuSim, can be used across the particle accelerator industry. G4beamline is free, open source modelling software based on the GEANT4 program developed by a large collaboration headed by CERN and SLAC that accurately simulates the interactions and decays of subatomic particles. According to Muons’ website, G4beamline is downloaded ~15 times weekly, and given the small population of potential users, that accounts for a sizeable percentage of global demand. MuSim is a new particle accelerator simulation program that Muons will license that interfaces to GEANT4 and to MCNP, the workhorse of the nuclear physics community.

Muons also develops technologies that use advanced Radio Frequency (RF) technology, including the superconducting resonant cavities that accelerate particles by using microwave electromagnetic fields. These cavities are usually powered by klystrons or Inductive Output Transmitters (IOT). Magnetron power sources, based on the same technology as ordinary kitchen microwave ovens, have the potential to be more efficient and less costly than the klystrons or IOTs if they can be made more frequency and phase stable and controllable. Muons has several magnetron projects underway that are based on new ways to stabilize and control magnetrons that can reduce the cost of RF power sources for accelerators by as much as a factor of five and improve efficiency from 50 percent to 90 percent compared to klystron sources. This could make Muons products attractive commercially for a number of applications such as production of radioisotopes for medical diagnostics and therapies.

Superconducting magnets. Muon colliders require a high level of muon beam cooling to work effectively. Muon cooling depends on strong and efficient superconducting magnets, which Muons also develops. These magnets are extremely demanding, as some of them need to create extremely strong magnetic fields in complex shapes with forces that require sophisticated engineering.

Electron Recirculating Linear Accelerators. Muons is working on Electron Recirculating Linear Accelerators (RLA) to make radioisotopes for diverse applications such as those used for diagnostics and therapy in nuclear medicine. Muons is developing new techniques for developing commonly used isotopes as well as isotopes for new medical and industrial applications.

Business Model and Customers

Muons is a small research oriented firm with changing commercial ambitions. Its funding was in large part derived from SBIR-STTR awards, along with some consulting revenues mostly from national labs. However, the company has recently shifted to become more commercially oriented.

Introduction of the new SBIR/STTR commercialization metrics after reauthorization nearly bankrupted Muons, according to Dr. Johnson. In 2011-2

the company was designated as not commercial and hence SBIR/STTR funding dried up, leading to lay-offs.

However, the company has ramped up its commercial activity with contracts from Fermilab to develop plans to upgrade one of their flagship experiments and Toshiba and Niowave to build magnetrons. The company is close to delivering its first commercial magnetron prototype for Niowave, and expects to provide a testable product that delivers a substantial upgrade in power, from a previous tetrode maximum of 60-70KW to more than 120KW. Besides contracts with its usual research partners, Muons has won non-SBIR-STTR contracts with Los Alamos National Lab and Pacific Northwest National Lab. Non-SBIR-STTR contracts have generated almost $2 million in revenues, mostly in the past 5 years, according to Dr. Johnson.

As a result of these efforts, Muons and MuPlus are now seen by the DoE as commercial companies eligible for SBIR and STTR awards, and have won four in the past year. MuSim, mentioned above, is an important non-STTR project, according to Dr. Johnson. Since it interfaces to many simulation tools including MCNP6, it will be extremely useful to develop the Conceptual and Technical Design Reports that are needed for the GEM*STAR project described above. Muons originally developed a similar tool, G4Beamline, which was provided free and is now in use by many companies and labs. Dr. Johnson said that Muons was able to identify over $18 million in effort generated by the program and he believes that MuSim will have an even larger user community of Nuclear Physicists and Engineers who need a better interface for MCNP6. Muons plans to charge for the MuSim program and is spinning out a new business in software support.

Muons Partnerships

Muon partners with multiple third parties on many of its projects. A proposal for a muon beam cooling experiment for example listed 40 individual collaborators and 5 other institutions. The GEM*STAR proposal has seven partner institutions. Muons has partnered with 9 national labs:

• Argonne National Laboratory
• Brookhaven National Laboratory
• Fermi National Accelerator Laboratory
• Thomas Jefferson National Accelerator Facility
• Los Alamos National Laboratory
• Lawrence Berkeley National Laboratory
• National High Field Magnet Laboratory
• Oak Ridge National Laboratory,
• Pacific Northwest National Laboratory

Muons has an especially close partnership with Fermilab, where ideas for muon cooling for colliders, neutrino factories and stopping beams have been developed and TJNAF, where the newest interest is the development of concepts for electron-ion colliders.

Muons has also partnered with eight universities: Cornell University, University of Chicago, Florida State University, Hampton University, Illinois Institute of Technology, North Carolina State University, Northern Illinois University, and Old Dominion University.

STTR

Muons has received 56 DoE Phase I awards, and 24 Phase II awards. 36 of these awards are SBIR, and 44 are STTR. Total funding (2002-2014) is about $26 million.

Dr. Johnson observed that most companies do not want to deal with STTR grants: “We are masochists, since most companies do not want to deal with National Lab bureaucracies and do not want to share their grant money with the lab. However, most Muons staff members are located near the labs where they used to work, and are often embedded in the labs which give them work space. The Cooperative Research and Development Agreements (CRADAs) that are sometimes required for STTR grants with National Labs often include a section detailing how the labs will make available specific lab and office space”.

The company first used STTR grants to develop new ideas for a muon collider, addressing the technical problems of cooling beams of muons so they were are dense enough to make such a machine possible. Muons subsequently branched out to related technologies and then some less related areas. The company is now using STTR grants to work on an electron ion collider using polarized electrons and ions at TJNAF. Dr. Johnson believes that this project may have significant commercial potential, although development is still at a very early stage and it takes a considerable time to move from an idea to a product. He noted that this leads to tension inside the DoE SBIR-STTR program, which seems to be seeking commercial outcomes soon after the conclusion of a Phase II award. He noted that a typical time from conception to start of payback in large commercial enterprises is more like nine years.

Dr. Johnson said that DoE STTR grants used to require a CRADA, but they are now structured more flexibly, and require only an IP agreement with the Lab (this is part of the CRADA). The STTR grant also requires approval from the DoE Cognizant Officer who is responsible for lab activities, which can also take considerable time. Currently, most labs that use CRADAs require that separate CRADAs be signed for each of the two award phases, which lengthen delays and adds cost. Each CRADA specifies a time period for work to be completed, and amending this requires a change to the CRADA, as does any other significant change to the statement of work (e.g. a shift to a different part of the lab as provider of a device or service).

Dr. Johnson noted that STTR projects can only work well if there is goodwill between the lab and the company. Because Muons has such long and deep connections with national labs, its staff know most of their counterparts at the labs, so the connection is always positive.

Still, lab administrators in general tend to view STTR awards as small projects. From a $150,000 award, the lab will receive maybe $50,000-60,000, and it costs them almost that much just to do the paperwork, according to Dr. Johnson. So STTR agreements can take a long time to receive signoff from the labs, as they are a low priority for lab administrations.

In some cases, these delays mean that the labs and the company are out of sync, and that the lab will struggle to provide its deliverable on schedule. If a lab fails to deliver on time, the company has to step in to fill the gap, which can cause considerable hardship and economic losses for the company. Namely, the company then has to pay for the work directly yet ends up paying the lab anyway as part of the binding STTR agreement.

DoE program managers are quite flexible, but are constrained by STTR legislation which requires that the Research Partner Institution receive a minimum percentage of the award. Program managers will sometimes allow a switch of RI, but in reality this is not practical: the RI has usually been selected because of its specialized expertise. Dr. Johnson said that program managers should be given the flexibility to switch STTR funding back to the company in special circumstances.

Dr. Johnson said that the DoE STTR-SBIR programs run very smoothly. Recent changes, such as the introduction of letters of intent to allow reviewers to be selected in good time and the well-designed timeline on the agency web site, are welcome improvements.

NANOSONIC, INC.³³

NanoSonic, Inc. is a small nanotech company based in Blacksburg, VA. Founded as a spinout from Virginia Tech’s College of Science and Engineering in 1998 by Dr. Richard Claus, an electrical engineer, it currently has about 35 employees. The company is managed by President Dr. Jennifer Lalli, CTO Dr. Vince Baranauskas, CFO Melissa Campbell, and CEO and Director of Advanced Development Dr. Richard Claus.

Nanosomic was formed to design and manufacture innovative materials, especially new materials that are unavailable in the commercial

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³³The primary sources for this case study are an interview with Dr. Jennifer Lalli, CEO, August 25, 2015, the NanoSonic Inc. web site (http://www.nanosonic.com/), and other materials from NanoSonic.

market. A major company objective is to create these innovative materials through environmentally benign processes and techniques.

Originally, the company focused on the fabrication of thin films and sensors, but soon expanded its activities to include the scale up of coatings and the use of specialized coatings for a range of applications, according to Dr. Lalli. The company hired several chemists to pursue these new areas, and is now concentrating on materials production rather than electronic products

SBIR/STTR awards led to a considerable amount of positive press, Dr. Lalli noted, and this led to more awards and then on to three separate Phase III contracts within three years. The first Phase III award was transformative, as it helped NanoSonic scale up manufacturing production very substantially. As the existing facility in Blacksburg was not suitable, this led to a shift to a new facility about 15 miles from Virginia Tech. The new building was not attached to any other buildings, so provided the added benefit that NanoSonic could perform classified work. More recently, NanoSonic has been seeking to take products to the demonstration stage as early as possibly, and then to move forward to cut costs and scale production rapidly.

NanoSonic’s innovative materials have attracted considerable interest especially from DoD prime contractors, who have often heard of NanoSonic through the SBIR/STTR program, according to Dr. Lalli. The company is experienced at putting materials through quality testing, and can provide materials as almost or fully qualified products for bulk of sales to defense primes.

Dr. Lalli said that overall, NanoSonic has had more success selling to primes than to DoD itself. She noted that while SBIR and STTR topics and subtopics supported the development of advanced materials, unless DoD had written a specification for them, there was little likelihood that they would be adopted by the agency: without a new specification, existing materials would continue to be used instead. In that respect, the SBIR/STTR topics were often well ahead of agency procedures.

These difficulties with DoD has led NanoSonic to take a strategic decision to work more closely with the prime contractors, and to de-emphasize efforts to sell directly to DoD, where NanoSonic in the past has had success (on two projects) in using the sole source designation that comes with SBIR/STTR awards.

NanoSonic has made no effort to raise third party funding, even though NanoSonic’s metal rubber products had attracted VC interest, in part because the company is able to bootstrap growth through sales and in part because venture funding entailed potential risks.

The company works with all different sizes and types of companies and organizations, and clients include NASA, DoD, and DOT, providing services that cover all phases of product development; R&D, design and development, and manufacturing. R&D services cover polymer and small molecule synthesis, protective coatings, advanced textiles, antennae, RF testing, and sensors.

Technology and IP

NanoSonic’s R&D lab is equipped for the design and synthesis of material precursors (compounds that are formed into other compounds through chemical reactions). The lab also forms synthesized precursors into thin (between 1 nm and 1 µm) and thick film materials, using advanced computers for material design, device modeling, and data analysis. The manufacturing lab is mainly dedicated to HybridSil® and HybridShield® production—it produces 4,000 lbs/day of HybridSil® and HybridShield® nanocomposite formulations.

The company has licensed nine patents from Virginia Tech, covering electrostatic self-assembly processing and use, and is establishing its own intellectual property portfolio in the next step toward commercialization. Currently, NanoSonic has one patent that generally relates to self-formation of a transparent, abrasion-resistant optical coating on solid plastic substrates that protect a solid substrate from wear and/or provide properties such as magnetism, electrical conductivity, and UV absorption.

Electrostatic self-assembly is a key aspect of this technology. It allows a uniform formation of multiple, nanometer-thick layers of material into functional ultrathin films, and recent improvements allow the formation of much thicker films and bulk materials. NanoSonic has created a library of similar self-assembled materials, many based on electrostatic self-assembly processing, and has demonstrated the synthesis of more than 2000 individual material layers.

Products

Coatings

NanoSonic offers two eco-friendly HybridShield® coatings: Anticorrosion Coating and Icephobic. HybridShield® Anticorrosion Coating is a single component protective material designed to protect marine, automotive, aerospace, shelter, and communication structures from harsh corrosive environments. In tests, metallic surfaces protected by HybridShield® endured more than 12 months of continuous beach exposure and 5 months of continuous salt fog exposure without signs of corrosion, and exhibited almost no change in color and gloss. All liquid coatings are sold in gallon and quart sizes, at prices ranging from $100-300 per gallon.

HybridShield® Icephobic coating provides higher durability, lower ice adhesion, and reduced ice accretion than competing passive anti‐icing protection technologies, according to the company. This material is a two-part fluidic resin with more environmental and mechanical flexibility than competitors, with tailored cure kinetics to ensure easier application with the varied air sprayers found in the industrial coating environment.

Devices

NanoSonic’s EKGear Patch monitors EKG signals without using gels or adhesives. It is made of NanoSonic’s metal cloth, an electrically conductive cloth that detects the electrical potential that drives myocardial contraction. EKGear materials must be connected or integrated into projects using conductive epoxy, alligator clips, or rivets of conductive materials.

NanoSonic also sells two unique metal rubber products that combine the high electrical conductivity of metals with the stretching capabilities of elastomers. Self-assembly processing allows the simultaneous modification of both conductivity and modulus (stretchability) during manufacturing.

NanoSonic has developed two related products from metal rubber materials: metal rubber electrodes and sensors. Metal Rubber has been demonstrated in a wide range of applications: large mechanical deformation electrodes, mechanically flexible electrical interconnects, and lightweight, durable, conformal electromagnetic shielding. Both products feature malleable metal rubber electrodes that feature a glass transition temperature (temperature at which an epoxy transforms from hard to rubbery) of -60 °C. They have slightly different shapes, and are designed for different applications. The company sells metal rubber electrodes in packs of five 1.5" x 0.5" strips, for $500. Sensors also come in packs of five strips for $500.

Materials

NanoSonic also sells advanced materials directly. Metal rubber sheets are a highly flexible and electrically conductive elastomer, which can be stretched to 1,000 percent of its original shape while staying conductive. The sheets carry data and electricity, and have multiple applications, including power cables, conductors, fabrics, and carbon nanotubes.

Metal rubber addresses a key weakness of carbon nanotubes: once they are deformed, they can lose physical and chemical properties. Making them more flexible—or pairing them with a flexible material like metal rubber—could lead to significant advances in nanotechnology. Metal Rubber sheets are sold in two sizes: 6" x 6" ($1,000) and 12" x 12" ($2,000) sheets.

NanoSonic also sells a fire protection sheet, the HybridShield® Thermal Array. This is a fiberglass sheet that gives extreme fire protection to underlying materials. It is a conformal, highly flexible boundary between firefighters and fire threats that is extremely flame resistant and stable at high temperatures. The company also claims that it provides higher temperature resistance, negligible water absorption, improved impact protection, minimal smoke toxicity, and enhanced flexibility relative to state-of-the-art insulative spacers and energy absorbing materials.

The company anticipates that the HybridShield® Thermal Array will be used for flame/heat protective clothing (firefighting suits in particular), equipment, structures, and vehicles, and has partnered with Shelby Specialty

Gloves to create the next generation of firefighting gloves. The new Thermal Array gloves allow for much more precise movement than today’s bulky leather gloves. The Thermal Array is sold in single ($135) and double ($270) sided arrays.

Current Projects

Beyond the existing products described above, NanoSonic is working on projects which it believes will reach the market in the near term. One such project is a new coating for highway barriers, being developed in collaboration with the Federal Highway Administration. When a car collides with highway barriers, the collision generates friction which can roll the car. NanoSonic is developing a coating to be sprayed onto highway barriers that will lessen friction with the aim of reducing rollovers. Tests have been encouraging, although the project is still in development.

Future Products/Projects

NanoSonic is also currently working to develop aerosol can versions of its HybridShield® Anticorrosion and Icephobic coatings, which the company expects to be available soon, along with Scorpion Skin: a lightweight, conductive, durable, nonwoven polymer matrix resin.

NanoSonic also continues to work on applications related to fire safety. It is developing a new product called HybridShield® CeaseFire—a flame retardant and blast resistant spray. A recent test conducted with the Blacksburg, VA, fire department was very positive. The right side of a derelict building’s attic and roof was treated with about 110 gallons of CeaseFire. The treated side did not ignite despite the introduction of additional fuel. It is worth noting that this product has little-to-no toxic byproducts.

Finally, NanoSonic has also been working on optical fiber cables. Many local devices—computers, displays, local area networks—can take advantage of the capacity of an already installed optical fiber network, but need to be connected to it through high-speed links. Standard glass optical fiber jumpers can be used for these links, but they are not cheap or easy to install. With support from DoE, NanoSonic, Inc. has been developing low cost, high performance polymer optical cabling that supports high-speed data over the short distances from the optical fiber backbone to local devices and networks. The fibers are manufactured using the company’s patented electrostatic self-assembly process.

Awards

NanoSonic has been recognized by the scientific community, and is the recipient of several notable awards. It was named to the Nano 50—NASA’s list of the 50 most impactful nanotechnologies, products, and innovators for its

metal rubber fabric technology. The company was also named to the R&D 100 in 2007 and 2011, for metal rubber and fire/blast resistant spray, respectively. Other awards include the Top Small Business Award in VA, a Top 5 Small Business Award at DARPATech, and a Top 13 Nanostructured Products at NASA.

Business Model

NanoSonic’s business model is unusual. While most revenues are still derived either from SBIR/STTR awards or from sales of products and services to businesses or to government agencies, it is also now entering direct to consumer sales, for example its glove for firefighters (developed in partnership with a larger company, Shelby Inc.—see below). And NanoSonic also offers both raw materials (sheets of specialized fabric, or coatings) as well as final products such as the glove.

The company’s main customers are government agencies, large aerospace, electronics, and biologics companies, and revenues range from $1-$5 million annually. While the company has developed a wide range of technologies with SBIR and STTR funding, and these have constituted a significant amount of revenues to date, NanoSonic is now moving from R&D through product development into manufacturing, and Dr. Lalli anticipates that the balance will tilt further in coming years.

Nanosomic is still focused primarily on R&D—almost all of the current employees are involved in research. However, the company is also reaching out to find new distribution channels, beyond the existing partnership with Shelby. Two additional distribution partnerships are pending as of August 2015, according to Dr. Lalli.

The company is strongly growth oriented. It owns a building with 30,000 square feet of space and with considerable room to expand. It is a “green building,” certified by LEED and MAS, and featuring a wall of solar wall panels and other earth-friendly technologies. The facility houses a 10,000 sq. ft. process scale-up and manufacturing lab, and a 10,000 square foot R&D lab. Another 100,000 square foot building is on the drawing board for the facility, to be used for manufacturing. Nanosomic has also always had ambitions to become an international company.

SBIR/STTR

NanoSonic has received 281 SBIR/STTR awards, 243 SBIR and 38 STTR. (206 were Phase I and 75 Phase II). 185 awards have come from DoD and 48 from NASA.

STTR

Dr. Lalli observed that five years ago, she would have wanted to see STTR folded into the SBIR program, in large part because managing ITAR restrictions in the context of a partnership with a research institution was often extremely challenging.

More NanoSonic had found that the process has moved more smoothly, and while there was a clear tension between academic interests in publishing and company needs for confidentiality, this could be addressed effectively with the right partner.

Today, NanoSonic is a very strong supporter of the STTR program, Dr. Lalli said. The company found a formal agreement to use university equipment to be very helpful, and that the program also helped NanoSonic reach out to cutting edge researchers, and gain access to high quality graduate students.

NanoSonic now has good relationships with at least eight universities. Working with other Virginia schools has been especially fruitful—NanoSonic for a long time avoided partnering with Virginia Tech to avoid conflict of interest issues. Other effective partnerships have been formed with Colorado State University, the Naval Postgrad School, and the University of Arizona, according to Dr. Lalli.

Dr. Lalli said that she did not see STTR as presenting more difficulties than other contracts in terms of partners meeting their deliverables. She observed that in both cases, it would be important to figure out the reason for a failure, and to ask the partner for an alternative solution. Sometimes the problem being addressed was just hard, or there were differences of opinion on what needs to be delivered.

NanoSonic always drives the partnership, according to Dr. Lalli. A typical partnership might involve making the materials at the company, with the university providing technical help in measuring performance. For example, in STTR programs with Colorado State University, the partner there is an expert in the measurement of radiation-resistant materials measurement, and also has the necessary equipment in the university lab. He provides evaluations that validate NanoSonic claims, and thus helps the company to improve the material.

Dr. Lalli did however note that the need to deal with ITAR was very challenging. Most SBIR topics from DoD and NASA require this, and NanoSonic is now working to improve its capacity to deal with ITAR-related issues.

Recommendations

Dr. Lalli said that that biggest issue with the program for her company was the lack of clear specifications from DoD for new materials. Simply writing a topic was not enough to ensure that if the material was successful it would have a market within DoD, and she recommended that DoD develop improved

procedures for closing the gap between topics and specifications, especially for materials.

PHYSICAL SCIENCES, INC.³⁴

Physical Science Inc. (PSI) is a private company founded in 1973 by Robert Weiss, Kurt Wray, Michael Finson, George Caledonia, and other colleagues from the Avco-Everett Research Laboratory. The company is an engineering research and development company, focusing on the application of emerging sciences to the solution of engineering problems for its customers. PSI is headquartered in Andover, Massachusetts, and has approximately 180 employees and annual revenues of over $40 million.³⁵ Dr. Green has been employed at PSI for 39 years, starting there as a researcher after completing his PhD in chemistry at MIT.

Initially focused on laser and optics-based sensing applications and computer modeling in the aerospace and defense industries, energy sector, and the environment, PSI has over time applied its core expertise to a wide set of technological applications, and in so doing broadened its technical capabilities to include chemicals, materials, and signal processing. By focusing on technological specialties too small to attract major investment from DoD primes contractors and too mission-driven to excite competition from university laboratories, PSI has a solid reputation helping government agencies and private-sector clients across a broad range of technologies, according to Dr. Green. PSI’s principal customer is DoD, and its needs for sensing and monitoring technologies has driven the direction and development of PSI’s capabilities.

The company is organized into two R&D divisions, Applied Sciences and Defense Systems, and three subsidiary companies, Research Support Instruments, Inc., Q-Peak, Inc., and Faraday Technology, Inc. SBIR/STTR is an important source of funding, especially in developing new competencies, and starting in 1983, PSI has received a total of $284 million in SBIR/STTR funding, while its subsidiaries received $54 million. However, as Dr. Green points out, PSI has always served an array of markets and SBIR/STTR funding has never been more than 50 percent of annual revenues.

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³⁴Primary sources for this case study are the interview with Dr. David Green, CEO September 2 2015, and a review of the Physical Sciences, Inc. website (http://www.psicorp.com) and related company documents.

³⁵David Woolf, et. al, “High-temperature Selective Emitter for Thermophotovoltaic Energy Conversion,” November 12-14, 2014, http://www.psicorp.com/sites/psicorp.com/files/articles/VG14-148-final.pdf, 1.

At its headquarters in Andover, MA, PSI operates over 68,000 square feet of general office, laboratory, and prototyping space. PSI has two satellite offices in Haverhill, MA and Pleasanton, CA. The 6,000 square feet Haverhill facilities perform composites fabrication and laser machining operations and act as a staging area for various experimental activities. The smaller 2,800 square feet Pleasanton, CA facilities focus on nonlinear optics and laser-based chemical sensing. Subsidiaries operate facilities in Maryland, Massachusetts, New Jersey, and Ohio.

Dr. Green noted that a core of 10-20 people have been at PSI for 20 years or more. They understand DoD, NASA, and DoE agency needs. So PSI offers continuity, a deep understanding of the agency mission, and can as a result guide technology development toward meeting agency goals. This is a quite different model than companies seeking to commercialize a single technology, and provides quite different kinds of support to the agencies.

Technology

PSI, since its founding in 1973, has built on its core capacity applying lasers and optics technologies to sensing applications. In the 1980s, with SBIR support, PSI expanded into medical imaging and imaging chemically reacting flows. In the 1990s, PSI extended further into research on materials (especially chemical sensors), batteries, and tunable diode lasers.

Chemistry. PSI works in three broad and interrelated areas of chemistry: energetic materials research (explosives), advanced fuels, and coatings.

Laser-based Sensing. PSI lasers research focuses on three areas: biological structure, physical measurement, and laser spectroscopy. Using optical coherence tomography (OCT), PSI has developed technologies that can capture visually both tissue morphology and function. Based on laser distance and ranging technology (LIDAR), PSI can measure remotely a broad range of the physical and chemical properties of a target and the atmosphere. Finally, with tunable diode laser absorption technology, PSI is developing low-cost, high-volume applications such as natural gas leak detection and greenhouse gas monitoring.

Materials. To support research in energy and sensing applications, PSI developed deep competencies in material science. Initially aligned with its work on lasers, PSI expanded into other materials applications in radio sensing such as chaff manufacture to reduce or distort reflected images. PSI has also developed high temperature ceramics for leading edges and combustors in hypersonic flight and high density energy storage for next generation battery technology.

Optics. PSI has worked in optics since its founding, and as a result has developed technical capabilities in a wide range of areas, including integrated optics, photonics, and non-linear optical materials for gas sensing, field sensing, optical communications, interferometry, industrial process control and non-

destructive structural evaluation. Current projects include new imagers, spectrometers, and sensors using digital micromirror device (DMD) technology to increase data rates, improve ruggedness, and reduce the overall size and cost. PSI is also developing materials for applications requiring engineered optical properties for absorption, reflection, and emission at any wavelength.

Passive Sensing. Sensing technology is another longtime core competence of PSI. Current areas of research include magnetometry for measurement of local magnetic fields by drones, surface contamination for detecting environmental chemical agents (explosive or industrial waste), hyperspectral imaging for sensing chemical residues on remote surfaces, and low cost acoustic sensors for determining right-of-way encroachment and excavation activity near a pipeline.

Signal Processing. PSI’s work on sensors has also led the company into signal processing. For example, PSI has developed the capability to simulate post-intercept radar scenes with thousands of debris objects. Similarly, the company has a strong portfolio of sonar signal processing analysis models and simulations intended to enhance sonar performance against background noise, clutter, and reverberation.

Products

While PSI is not a manufacturing company and has no plans to become one, its technology does transition into products. Typically, if these have larger scale potential they are licensed to bigger companies for market deployment, while PSI itself may manufacture products that are short run or otherwise low volume.

On its web site, PSI provides a list of 20 products. Some have been licensed for production to other companies, and some are produced in short runs by PSI.

Commercialization: Subsidiaries, Spin-offs, and Licensing

When PSI sees commercial potential in a technology, senior management evaluates the opportunity to determine how to address the opportunity. PSI subsidiaries tend to replicate the R&D culture of the parent company (publication in peer-reviewed journals, use of SBIR funding), to focus on a limited (but stable) commercial opportunity, and to perform prototyping and low volume manufacturing. Spin-outs typically depend on venture backing and incorporate business models targeting larger commercial markets with need for product development, manufacturing, logistics, and sales and marketing.

Subsidiaries

Since 1990, PSI has acquired four wholly owned subsidiary companies. Three continue to operate: Research Support Instruments, Inc. (RSI), Q-Peak, Inc., and Faraday Technology, Inc., while the fourth was sold and now operates as part of a larger company.

Research Support Instruments, Inc.

Founded in 1976, Research Support Instruments, Inc. (RSI) was acquired by PSI in the early 1990s to provide PSI with the capacity to deliver hardware for spacecraft discovery missions as well as on-site engineering support to clients in the DC metropolitan area. The company provides services that enable research and development, systems engineering, instrument test and calibration, and experiment support. It operates offices in Lanham, MD; Princeton, NJ; and at the Naval Research Laboratories (NRL) in Washington, DC. RSI has had some success generating SBIR/STTR funding. Since its founding, RSI has received 44 SBIR/STTR awards, worth $7.8 million. Twelve percent by value have been STTR awards.³⁶

Q-Peak, Inc.

PSI acquired Q-Peak in 2001. From its offices in Bedford, MA, the company performs contract research and development in the fields of solid state lasers, nonlinear optics and related technologies. Customers include both the U.S. government and private corporations, especially the aerospace primes. Q-Peak can also produce low volume runs of various devices and systems. Finally, Q-Peak also manufactures a set of products based on diode-pumped, solid state lasers. These standardized, field-proven components can be integrated to provide a broad range of custom functionality. Q-Peak has also had substantial success in acquiring SBIR/STTR funding, having received 110 SBIR/STTR awards, worth $29.4 million. Eight percent by value have been STTR awards.³⁷

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³⁶“PSI’S CORPORATE HISTORY,” http://psicorp.com/our-company/history; “Excellent Technical Support,” http://www.rsimd.com/; “Research Support Instruments, Inc.” https://www.sbir.gov/sbirsearch/detail/292228.

³⁷“Q-PEAK, INCORPORATED.” https://www.sbir.gov/sbirsearch/detail/284118; “Research and Development: Overview,” http://www.qpeak.com/Research/roverview.shtml, “Products: Overview,” http://www.qpeak.com/Products/products.shtml.

Faraday Technology, Inc.

Faraday Technology, Inc. provides government and commercial clients with R&D services related to electrochemical engineering development running from bench prototype systems through pilot or pre-production levels. By varying the waveform of the applied voltages and currents, the anode/cathode spacing, the anode design, and degree of mixing within a Faraday cell, company technicians can control the electrochemical deposition rates of various atoms. In addition to engineering services, Faraday also markets rectification equipment and effluent decontamination reactor hardware. Faraday Technology has had success generating SBIR/STTR funding, receiving 90 SBIR/STTR awards, worth $21.0 million. Eleven percent by value have been STTR. Faraday also won an R&D 100 Award in 2011 for its work depositing Mn-Co coating on interconnects in solid oxide fuel cells.³⁸

Spin-Outs

In addition to establishing subsidiaries, PSI has also spun out technologies into new companies. Typically, these technologies have presented the opportunity for selling products to mass markets. Although PSI may take an equity stake in the company, most of the funding comes from the venture community. The company’s record with spin-outs has been mixed.

Confluent Photonics was founded in 2000 to commercialize components for use in Dense Wavelength Division Multiplexing (“DWDM”). Confluent received $14 million in two rounds of venture funding in 2001 and 2003. In 2006, it was acquired by Auxora.³⁹ Another medical instrumentation firm failed when it couldn’t raise a C round to complete clinical trials to gain FDA approval.

Dr. Green said that IP and staff usually go with the spin-out. None of the spin-outs have been highly successful, and many of the staff have returned to PSI. One spin-out still exists, having been sold three times. Spinouts are

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³⁸“The Company,” “The Technology,” http://www.faradaytechnology.com/; “FARADAY TECHNOLOGY, INC.” https://www.sbir.gov/sbirsearch/detail/164726; “Faraday Wins R&D Magazine’s R&D 100 Award,” http://www.faradaytechnology.com/PDF%20files/FT%20R&D%20100%20Press%20Release.pdf.

³⁹“Confluent Photonics Raises $11 Million Series A Financing,” January 10, 2001, http://www.prnewswire.com/news-releases/confluent-photonics-raises-11-million-series-a-financing-from-innocal-venture-capital-rustic-canyon-ventures-cit-venture-capital-and-invescoprivate-capital-71002827.html; “Confluent Photonics Raises $3 Million in Second Round Financing,” September 11, 2003, http://www.prnewswire.com/news-releases/confluent-photonicsraises-3-million-in-second-round-financing-71066127.html; “Auxora Acquires Confluent Photonics,” March 6, 2006, http://www.auxora.com/doce/news-detail-26.html.

however in the end are in the hands of the investors who buy control. In some cases, that can be invaluable where they provide good market insight. However, in many cases the technology takes too long to mature, and investors take the new company in the wrong direction. A good recent example would be 3-D cinema—the company’s technology was in that case transferred to outside group which lacked the technical capacity to execute the project effectively.

Licensing

PSI has licensed significant amounts of technology. Perhaps the most successful example is the Remote Methane Leak Detector (RMLD™), a laser sensor used worldwide to detect natural gas leaks. PSI began RMLD™ development in 1999, initially funded by EPA Phase I and Phase II SBIR grants and subsequently with funding from the Department of Energy and industry partners. The eventual product is a hand held device that can detect methane from outside the plume. According to Dr. Green, PSI developed the product all the way through to a pre-production prototype. It worked collaboratively throughout the development with an industrial partner as well as national gas distribution companies.

Four years work resulted in a prototype. PSI licensed the RMLD™ technology to Heath Consultants, Incorporated on an exclusive basis in 2003, and renewed the license for another ten years in 2013. Heath released RMLD™ commercially in 2005 and has since sold over 3,000 units worldwide at about $17,000 each, generating revenues of approximately $50 million and PSI royalties of $2 million. The detector has spawned its own cluster of jobs through companies using the detector, which Dr. Green estimates at more than 3,000 employees along with commensurate tax revenues. The product team received a 2005 R&D 100 Award. In 2006, PSI received a Tibbetts Award.⁴⁰

According to the PSI web site, PSI licensing income recently exceeded $1 million annually following the successful commercialization of its ophthalmic technologies.

Patents and Other Intellectual Property

PSI is the assignee for 70 patents over the period 1987 to 2015. Five patents have multiple assignees reflecting R&D collaboration between PSI and other organizations. They were Faraday, Incorporated; American Air Liquide,

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⁴⁰“Tibbetts Award Winners,” http://www.sbtc.org/tibbettswinners/; “Detecting gas leaks from a distance,” August 31, 2005, http://www.rdmag.com/award-winners/2005/08/detecting-gas-leaksdistance.

the General Hospital Corporation, and Alliant Techsystems. Almost half (32) of PSI patent portfolio has been published in the past 5 years which suggests that PSI’s patent strategy has changed.

Partnerships

PSI maintains research relationships with a broad range of university, government, and corporate R&D organizations. For example, PSI has recently successfully licensed technology for ophthalmic instrumentation to both an incumbent and two start-ups. The technology was developed in partnership with scientists, engineers, and clinicians from organizations like the Army Medical Research Branch, the Air Force Research Lab, the Massachusetts Eye and Ear Infirmary, MIT, the University of Texas at Austin, Massachusetts General Hospital, Boston Medical Center, and Brigham and Women’s Hospital.⁴¹

Revenues

PSI generates over $40 million annually in revenues, down slightly from its peak in the late 2000s. The company has received extensive support from SBIR/STTR funding. It also generates revenue from engineering service contracts, product sales from its subsidiaries, technology licensing, and to a lesser extent spin-outs.⁴² PSI reports its revenue breakdown for FY2010 as that listed in Table E-7 (including subsidiaries).⁴³

SBIR/STTR

Between 1983 and 2015, SBIR/STTR funded 1,108 projects with PSI: $63 million in SBIR Phase I, $190 million in SBIR Phase II, $8.0 million in STTR Phase I, and $23.4 million in STTR Phase II funding. PSI’s subsidiaries have also benefited from SBIR/STTR, receiving an additional 244 awards worth $58 million.⁴⁴

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⁴¹Dan Hammer, et. al. “Biomedical Optics Instrumentation,” September 15, 2010, http://www.psicorp.com/pdf/library/VG10-182.pdf, p. 7.

⁴²Dan Hammer, “Biomedical Optics Instrumentation,”http://www.psicorp.com/pdf/library/VG10-182.pdf, 1; Woolf, “High-temperature Selective Emitter,” http://www.psicorp.com/sites/psicorp.com/files/articles/VG14-148-final.pdf, p. 1.

⁴³David Woolf, et. al, “High-temperature Selective Emitter,” http://www.psicorp.com/sites/psicorp.com/files/articles/VG14-148-final.pdf, p. 1.

⁴⁴“PHYSICAL SCIENCES, INC.” https://www.sbir.gov/sbirsearch/detail/273626; National Research Council, An Assessment of the SBIR Program, Washington, DC: The National Academies Press, 2008, http://www.nap.edu/catalog/11989.html, p. 268.

TABLE E-7 Physical Sciences, Inc.’s Revenue Breakdown, FY2010

SOURCE: Physical Sciences, Inc.

Of the 93 SBIR/STTR projects awarded to PSI in 2013 and 2014, 61 percent (57 projects) were funded by DoD, 17 percent by NIH, and 12 percent by DoE. The remaining 10 percent were funded by the Department of Agriculture, the EPA, the Department of Homeland Security, and the National Aeronautics and Space Agency. Over the more than 30 years that PSI has received SBIR/STTR funding, STTR awards account for just under ten percent by value.

Both PSI and the SBIR/STTR programs have evolved over time. Initially, the company was focused on basic and near basic research. Today is it working on applied research and then applications and commercialization. Dr. Green said that the company was already evolving towards a more pronounced focus on commercialization before more recent changes in the SBIR/STTR program in the same direction.

Today, PSI is a strong supporter of the program's shift away from research-only projects. The company no longer just looks for projects that it can win—managers want to know where the technology will be used, and they want to see effective commercialization, according to Dr. Green. Before staff write a Phase I proposal, the company has to have a commercialization plan—it is part of the bid decision for PSI. And while PSI still sees itself as a research house, it is now focused much more closely on applications for that research.

Dr. Green said that successful commercialization of SBIR technologies—especially from DoD and NASA SBIR/STTR projects—required that the company find multiple markets—simply relying on direct agency sales was not sufficient. Thus while PSI’s work with NASA had led to a number of commercial successes, these had not been through direct sales to NASA. Diagnostic tools developed for NASA, for example, are now used in the automotive industry. Similarly, PSI is currently building an aviation fuel quality monitor for Navy for aircraft carriers. Orders for these monitors come once every 3 years, so that business alone cannot sustain a company.

STTR

Dr. Green said that he was a strong supporter of the STTR concept. However, while STTR provides funding for the research institution, industry has to be the bridge that transitions technology out of academia. STTR cannot just be pass through funding to the RI. He believes that STTR encourages each partner to work to their strength: the RI does research and education, and the industry partner does commercialization, and this structure is perfect for technology transition.

Dr. Green observed that PSI had spent more than $9 million on contracts with RIs since 2009. Most of that has been through SBIR/STTR (though there have been some other contracts). In one six year period, PSI funded 53 different universities. The company watches the scientific literature to identify possible partners, focusing on faculty who are making cutting edge advances that can meet the needs of PSI’s customers. It is rare that a professor says they are not interested in collaboration.

PSI has had a number of successful STTR projects. One focused on imaging of the retina, and stretched over several STTR awards, starting with NIH support. NIH wanted technology to detect macular degeneration earlier, and the technology might also help detect eye diseases in premature infants.

The objective of the project was to resolve to very fine level the vasculature at the back of the eye at the surface and in depth. That allows clinicians to understand the dynamics of the back of the eye using optics only.

PSI had worked on the project with a number of high quality academic partners in the Boston area, including Children’s Hospital. Working closely with top researchers, seeing their challenges and identifying tools to resolve them, before working together on clinical trials and further refinement of the tool is highly satisfying for PSI researchers. Publishing academic papers jointly was also important—it allowed new ideas to emerge from the scientific audience, and often stimulated possible new applications for the tool. Dr. Green thus saw the project as creating a powerful virtuous circle: PSI staff are instrument builders, not clinicians, but the company’s work helps the clinicians do things they could never have done otherwise. That in turn created more publications and more recognition for the project, and ultimately patents that were filed jointly with RIs such as Children’s Hospital.

The product of the STTR-funded research has now been licensed to major medical device companies, as it is not realistic for a company the size of PSI to fund clinical trials. Dr. Green said that PSI now receives modest royalties, as the device companies sell the product. Over the past 7 years, 15,000 units have been sold, generating approximately $1 billion in revenues. Perhaps more important, tens of millions of patients have been tested using this technology, improving health for everyone.

While Dr. Green supports STTR, he said that it was not clear that it added substantial value beyond SBIR. PSI works with RIs through both programs, and finds that RIs are brought into projects because they are needed.

There is in his view no difference in the company’s management of SBIR and STTR programs. All subcontractors need to be managed, which is especially hard to do in the short timeframe of a Phase I award. Universities may even be a little easier to manage than collaborations or subcontracts with large technology companies.

Recommendations

Dr. Green said that overall the review process at the agencies was high quality, particularly at DoE. It often provided many different technical perspectives, which was valuable. Commercial review was probably not as insightful, but noone can perfectly see the path to commercialization. Efforts have been made to improve commercial review, and DoE in particular has tried to raise awareness and improve quality. He suggested that agencies should seek expert advice on commercialization, which was now widely available in the private sector. Reauthorization has resulted in more reporting and a lot more structure. The amount of effort required to submit a proposal has more or less doubled even for a highly experienced company like PSI. This represents a major barrier to entry into the program: Dr. Green noted that the grants.gov SBIR/STTR instructions are 200 pages long, which may in part explain why the number of proposals is falling. Every SBIR/STTR proposal requires that PSI uploads 10-30 different sections. One has to be very internet savvy and very persistent.

Dealing with government has in general become much harder. Now numerous forms and statements are required related to fraud and abuse: all proposals now require that the company has support for every piece of equipment it plans to buy, and provide support to show that it is actually paying everyone that it plans to pay.

The agencies need to look again at this, to find ways to simplify the process substantially, to limit the amount of paperwork involved in an application. Everyone should have a fair shot, and that is not really the case today. PSI has a fully trained technical publications department to do submissions and it still takes them significant time and effort. It is important that the program remain fully merit-based, to ensure that the best solutions find their way to the market.

STRATATECH CORPORATION⁴⁵

Stratatech Corporation is a private company founded in 2000 by B. Lynn Allen-Hoffmann. The company is developing novel skin regeneration and repair products for therapeutic use, drawing on what Dr. Allen-Hoffmann described as a serendipitous discovery in her lab at the University of Wisconsin that offered entirely new technical opportunities in cell-based therapy for human skin replacement and treatment of complex skin defects.

Working together with the University of Wisconsin and the Wisconsin Advanced Research Foundation (WARF), Dr. Allen-Hoffmann used an STTR award to begin the transition from university lab to the private sector. In conjunction with WARF, she determined that a small private biotechnology company was the appropriate legal structure to house the work, and provided access to the SBIR program.

Stratatech started operations in a small space provided by Mirus Corporation, another small spin-off of the university located in the University Research Park in Madison, Wisconsin. The company soon started to attract angel funding, which Dr. Allen-Hoffmann attributes to the understandable nature of the technology for skin replacement. While business advisors recommended that she avoid applying for grants due to the lengthy time required to generate the application and administer the grants if awarded, Dr. Allen-Hoffmann decided that the best path to funding lay through the SBIR/STTR programs.

Based on the discovery of a human keratinocyte cell line, NIKS® cells, that produces tissue nearly identical to human skin, Stratatech has used the cells as a platform technology for the development of a pipeline of cell-based products. Stratatech is developing StrataGraft® as it’s flagship product based on the core technology. StrataGraft® is a living skin-tissue therapeutic for the treatment of severe burns and other complex skin defects, the use of which may reduce or possibly avoid the need for painful skin harvest and transplantation (autografting). The ExpressGraft™ lineage is comprised of skin tissues that have been genetically enhanced to encourage wound closure by providing elevated levels of human wound healing or antimicrobial factors that may be underrepresented in some wound environments. Both the core technology, Stratagraft®, and the world’s first genetically enhanced human skin, Expressgraft™, are being evaluated in late-stage and early-stage clinical trials, respectively. The late-stage clinical development supporting the StrataGraft® product is in part funded by a $247 million contract with Biomedical Advanced

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⁴⁵Primary sources for this case study are the interview with Barbara-Allen Hoffmann conducted on April 9, 2015, and a review of the Stratatech web site (http://www.stratatechcorp.com) and related company documents.

Research and Development Authority (BARDA) awarded in September 2015. Results to date have supported the safety and initial efficacy of the company’s flagship product, StrataGraft®.

By late 2013, Stratatech had 38 full-time employees and expected to add 10 to 20 additional employees over the next 5 years. Currently, the company has approximately 50 full-time employees. It has research relationships with various universities and research institutions including the University of Wisconsin-Madison, Wake Forest University, The Arizona Burn Center, the U.S. Army Institute of Surgical Research, Harvard Medical School, and an unnamed Fortune 200 consumer products company.⁴⁶ However, even with a large support contract in hand from HHS/BARDA and continuing support from NIH, funding for later stage clinical trials and manufacturing infrastructure remains an ongoing challenge. Dr. Allen-Hoffmann observed that there had been no new products available for burn patients in decades, in large part because the market was perceived as too small to interest large biomedical companies. In 2012, StrataGraft® received orphan drug designation from the FDA to expedite treatment for severely burned patients.

Technology

Unlike other cultured human cell lines, the NIKS® progenitor line at the heart of Stratatech’s core technology is a consistent source of pathogen-free, non-tumor-producing, long-lived adult keratinocyte progenitor cells. Keratinocytes are the cells that make up approximately 90 percent of the outer layer of human skin known as the epidermis. The value of the NIKS® cell line lies in its ability to regenerate the epidermal component within a fully stratified human skin tissue. The resulting multi-layered tissue has the physical strength and biological characteristics of intact human skin. When handled appropriately, this cell line grows new human skin and—as important—ceases growth when these cells abut neighboring mature skin cells. The NIKS® cell line can be utilized indefinitely to produce cultured skin, avoiding the costly need to recreate and requalify new cell lines that restricts other technologies.

Having a well characterized, pathogen-free, continuous source of epidermal progenitor cells serves as a foundation for the company’s products and allows Stratatech to pursue strategies to improve the cell line’s performance genetically. Stratatech is introducing new genetic characteristics without using viral vectors or other delivery technologies that could impart unwanted safety risks to the transgenic tissue and, most importantly, the patient. This approach

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⁴⁶“Company Profile: Stratatech,” http://inwisconsin.com/insource-newsletter/Stratatech-companyprofile/.

supports the creation of custom cell-based therapeutics with enhanced antimicrobial properties and improved vascular function and that may lead to faster healing.

Products

StrataGraft® and the ExpressGraft™ line of genetically enhanced tissues are the principal products under development from the NIKS® cell line. Currently, the company has created six ExpressGraft™ pipeline products, each genetically augmented to address the underlying pathophysiology of complex skin defects. All pipeline products have been successfully developed from hypothesis to completed cGMP manufactured master cell banks with support from the SBIR/STTR Program.

StrataGraft® Regenerative Skin Tissue

Each year in the United States, about 40,000 hospitalizations occur for burns.⁴⁷ At present, patients with severe burns must endure autografting, a procedure requiring the harvest of healthy skin from another part of the body for transplantation to the site of the wound. StrataGraft® tissue has the potential to provide a safe, effective, and less painful alternative that avoids the creation of donor site wounds.

StrataGraft® skin tissue is a cellular therapeutic for use as a treatment for severe burns and other complex skin defects. It mimics natural human skin, with both dermal and fully-differentiated epidermal layers. StrataGraft® skin tissue is easily sutured to a wound bed, provides barrier function, and is anticipated to serve as a source of factors promoting the natural skin regeneration process.

In October 2014, StrataGraft® completed a Phase Ib clinical trial in patients with deep partial-thickness burns. By 90 days after treatment, 27 of 28 patients achieved complete wound closure after a single application of StrataGraft® tissue. By this time, no StrataGraft® DNA was detectable, confirming regeneration of the patients’ own skin.

If successful, StrataGraft® could revolutionize treatment for burns by providing an alternative to autografting and its associated donor site pain, infection risk, and possible poor cosmetic outcome. These advantages may lead to shorter hospital stays and reduced after-care costs.

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⁴⁷American Burn Association, “Burn Incidence and Treatment in the United States: 2013 Fact Sheet,” http://www.ameriburn.org/resources_factsheet.php.

ExpressGraft™ Genetically Enhanced Regenerated Tissue

Approximately 50 million surgeries occur annually in the United States, each requiring some form of wound closure.⁴⁸ Stratatech is developing genetically enhanced tissues that produce elevated levels of natural wound healing and antimicrobial factors. Delivered as skin grafts, ExpressGrafts™ create a controlled wound microenvironment in which to fight infection or promote vascularization while accelerating healing.

In one ExpressGraft™ product, the NIKS® cell line has been genetically modified to produce higher levels of cathelicidin, a peptide with antimicrobial properties that plays an active role in wound healing. These tissues produce 140-fold greater levels of cathelicidin protein in vitro, and in an in vivo animal wound model showed a 100-fold reduction in the presence of a multidrug-resistant strain of Acinetobacter baumannii.

Clinical development of ExpressGraft™ will start in 2015 with a Phase I/II trial focused on non-healing diabetic foot ulcers. An IND was submitted to the FDA in spring 2015 and received clearance from CBER to enter a first-inhuman safety trial. Dr. Allen-Hoffmann observed that this project has been supported from “hypothesis to translation into the clinic” by NIH through the STTR and SBIR programs.

StrataTest® Human Skin Research Model

Many of today's animal- and cell-based toxicity testing models are burdened by significant accuracy, reproducibility, cost, and ethical concerns. The European Union, for example, has banned the sale of animal-tested cosmetic and consumer products.

Based on the NIKS® cell line, StrataTest® is a human skin model for in vitro consumer product testing, drug discovery and toxicity screening. Like StrataGraft®, StrataTest® tissue is composed of both epidermal and dermal layers, and displays the same physical, chemical and histological characteristics of human skin, enabling better prediction of in vivo biological responses than monolayer skin culture technologies.

Dr. Allen-Hoffmann said that while StrataTest® has shown considerable technical promise and the company regularly fields inquiries from larger potential customers, the decision was made to focus efforts on the therapeutic flagship StrataGraft® product and the ExpressGraft™ pipeline of products for the time being.

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⁴⁸CDC FastStats, http://www.cdc.gov/nchs/fastats/insurg.htm.

Other Potential Products

Other ExpressGraft™ potential products are in the pipeline. Like the cathelicidin-expressing variant of ExpressGraft™, some product candidates produce elevated levels of other naturally-produced human wound healing factors. For example, one proposed product expresses VEGF, a protein that plays a central role in blood vessel growth (angiogenesis). Because many chronic wounds are associated with insufficient tissue oxygenation, boosting local levels of VEGF may improve wound healing and closure. Clinical development will target the need for underserved markets in chronic, non-healing ulcers.

Additional potential products target different classes of skin trauma. For example, by creating tissues that express Interleukin-12 (IL-12), a human anticancer protein, Stratatech hopes to develop a product that surgeons could apply after surgical excision of solid skin tumors. Locally produced IL-12 from the genetically modified tissue could facilitate the patient’s own immune surveillance of residual tumor cells remaining after the surgery, reducing the potential for recurrence.

Patents and Other Intellectual Property

Stratatech is the assignee for 20 issued patents listed in Table E-8.

Funding

Stratatech Corporation has received grant support from SBIR (mostly from NIH but also from DoD), other grants from non-SBIR sources, a major contract from HHS’s Biomedical Advanced Research and Development Authority (BARDA), and investment from independent investors.

Non-Dilutive Grants

Between 2001 and 2013, SBIR funded 21 projects with Stratatech. From 2001 to 2003, it received Phase I SBIR awards from four NIH centers—National Institute of Arthritis and Musculoskeletal and Skin Diseases, National Institute of General Medical Sciences, National Cancer Institute, and National Institute of Environmental Health Sciences—followed in 2004 by the first Phase II award from NIGMS. Subsequently, Stratatech also received awards from NIDDK and NIA.

STTR grants funded three projects aimed at completing the scientific work that, according to Dr. Allen-Hoffmann, needed to be done within her lab at the University of Wisconsin because that provided access to otherwise unaffordable equipment.

Stratatech has also applied for and received Fast Track awards from NIH. Dr. Allen-Hoffmann observed that these had been especially helpful as

they reduced the time from initial idea to clinical trials by many months. One Fast Track provided by NIDDK is supporting Phase I clinical trials for an anti-infective human skin tissue that can be used to treat ulcerated skins from diabetic skin ulcers.

Stratatech has received grants from other sources to support commercialization of its StrataGraft® product. In July 2013, Stratatech received a grant for up to $47.2 million from BARDA. The award supports the preclinical, clinical, regulatory, and technology development activities needed to complete FDA approval for StrataGraft®. Also, the contract funds

TABLE E-8 Stratatech Assigned Patents

SOURCE: U.S. Patent and Trademark Office.

manufacturing process development and scale-up to enable large-scale production in case of a mass casualty event.⁴⁹ In September 2015 Stratatech received a second BARDA contract through Project BioShield that replaced the first contract. This most recent BARDA contract enables expansion of the company’s clinical program to include pediatric patients and aging adults and positions StrataGraft for use under a pre-Emergency Use Authorization, provided the clinical findings support continued development of the product. Importantly, the new BARDA contract included the procurement of StrataGraft by the U.S. government in the event of a mass casualty caused by a natural disaster or an act of terrorism.

In 2010 the Defense Department’s Armed Forces Institute of Regenerative Medicine (operating in conjunction with Wake Forest University) funded the proof of concept Phase IIB clinical trial of StrataGraft®. In 2015 Stratatech received approval from the FDA to continue with a Phase 3 clinical trial, based on results from the Phase IIB. The Phase 3 trial will start in early 2016, to be funded by BARDA’s Project BioShield.

Equity Funding and Operations

Stratatech has received ongoing support from Wisconsin’s angel investor community and from the Wisconsin Advanced Research Foundation. For example, in May 2010 it announced $3.0 million in funding comprised of convertible notes from its current investors.

Strategic Partnership

In 2010 Stratatech entered into a collaborative agreement with a Fortune 200 consumer products company to develop an advanced skin care product. Dr. Allen-Hoffmann said that the objective was to develop the capability to provide testing kits for skin care products. The announced goal was to use extracts from the NIKS cell line to prevent wounds or ulceration by enhancing the resiliency of compromised or susceptible skin.

SBIR/STTR at Stratatech

Dr. Allen-Hoffmann stressed that the SBIR/STTR program at NIH had provided absolutely critical funding for Stratatech. She said that she had no doubt that her company and its associated products would not be in existence

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⁴⁹Stratatech, “Stratatech Awarded BARDA Contract Valued up to $47.2 Million for Advanced Development of StrataGraft® Skin Tissue for Thermal Burns,” Press Release, July 31, 2013, accessed at http://www.stratatechcorp.com/news/20130731.php.

without SBIR/STTR funding. She also observed that the funding was especially important for a woman-owned company: other sources of capital were, in her view, even more inaccessible for a woman-owned small high-tech firm than they were for small high-tech firms in general.

In her view, STTR was particularly important. Some of the initial work—such as work on genetically enhanced tissues—had to be completed in the university lab as necessary equipment was not available at the University Research Park. Once Stratatech was established as a functioning company and the basic research had been completed, other sources of funding became more available.

Today, academic institutions continue to view STTR more favorably than SBIR, particularly with regard to issues related to the allegiance of faculty. University departments take a different view of projects where more of the work and most of the PI’s time is committed to the university as opposed to the private sector. Dr. Allen-Hoffmann observed that despite some changes, tenure decision committees were still very conservative about the activities of junior faculty outside academia, and STTR provided an important mechanism for helping to resolve that tension.

Dr. Allen-Hoffmann said that Stratatech had participated in the Fast Track program in the early 2000s when working on developing cell-based ExpressGraft clones. The company feared that the Phase I-Phase II gap would kill the project. Fast Track had worked perfectly from the company’s perspective. It had provided a seamless transition from Phase I to Phase II; in her view the company would have lost key people without it. Continuity of staffing remains a key issue for small companies.

Recommendations

Dr. Allen-Hoffmann observed that the SBIR program coordinators at each of the Institutes and Centers played a critical role. Although program officers in general have a strong commitment to the SBIR/STTR program, the SBIR program coordinators possess specific knowledge and can be extremely helpful in guiding investigators. She recommended that small companies make sure that they established contact with the program coordinators.

She also noted that the alignment between topics and awards had changed significantly over the past ten years. During her early years with the program, Dr. Allen-Hoffmann said that she was confident that a strong project would receive consideration and perhaps funding regardless of its connection to a topic described in the Omnibus Solicitation. That has changed over the years, and Stratatech now only applies for awards where there was a clear alignment between the topic and the proposal. In her view this was not a positive development for identifying and supporting innovation.

In addition, Dr. Allen-Hoffmann noted that contracting had become more complex because it was no longer possible to interact routinely with specific financial management officers at NIH. As a result, the advice received

started to lack continuity. Continuity is especially important to a small firm trying to budget accurately.

Overall, Dr. Allen-Hoffmann said that she remains truly grateful for the support provided by the NIH SBIR/STTR program and that the technology could not have been developed without that support. The value of this program is immeasurable in helping patients and their families benefit from the world-class research conducted in the United States.

VISTA CLARA, INC.⁵⁰

Vista Clara is a private company founded in 1997 by Dr. David Walsh, a design engineer with experience developing magnetic resonance imaging systems (MRI) in the healthcare industry. Dr. Walsh said that he had been an entrepreneur even before graduate school, and that he had always wanted to own his own company. After completing graduate school, he had started a Vista Clara as a technology consulting company in Tucson, and it had been growing slowly but steadily when he decided to start applying for SBIR funding. The resulting awards allowed the company to develop its core technology (see SBIR/STTR and Vista Clara section below).

Vista Clara develops and manufactures advanced nuclear magnetic resonance (NMR) geophysical instrumentation systems for groundwater, mining, and environmental studies. Vista Clara’s NMR instrumentation can operate from the surface, downhole, or in the laboratory, and delivers quantitative imaging of subsurface hydrogeologic structure. The company both sells and rents this equipment, and provides training in its use. Vista Clara also uses its own equipment to perform hydrogeologic field surveys for customers ranging from private land-owners to government agencies and multinational firms.

In 2002, Vista Clara Inc. pivoted from its initial focus on healthcare MRI to applications of NMR to hydrogeology. SBIR funding enabled the company to develop its first NMR based system for groundwater surveying. Although initially expecting to focus primarily on the U.S. market, Vista Clara has found greater market acceptance overseas, principally in China and Australia. Exports are the basis of the company’s revenue and profit growth.⁵¹

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⁵⁰ Primary sources for this case study are the interview with Dr. David Walsh, CEO, August 18, 2015, and a review of the Vista Clara web site (http://www.vista-clara.com) and related company documents.

⁵¹David Walsh, “Use of Exports to Accelerate Adoption of NMR Geophysical Technology,” National Groundwater Association, Theis Conference, November 8-10, 2013, Phoenix, Arizona, https://ngwa.confex.com/ngwa/theis2013/webprogram/Paper9564.html.

Vista Clara is receiving recognition for its work. For example, Elliot Gruenwald, the chief geophysicist for Vista Clara, recently won the J. Clarence Karcher award from the Society of Exploration Geologists for his innovative work on surface NMR.⁵²

The company’s clients includes various corporate (Rio Tinto, BHP Billiton), university (Rutgers University, Stanford University), government (U.S. Geological Survey, Kansas Geological Survey, Qinghai Geology and Mineral Exploration Bureau, Geoscience Australia) and NGO (Geophysicists without Borders) entities.

Vista Clara currently employs approximately 15 people at its Mulkilteo, Washington headquarters. To serve Asian markets, Vista Clara also maintains a small office in Perth, Australia.

Technology: NMR Hydrogeologic Instrumentation

Water scarcity affects every continent. By 2025, around 1.8 billion people will be living in areas of absolute physical scarcity; two thirds of the world’s population will be living under water stress. For many, underground aquifers are an important source of water. However, in most parts of the world, the data required for principled management of these resources is lacking and groundwater aquifers are being depleted.⁵³

Vista Clara is developing NMR products and services to measure groundwater. NMR is a physical phenomenon whereby certain elements absorb and re-emit electromagnetic radiation. The sensing using NMR is a two-step process. First, the magnetic spins in a sample are aligned using a magnetic field, and second a radio pulse perturbs the aligned fields. The exact frequency of the pulse depends on the atom to be detected and the strength of the magnetic field.⁵⁴

Conveniently both hydrogen and carbon show this phenomenon. NMR was first applied in geophysics to oil exploration in the 1960s to help develop

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⁵²Rosemary Knight, “J. Clarence Karcher Award for Elliot Grunewald,” The Leading Edge, January 2015, 15; http://www.tleonline.org/theleadingedge/january_2015?pg=15#pg15.

⁵³Non-renewable Groundwater Resources, Stephen Foster and Daniel Loucks, eds., Paris: United Nations Educational, 2006), 81; http://unesdoc.unesco.org/images/0014/001469/146997E.pdf; “water & poverty, an issue of life & livelihoods,” FAO Water , http://www.fao.org/nr/water/issues/scarcity.html.

⁵⁴Abi Berger, “How Does It Work: Magnetic Resonance Imaging,” British Medical Journal, January 5, 2002, vol. 324, no. 7328, p. 35, http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1121941/; Allan Newman, “Between a Rock and a Magnetic Field: Geologists Exploit NMR,” Analytical Chemistry, August, 1991 vol. 63, no. 8, p. 467, http://pubs.acs.org/doi/pdf/10.1021/ac00008a732.

understanding of oil flows through hydrocarbon-bearing rock. NMR instruments designed for the oil industry, however, are generally overengineered for hydrological field studies. The hydrogeologic bore holes are substantially narrower, the physically constants of the targets are different, and the operating temperatures and pressures substantially lower.⁵⁵ In a hydrogeologic study, NMR allows the measurement of key hydrological soil characteristics. It can distinguish between bound water that will not flow and unbound water that will. From this, it can also determine the porosity of a soil, a crucial variable in determining flow through that soil.

Initially, Vista Clara developed innovative non-invasive multi-channel (GMR) surface systems designed to enable rapid evaluation of water aquifers without drilling expensive exploratory wells.⁵⁶ In the past 8 years Vista Clara emulated the oil industry NMR instrumentation systems for hydrogeologic NMR systems that functioned down bore holes (Javelin) or in laboratories (Corona).

Products and Services

Vista Clara has created a product line that provides different ways of using NMR to evaluate near surface geology (surface-based, small bore holes-based, laboratory-based).

Instrumentation

Vista Clara offers four different instrumentation packages:

GMR. GMR is a surface magnetic resonance sounding systems that allows non-invasive detection and measurement of ground water. GMR uses the earth’s magnetic field to align the hydrogen atoms in the water molecules and broadcasts an electromagnetic pulse from surface electrodes to generate an NMR response. Sensors detect the return signal enabling groundwater and soil characterization to a depth of 150 meters without the need for drilling bore holes. Applications include groundwater exploration and well site selection.

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⁵⁵David Walsh, et. al. “A Small-Diameter NMR Logging Tool for Groundwater Investigations,” Groundwater November-December 2013, vol. 51, no. 6, 914-915, http://www.alphageofisica.com.br/vistaclara/papers/groundwater_javelin_www.alphageofisica.com.br.pdf.

⁵⁶David Walsh, “Multicoil low-field nuclear magnetic resonance detection and imaging apparatus and method,” U.S. Patent 8,451,004, May 28, 2013, http://patft.uspto.gov/netacgi/nphParser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearchadv.htm&r=1&p=1&f=G&l=50&d=PTXT&S1=8451004.PN.&OS=pn/8451004&RS=PN/8451004.

Javelin. Javelin was designed to profile the hydrological characteristics of the geology surrounding a bore hole. Designed for older well fields in which a network of monitoring wells already exists, Javelin is lowered down each bore hole, developing a vertical profile of the hydrological properties for the soils surrounding the bore.

Discus. Discus is a surface technology that enables rapid characterization of surface soils using NMR without the need for sample extraction, porosity calibration, or radioactive sources. Discus can be rapidly moved across a site to develop a two dimensional map of surface soil characteristics. Applications include non-invasive studies of agricultural drainage, roadway compaction, and moisture in building concretes.

Corona. Corona is a portable system for evaluating the hydrological characteristics of soil cores. Using the same technology as a MRI scanner, Corona exposes a sample to a strong magnetic field and then a series of electromagnetic pulses. This system can be used for engineering, geotechnical, or agricultural studies of soil cores. Vista Clara also uses Corona-enabled core studies to calibrate Javelin and GMR/Discus data sets.

Rental and Training

To enable broader adoption of NMR technology, Vista Clara enables customers to rent NMR products for periods ranging from a few days to a few months. To ensure that data is properly captured and analyzed by both rental and first time customers, Vista Clara personnel will travel to provide on-site training.

Field Surveys

Vista Clara will perform custom field surveys for its clients, although according to Dr. Walsh it prefers to train client staff. It will assist in study design, data acquisition, data review and processing, data interpretation, and report preparation.

Markets

Vista Clara sells small numbers of moderately expensive equipment (GMR systems are approximately $200,000 each), so individual sales have a real impact on the company, according to Dr. Walsh.

In general, Vista Clara sees its markets as global. The company has found that demand for its products fluctuates, but not simultaneously in all markets. In China, the company found an effective distributor for geophysical instruments and had two years of growth, but the recent slowdown of the Chinese economy has limited opportunities in that market. Thus the sale of 3 GMR systems in 2013 has been followed this year by the sale of one system. The company is now seeking to develop systems that can be sold at a lower price, in an effort to build the volume of sales and make revenues less volatile.

Governments are the primary end users of the data generated by Vista Clara systems. Projects involving the systems tend to be large scale—for example, a recent project maps the aquifers of western Nebraska. As a result, systems are typically bought by government agencies or their prime contractors, according to Dr. Walsh, which tends to mean a slow sales cycle. However, the systems are sometimes also used by small geophysical companies who contract to take the actual measurements and then provide the data to the end users. Sales to large entities are usually preceded by a rental evaluation period.

Dr. Walsh noted that while most sales are to large entities, Vista Clara does rent equipment to smaller companies, and in some cases has acted as the data collector itself, although it prefers to simply provide the equipment.

Marketing in this sector is highly specialized. Vista Clara attends 8-12 conferences annually, focused on interacting the hydrology scientists and their sponsors. The company also attends some conferences for vertical markets—for example, mining conferences in Vancouver and Australia. Vista Clara also publishes papers in peer-reviewed journals, as these articles are read by the customers the company is seeking, especially researchers and academics. Dr. Walsh observed however that publishing remained a challenge as company staff were usually fully committed with company projects.

Dr. Walsh said that the company faced three kinds of competitors:

• Existing established competitors. There is one primary established competitor, which is a state-owned French company with a product that is not cutting edge but which is supported by significant marketing help from the French government.
• Emerging competitors. There is one new company emerging in Australia.
• U.S. and European R&D groups that are trying to develop similar technology but have not yet successfully reached the market. These groups tend to be more focused on academic interests.

Vista Clara retains some key advantages, according to Dr. Walsh. The technology is hard to develop, although once developed it is easy to re-apply in different form factors. Dr. Walsh said that the company had used export services from the Commerce Department, with mixed results. The process had helped the company to acquire some customers in Denmark.

Patents and Other Intellectual Property

Vista Clara is the assignee for the U.S. patents listed in Table E-9.

Operations

Vista Clara generates income from its NMR hydrogeologic instruments, and exports are driving its sales success. Vista Clara reported recently that it has won four of its last five competitively bid proposals in China,

TABLE E-9 Vista Clara Patents

SOURCE: U.S. Patent and Trademark Office.

the most recent of which resulted in the sale of three GMR surface NMR instrumentation systems.⁵⁷

SBIR/STTR and Vista Clara

Between 2003 and 2014, SBIR/STTR funded 14 projects with Vista Clara, Inc. amounting to nearly $5.5 million. Of this amount, DoE provided approximately 64 percent, DoD 21 percent, and NSF the remaining 14 percent. The company has received one Phase I and one Phase II STTR award from DoE.

Vista Clara’s first SBIR award was a 2003 Phase I NSF award for adapting medical MRI technology for use in groundwater characterization. This was followed by other Phase I awards from DoD and then by a 2005 Phase II NSF award for $500,000 which transformed the company. It now no longer had to rely entirely on other companies for revenues, and could move forward to develop its first product.

By the end of the first Phase II award, the technology was good enough to collect data, and a customer in Germany was prepared to pay for a product in semi-finished format. Dr. Walsh said that he sold his house to raise the money to build the product.

Starting in 2008, Vista Clara received further Phase II SBIR and STTR awards from DoE, which have according to Dr. Walsh allowed it to gain

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⁵⁷“Vista Clara secures leading position in China,” http://www.vista-clara.com/news/vista-clarasecures-leading-position-in-china/.

substantial ground on its competitors and develop fully finished products. Funding for the company’s second product, the Javelin, came during this period.

Phase IIB funding at DoE was for a project to develop accustom cable for down-hole logging. Vista Clara had sought $300,000 from DoE and had invested $75,000 of the company’s capital, and although the DoE program did not require matching funds, Dr. Walsh believed this investment helped the company win the award.

Dr. Walsh said that in his view it was important to ensure that the company had created a finished or close to finished product by the end of Phase II, otherwise it would need to find new funding or commit its own resources to fill the gap. The Javelin project fit this model, as a finished product had been completed by the end of the Phase IIB award. The product was now in use in Australia and by the U.S. Geological Service. Companies should also be aware that new technology took time to develop a sustainable market—early adopters could be relied on to purchase a few initial units, but that subsequent sales could take a considerable time.

DoE’s interest in Vista Clara technology stems from the agency’s need to manage groundwater contamination more effectively. Facilities are currently spending hundreds of millions of dollars on soil and groundwater remediation, and Vista Clara technology offers significant upgrades on existing approaches, according to Dr. Walsh.

However, despite the funding and interest expressed through SBIR awards sponsored by the office of subsurface biology, Vista Clara has as yet made no sales to DoE. Dr. Walsh observed that it appears there is no clear connection between the SBIR program and DoE needs elsewhere in the agency. Thus while there is a topic every year on subsurface characterization and remediation, there are no follow-on contracts for SBIR winners. Vista Clara has won three Phase II awards to develop the NMR technology that the company now sells, but which is not in use at DoE. Contracts for remediation are awarded through a large prime contractor and there appear to be no incentives for the use of small/SBIR companies. This remains the case even though Vista Clara has good contacts at the National Lab near the Hanford remediation site.

Dr. Walsh said that he strongly supported DoE’s set aside of part of the STTR budget to pay for articles in peer review publications, which often charged significant amounts. DoE allows labor costs for preparing articles, presenting at conferences, and publication charges for print journals, although these costs do have to be included in the initial proposal budget. Other agencies should follow DoE’s lead in this area.

DoE has also recently begun to allow patent application costs up to a set limit. This is a very welcome initiative, according to Dr. Walsh, as the costs otherwise come directly out of the company’s profit. At DoE, these can be charged as direct costs.

Dr. Walsh said that he believed DoE reviews in some cases rely too heavily on academic reviewers. He found that proposals could be downgraded if they did not include an academic partner. And while he did not object to

partnering with academic institutions on occasion, he said that in most cases Vista Clara could have done a better job without them. In only a few out of the 7-8 partnerships formed for SBIR/STTR did the university add real value.

XEMED, LLC⁵⁸

Xemed LLC is a private company founded in 2004 by Dr. William Hersman, Professor of Physics at the University of New Hampshire. Xemed is headquartered in Durham, New Hampshire, and has grown to 10-15 employees over 11 years. The company has broad expertise and IP in the production of hyperpolarized noble gases, and its mission is to develop these inhaled diagnostic agents which are capable of changing the management of respiratory diseases.

Dr. Hersman said that he had not originally intended to start a company, and was still primarily an academic. In the early years of his professorship, he was conducting research as a nuclear physicist at particle accelerators, where his interest migrated toward the solution of technical problems rather than investigating fundamental questions. In the mid-1990s, his work on hyperpolarized gases increasingly shifted from nuclear physics into medical applications, where he identified important new processes first theoretically and then, with the aid of grant funding, experimentally.

During this period he had served on an NIH SBIR review panel. He saw first-hand the process of seeking funding for transitioning academic research to small business. Realizing that the next phase of his research with medical imaging would require a well-engineered system for producing hyperpolarized gases, he felt incentivized to turn to STTR and SBIR as the appropriate funding source. The fundamental science of hyperpolarizing gas was by then becoming well understood following his own academic work, and he believed there would be important opportunities for training students by investigating applications of this technology in a medical environment. However, additional development work would be needed to make his work sufficiently robust for a clinical setting. He was aware that his R01 grants at NIH were coming to an end and were unlikely to be renewed at the level required for robust refinement of the technology and engineering of a robust, automated system. This prediction proved to be true, but SBIR/STTR provided a new source of funding. He found that the funding agencies saw his work as a

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⁵⁸Primary sources for this case study are the interview with Dr. William Hersman, CEO and founder, August 27, 2015, and a review of the Xemed, LLC website (http://www.xemed.com) and related company documents.

good fit for SBIR/STTR, and were eager to transition applications-oriented scientists into the SBIR/STTR program, avoiding an interruption in his effort.

SBIR and STTR provided the funding that allowed Xemed to demonstrate its technologies and then to complete the development work that underpinned the release of its initial commercial products. Along the way, this work also led to academic awards. In 2011 Prof. Hersman’s PhD student won the International Society of Magnetic Resonance in Medicine’s W. S. Moore Young Investigator Award by demonstrating new lung imaging capabilities of MagniXene®. Two years later in 2013 a PhD student from the University of Virginia won the same Young Investigator award for his work with MagniXene®.

Xemed has encountered some regulatory challenges in bringing its products to market. The FDA has declared that polarized gas is a drug, so the commercial path and regulatory path are intertwined. The company has also been waiting for a patent held by another group to expire (which it will do in spring 2016). This patent covers technology that is used in Xemed’s products, so full commercialization has been delayed as a result.

Xemed is addressing regulatory issues, and believes that FDA approval will come—the company submitted a New Drug Application (NDA) in August 2015, providing details of the Phase 1, Phase 2 and two confirmatory Phase 3 clinical trials that have been completed. The company is confident that the technology will prove out in trials—Dr. Hersman noted that the drug is extremely safe—almost in the category of “generally recognized as safe,” as it is just an inert gas—and Xemed has been able to show tangible benefit from the technology.

Technology

Xemed’s goal is to develop inhaled diagnostic agents that can improve the standard of care for respiratory disease, specifically chronic obstructive pulmonary disease (COPD), asthma, and lung cancer. The company is therefore working to establish hyperpolarized gas as a clinically validated, FDA approved, and easily-produced diagnostic agent for magnetic resonance imaging of the lung’s functional microstructure.

Current techniques for evaluating lung function include spirometry (which is non-imaging), x-ray and computer tomography (which use ionizing radiation) and ventilation scans which use a radioactive marker (¹³³Xe or ^99mTc). In contrast, xenon is a component of air that can be extracted and purified. Xenon-129 (¹²⁹Xe) is one of the naturally occurring non-radioactive isotopes of xenon. Having a natural abundance of 26 percent, ¹²⁹Xe can be enriched using isotope-separation centrifuges. By magnetizing samples of this isotopically-enriched gas, Xemed produces its inhaled contrast agent MagniXene®, that permits MRI scans to provide much enhanced resolution over the inhaled radioactive marker and also permits much more detailed diagnosis of a range of functional pulmonary parameters than CT or x-ray.

For clinical applications, Xemed is targeting two primary markets: COPD and asthma. In both cases, bronchoscope-based therapies—ventilation management for COPD and bronchial thermoplasty for asthma—may reduce suffering and frequency of hospitalizations. Both techniques could benefit from a granular understanding of lung function. Xemed’s latest ongoing clinical trials are designed to determine whether the inhaled contrast agent allows specialists to use these new techniques effectively. Recently, lung cancer researchers have also hypothesized that hyperpolarized MRI can be used to refine management of stereotactic conformal radiotherapy for lung cancer.

Hyperpolarized Noble Gases

Most magnetic resonance imaging (MRI) systems use proton nuclear magnetic resonance. A strong magnetic field aligns the spins of the hydrogen atoms within a patient’s body, and the patient is subsequently exposed to a radio frequency pulse that perturbs the aligned atoms and releases electromagnetic radiation that can be detected and analyzed to understand structures in the patient’s body. Because gases are 1,000 times less dense than water, there is insufficient number of gas molecules at standard temperature and pressure to produce a strong enough electromagnetic signal from a gas using ordinary NMR techniques.⁵⁹

Using spin exchange optical pumping (SEOP), however, it is possible to align the spins of noble gases by using polarized light to transfer angular momentum to the gas atoms. Circularly polarized infrared laser light excites electrons in an alkali metal vapor, such as cesium or rubidium. Collisions between metal electrons and noble gas nuclei ¹²⁹Xe transfer angular momentum to the gas. Nitrogen is used to prevent fluorescence of the polarized alkali metal which could de-polarize the gas. Using SEOP, hyperpolarized noble gases with 10⁵ times the number of spin aligned ¹²⁹Xe gas nuclei than seen at standard temperature and pressure are possible.⁶⁰

Hyperpolarized noble gases offer the potential for functional (as opposed to structural) imaging of lung tissue using magnetic resonance imaging (MRI). The challenge of producing sufficiently large amounts of hyperpolarized gas at sufficiently high levels of spin alignment, however, has limited the adoption of such gases as tools for managing lung disease. Also, because

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⁵⁹Jason Leawoods, et al. “Hyperpolarized ³He Gas Production and MRI Imaging of the Lung,” Concepts in Magnetic Resonance, vol. 13, no. 5 (2001), p. 277, http://onlinelibrary.wiley.com/doi/10.1002/cmr.1014/abstract.

⁶⁰F. William Hersman, et al. “Large Production System for Hyperpolarized ¹²⁹Xe for Human Lung Imaging Studies” Academic Radiology, vol. 15, no. 6, (2008), pp. 683-684, http://www.ncbi.nlm.nih.gov/pubmed/18486005.

hyperpolarized noble gases (especially xenon) tend to de-polarize over time, imaging systems using such gases would require development of on-site production systems.

Xemed has developed self-contained robust and automated production systems for hyperpolarized noble gases that include a number of refinements to the standard SEOP approach. It has improved the polarization apparatus by developed techniques for narrowing the spectra of the laser sourcing the polarized light. The company has also improved the gas accumulation process by implementing robotic, low temperature systems to enhance gas trapping. Xemed has produced hyperpolarized ¹²⁹Xe with 64 percent of the sample spin aligned. However, because there is a tradeoff between output production rates (liter/minute) and spin alignment, Xemed’s production system produces gas with spin alignment typically around 50 percent.⁶¹

Products

Hyperpolarized noble gases allow evaluation of a broad range of clinically important lung characteristics. At present, Xemed’s collaborators at academic hospitals in the United States and Canada are developing protocols for their use in estimating lung ventilation, alveolar size, small airway dimension, exchange with red blood cells, and other parameters of lung function.

Xemed is developing two products, MagniXene® and MagniLium, and their associated production systems. Over the past fifteen years, the bulk of research in clinical applications of hyperpolarized noble gases has focused on ³He. Xemed is also developing a ³He-based product called MagniLium, but because ³He is an artificial stable isotope whose only source comes from maintaining the nuclear weapons stockpile, Xemed management expects that ¹²⁹Xe will, in the long term, be the gas adopted as the inhaled diagnostic agent of choice, because it is naturally available in air.

Hyperpolarized Xenon—MagniXene®

MagniXene® is hyperpolarized ¹²⁹Xe gas. As a diagnostic drug, it enables quantification of pulmonary function within different regions of the lungs. Xemed envisions two applications for MagniXene®. As a tool in clinical care, MagniXene® could improve performance of procedures such as bronchial thermoplasty for severe asthma or ventilation management for advanced COPD. Also as a drug development tool, pharmaceutical companies could learn more

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⁶¹F. William Herman, “Xemed LLC is developing magnetized gas,” http://www.slideshare.net/changezkn/xemed-llc-is-developing-magnetized-gas-hyperpolarizedxenon.

about the effectiveness of their therapeutic pulmonary drugs by obtaining more information from the lungs of clinical trial participants, potentially accelerating FDA approval of their drugs and reducing time to market.

To do this, Xemed has focused its development efforts on a robust, automated, compact, self-contained MagniXene® production system that it calls the XeBox. Now in its sixth generation of technical refinement, the Xebox embodies five patents licensed from the University of New Hampshire. Beginning with a gas bottle filled with isotopically enriched ¹²⁹Xe, this system mixes the gas with rubidium vapor and other gases, illuminates it with laser light performing the hyperpolarization, separates and accumulates the product cryogenically, and loads the resulting gas into a breathing bag for use by a patient. This takes about 20 minutes. Xemed has also developed related equipment prototypes for use with the gas such as a chest coil with 32 receiving elements mated to an asymmetric birdcage transmit coil.

Xemed has completed two clinical trials of MagniXene®. The Phase 1 trial partnered with researchers at the Brigham and Women’s Hospital and Harvard University to evaluate using ¹²⁹Xe as a contrast agent to study patient safety and preliminary indications of efficacy. In the Phase 2 and Phase 3 trials, Xemed partnered with researchers at the University of Virginia to assess regional lung function in patients suffering from COPD and asthma. Xemed is now recruiting for a Phase 2 study of therapeutic efficacy with Washington University in St Louis to evaluate using ¹²⁹Xe to guide bronchial thermoplasty for severe asthmatics.⁶²

Hyperpolarized Helium—Magnilium

The production system for MagniLium, Xemed’s ³He hyperpolarized noble gas product, is the HeliBox-Z100, designed for larger scale production runs with an 8.5 liter monolithic aluminosilicate cell in a pressure and temperature controlled environment. The second generation Helibox achieved helium quantities as large as 50 liters per day, and the third generation confirmed that polarization levels can reach as high as 60 percent. Based on the company’s patented spectral narrowing laser technology, the fourth generation

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⁶²“Quantifying Collateral Perfusion in Cerebrovascular Disease-Moyamoya Disease and Stroke Patients,” ClinicalTrials.gov, 2013, https://www.clinicaltrials.gov/ct2/show/NCT01419275?term=Xemed&rank=2; “MagniXene MRI Use in Patients With Asthma and COPD to Assess Regional Lung Function by Delineating Ventilation Defects (HXe-VENT),” ClincialTrials.gov, 2015, https://www.clinicaltrials.gov/ct2/show/NCT01833390?term=Xemed&rank=3; “Bronchial Thermoplasty for Severe Asthmatics Guided by HXe MRI (HXe-BT),” ClinicalTrial.gov, (Incomplete) https://www.clinicaltrials.gov/ct2/show/NCT01832363?term=Xemed&rank=1.

system will probably show the highest level of ³He polarization yet reported. The company has not yet undertaken clinical trials for MagniLium.

Patents and Other Intellectual Property

Xemed, LLC does not have any U.S. patents assigned to it. However, F. William Hersman, the founder and CEO of Xemed, LLC, is the inventor of the patents (listed in Table E-10) related to production and use of polarized noble gases. With the exception of U.S. Patent 7,719,268, these patents are assigned to the University of New Hampshire.

Internationally, one European patent has been awarded with another pending both in Europe and elsewhere.

Collaboration

Xemed maintains research relationships with various university laboratories and research hospitals. Xemed worked with the University of New Hampshire and Mass General Hospital in the development of hyperpolarized noble gas production systems and chest coil development. In developing imaging protocols for use with its MagniXene® product, Xemed has performed or is performing clinical trials with the University of Virginia Health System, Washington University in St. Louis School of Medicine, and two imaging centers in Ontario Canada, the Robarts Research Institute and the Thunder Bay Regional Research Institute. A pharmaceutical company funded a pilot study with Xemed to use its Xenon-based diagnostic to assess its application in evaluating the efficacy of a pulmonary drug recently under development.

Business Model

Xemed, LLC has received support from SBIR/STTR funding, other grants, and revenue from operations (see SBIR/STTR section). Xemed has also generated revenue from the sale of professional services. The company reports

TABLE E-10 Xemed, LLC Patents

SOURCE: U.S. Patent and Trademark Office.

on its web site that it had raised $7 million in cumulative non-dilutive capital through competitive research proposals since its founding.⁶³ No date is given.

Xemed has received non-monetary commercialization guidance from various sources. For example, in 2010-11, the company participated in the National Institutes of Health Commercialization Assistance Program (CAP), a 9 month mentoring program designed to help participants understand their commercialization options and develop a market- and customer- driven commercialization plan.⁶⁴ In 2012 Xemed participated in the Niche Assessment Program.

Xemed has also received grants from non-federal sources. For example, in 2006, it received funding from the New Hampshire Innovation Research Center.⁶⁵

Xemed is now beginning to gain traction in the marketplace, a process that Dr. Hersman believes will accelerate sharply in 2016 when lingering patent issues are no longer relevant.

The company is already finding new interest from researchers wanting to buy machines to make polarized gas in support of their NIH-funded projects. Interest is also growing from universities seeking to buy machines to polarize gases. However, these tools still cost on the order of $600,000-$1 million per machine, as they are still hand-assembled by PhDs. Dr. Hersman believes that this could be reduced by 50 percent with a higher volume of sales.

Drug companies also are interested in using Xemed technologies. Vertex pharmaceuticals recently conducted a cystic fibrosis study using Xemed’s tools at the University of Virginia, where Novartis and Teva are also conducting studies using an in-house polarizer of ³He. There are in addition two drug studies under way in the United Kingdom with in-house built polarizers.

Because Xemed’s machines can potentially impact a wide range of diseases and interventions, the company believes that it will gain rapid traction in the marketplace as individual treatments are adopted that use the technology. For example, bronchial thermoplasty is a recently developed approach that works by microwaving smooth muscles in airways. Xemed technology is used to guide the intervention, and as the technology becomes more widely available, Xemed can expect to find further demand for its products.

Similarly, Dr. Hersman believes that Xemed technologies can be used to provide images and biomarker data that are uniquely sensitive, to show very

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⁶³Xemed, “Corporate Achievements,” http://www.xemed.com/company/achievements/.

⁶⁴“Xemed selected to participate in the 2010-2011 NIH SBIR Commercialization Assistance Program,” October 1, 2010, https://www.xemed.com/2010/10/xemed-selected-to-participate-in-the2010-2011-nih-sbir-commercialization-assistance-program/; “Commercialization Accelerator Program (CAP),” August 14, 2015, https://sbir.nih.gov/cap.

⁶⁵“NHIRC Highlights,” http://www.nhirc.unh.edu/pdf/2015-NHIRC%20Impact%20Report.pdf, p. 8.

specific regional characteristics of lung disease. Confirming this view will require further tests and trials, as yet only a limited number of doctors have seen the Xemed images and developed ways to adjust the treatment regimen as a result. Benefits have therefore not yet been quantified, and the value to health care funders such as insurance companies is not yet well established.

SBIR/STTR

Between 1990 and 2013, SBIR/STTR funded 27 projects with Xemed, LLC amounting to nearly $15.6 million in R&D support. NIH provided 86 percent of Xemed’s SBIR/STTR funding, and DoE provided the remaining 14 percent. Twenty-one percent of funding was STTR, which accounted for 13 of the 27 funded awards.

STTR was the initial funding for the company. Xemed had applied for three STTR awards to improve three different aspects of the apparatus. In fact, Xemed was founded only when STTR funding was awarded. The company received two Phase I awards and then a subsequent Phase I the next year. All three transitioned to Phase II.

STTR and SBIR funding allowed the company to make important technical breakthroughs, leading eventually to an improvement over the prior technology by a factor of 100, according to Dr. Hersman. STTR funding has also been used to demonstrate medical imaging aspects of the gas with a wide range of academic partners. Xemed has had at least twenty different research collaborators with whom they have worked to improve various aspects of the technology, and to develop and prove out specific applications.

However, despite a number of successes Xemed had also had negative experiences with STTR. In 2007-2008 the company had received a DoE STTR award to re-examine the utility of hyperpolarized ³He for nuclear physics. A contracting officer within DoE believed that STTR awards could not have an academic PI. DoE as a result halted the grant, which almost destroyed the company. Dr. Hersman had to mortgage his house to fund the company. And while the DoE SBIR/STTR staff worked to address the problem, it appeared that DoE simply had no mechanisms available for resolving the problem. In the end, the project was converted to an SBIR award, and a different PI was assigned from within the company. The delay caused milestones to be missed, but DoE has continued to support the research and Xemed work in this area is currently funded through a Phase IIB award from DoE.

On the other hand, the initial STTR partnership with the University of Virginia went very smoothly, according to Dr. Hersman, despite some initial ambiguity about who could be PI—the need to demonstrate a “special relationship” with the company was addressed by giving the PI (at the university) an appointment on Xemed’s scientific advisory board. Since this initial STTR, all medical research with the University of Virginia channeled through Xemed has been proposed through the SBIR mechanism.

Xemed has participated twice in the Commercialization Accelerator Program (CAP) run by Larta, and has also received a market assessment from Foresight. Overall Dr. Hersman said that these programs were helpful in creating a strategy for regulatory advancement and a more effective approach to commercialization.

Xemed works effectively across SBIR/STTR agencies by developing new applications for its technology: DoE is interested in the technologies developed initially for medical applications, with a view to utilizing them to enhance efficiency within DoE’s neutron scattering and nuclear physics projects. The company has also branched out into defense applications, and two recent submissions crafted by Xemed to Broad Agency Announcements from DoD led to funding. Due to the preference of the Sponsor, they became University-led projects.

Recommendations for Improvement

Overall Dr. Hersman believed that recent developments such as the emergence of Phase IIB awards have been positive. He also continues to be impressed by the NIH review process.

Dr. Hersman also recommended that NIH improve the connections between Institutes. For example, a Xemed NIH Phase I award was initially assigned to NHLBI but was then funded by NCI. The latter then did not wish to fund Phase II. At that point NHLBI would not pick up the project, even though its score was well within the NHLBI’s Phase II payline. That particular project was never funded resulting in hardship especially for the academic partner.

XIA, LLC⁶⁶

XIA LLC (originally X-Ray Instrumentation Associates) is a private company founded in 1988 by William Warburton. The company invents, develops and markets advanced digital spectrometers for x-ray, gamma-ray, and other radiation detector applications in university research, national laboratories and industry. XIA is headquartered in Hayward, CA, and generates income from the design, development and marketing of spectrometers.

XIA was founded by Dr. Warburton as a sole proprietorship in 1988, following a career as a materials researcher, including a period employed at the Stanford Synchrotron Research Laboratory (SSRL) where he was a beamline

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⁶⁶Primary sources for this case study are the interview with Dr. William Warburton, CEO and founder, August 24, 2015, and a review of the XIA web site (http://www.xia.com) and related company documents.

scientist. He left when SSRL shut down for a year to make needed repairs, and founded XIA. The company emerged in earnest when Dr. Warburton’s first Phase I SBIR award from NIH in 1991 was followed by Phase II and he hired employees to assist with the research.

The company became sustainable after the SBIR-funded development of electronics to control spectrometers, replacing the difficult to tune and expensive to maintain analog controls that had previously been industry standard.

XIA has also responded to DoE SBIR topics that call for tools related primarily to x-ray and nuclear electronics, according to Dr. Warburton. This approach worked moderately well for a period, providing sufficient revenue to support core company R&D operations. The resultant instruments generated sales to national and international labs, primarily of digital spectrometers for both synchrotron x-ray spectroscopy and for medium sized nuclear experiments. A typical product generated perhaps $200,000 annually in revenues for between 5 years and 10 years.

Until recently, the company depended on SBIR or Broad Agency Announcement (BAA) funding to support its advanced R&D activities, using income derived from sales to support new product development. The company currently derives about 75 percent of its income from product sales, with the rest coming from SBIR and BAA grants and from commercial contracts.⁶⁷

The company maintains research relationships with a broad range of academic, government, and corporate entities such as UC Davis, University of Texas at Austin, Michigan State University, Pacific Northwest National Laboratory, Los Alamos National Laboratory, Lawrence Livermore National Laboratory, Institute for Nuclear Physics (Germany), Radiation Protection Bureau, Health Canada, Alameda Applied Science Corporation, and IBM, to name only a few.

XIA Technologies

Radiation Data Detector Acquisition Systems

XIA develops digital data acquisition and processing systems for x-ray, gamma-ray, and other radiation detectors. The company’s core technology combines digital signal processors (DSP) with field programmable gate arrays (FPGA) and—in various forms—has enabled XIA’s portfolio of high speed spectrometers. The FPGA performs and manages data acquisition and storage (i.e. pulse detection, filtering, pileup inspection and coincidence inspection) and

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⁶⁷XIA LLC, https://www.linkedin.com/company/xia-llc.

the DSP performs higher level post processing analysis (i.e., baseline correction and pulse shape analysis). The FPGA stores input signals to different parts of the system memory based on external interrupts generated by the sensors.

XIA has applied this architecture to a range of problems, in both industry and basic research. For example, XIA x-ray spectrometers have been used in metal sorting facilities: exposed to x-rays, different metals fluoresce in different parts of the spectrum, and XIA tools can identify which metals are fluorescing. DXP systems are then used to analyze the data from x-ray detectors and guide mechanical systems to sort the different types of scrap metal.

A nuclear application example is in low background gamma spectroscopy. In health physics, nuclear waste management, and nuclear materials and weapons security, the ability to detect small amounts of gamma radiation against background noise is vital. A XIA PXI-based processor can be used to veto signals that fail pulse shape or coincidence tests and so remove unwanted background events.

Other applications include handheld metal detectors using x-ray fluorescence, high-rate gamma spectroscopy for assaying spent nuclear fuel, discrimination of alpha, beta, gamma, and neutron radioactivity for detectors sensitive to the full range of radiation events, and synchrotron-based spectroscopy for characterizing materials properties in pharmaceutical, engineering, and material science.

Product Architectures

XIA’s product line falls into three main digital data acquisition architectures: DXP (Digital X-ray Processor), DGF (Digital Gamma-ray Family), and Ultra-Lo (ultra-low background alpha particle detectors). They allow researchers to store, count, and analyze (height, shape, etc.) the analog signals captured by various different sorts of radiation sensors.

The full line of XIA products includes 13 different products. All can be further customized to particular customer needs. Depending on the system characteristics, XIA’s data acquisitions systems range in price from $750 to $60,000.⁶⁸

DXP

The DXP family of products implements XIA’s core FPGA—DSP innovation. A field programmable gate array (FPGA) provides the front end shaping of the input signal steps generated by the sensor array and extracts their

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⁶⁸XIA, LLC, https://www.linkedin.com/company/xia-llc.

amplitudes in real time, while a digital signal processor provides corrections to improve energy resolution and stores the resultant values in a spectrum. Because the processing dead time per signal step in DXP processors is essentially zero, extremely high count rate (up to 1 million counts per second) are possible. The DXP architecture is available in products ranging from low cost OEM cards for handheld and bench top applications to PXI-based standalone modules for ultra high rate counting in, for example, synchrotrons or industrial control applications.

DGF

The DGF architecture extends the DXP architecture. With a FIFO memory for digital signal capture and a flexible, two-level triggering system that can span multiple modules, the DGF's digital signal processor—in addition to the pulse height measurement performed by DXP systems—can also perform real time analysis of pulse shape. For example, incoming data can be processed and sorted according to pulse shape characteristics such a risetime or falltime. The DGF product line provides solutions to a wide range of extremely demanding pulse processing applications in the areas of nuclear physics, strip detectors, and very high resolution gamma-ray spectroscopy.

ULTRA-LO 1800

The Ultra-Lo 1800 is based on the DGF architecture and designed to measure the alpha particle emissivity of solid materials. Using dual channel pulse shape analysis, the Ultra-Lo 1800 is able to distinguish between alpha particles emitted by the sample under test and alpha particles generated elsewhere in the instrument. Rejecting the latter, the Ultra Lo 1800 can detect background rates as low as 0.0001 alpha particles/cm2 per hour. This is a factor of 50 or more time lower than can be achieved using the current state of the art proportional counting systems. The Ultra Lo 1800 was developed to improve quality control processes in the semiconductor manufacturing industry with SBIR funding from NIST and DoE.⁶⁹

Patents and Other Intellectual Property

XIA is not the assignee of any U.S. patents. However, the patents (listed ion Table E-11) assigned to William Warburton, the CEO of XIA, are

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⁶⁹SBIR Success Story: XIA, LLC, http://www.nist.gov/tpo/sbir/sbir-success-story-xia.cfm.

TABLE E-11 Patents Assigned to William Warburton, CEO of XIA

SOURCE: U.S. Patent and Trademark Office.

solely licensed to XIA and potentially applicable to any hardware or software developed by XIA.

SBIR/STTR

Between 1990 and 2013, SBIR funded 53 projects with XIA LLC amounting to nearly $14.3 million. DoE provided approximately 76 percent, NIH 21 percent, and the Department of Transportation the remaining 3 percent.

Annual funding was close to $1 million from SBIR/STTR between 2007 and 2012. It has since declined significantly.

In general, Dr. Warburton said that SBIR/STTR had been critical to the foundation and growth of the company. These funds would not have been available from other sources.

However, Dr. Warburton had now come to believe that simply responding to available topics was not always in the company’s best long term interest. The company’s original business model had led to commercialization at approximately the level of agency SBIR investment, and so produced a steady-state business. But this ignored the opportunity cost to XIA of time spent simply maintaining the company instead of pursuing opportunities for greater growth.

While there are risks involved in taking a different approach, Dr. Warburton believes that the benefits can be considerably greater. He noted that, while a prototype of XIA’s Ultra-Lo product emerged successfully following two small SBIR awards (DoE Phase I and NIST Phase I and Phase II), The company then invested approximately $3.5 million in the product over a period of ten years, to develop instruments with a much larger potential market selling for approximately $80,000 each. Market research suggested that XIA would sell 50 instruments a year, and he believes that the company will eventually reach that goal though perhaps not for some years. The company is currently waiting for NIST to produce a standard which will open the door to the marketplace. Until then, less sensitive existing instruments can be used and hence to do not need to be replaced.

Metrics. Dr. Warburton also observed that using commercialization as the only metric for assessing the success of SBIR award was misguided. XIA has sold maybe $10 million to $20 million in instruments for synchrotrons. The latter cost $500 million each to build and perhaps $200 million annually in running costs, but a large percentage of the research undertaken with these systems required instruments such as XIA’s. Synchrotron x-ray fluorescence experiments would not run at all without them, and overall productivity (and hence return on investment) would be a fraction of what it was today. Similarly, XIA develops instruments for measuring background radiation that have been used for validating compliance with nuclear testy-ban treaties—another market with minimal sales but large social impacts.

Topics. XIA is seeing fewer topics that are potentially viable under current SBIR evaluation procedures, according to Dr. Warburton. While DoE scientists continue to seek tools and instruments to assist in their research, these generally have extremely limited commercial potential and hence fail DoE's “return on investment” (as measured only by instrument sales) criteria. For example, one recent topic was clearly designed to develop an instrument for use within the four accelerators that exist worldwide. This has almost no commercial potential.

Dr. Warburton said that, in the main, DoE topic managers still appeared to view SBIR/STTR as a tax on their research funding, and so wish to use it to provide tools or technologies that could be used to further their own scientific

interests and programs. They have no interest in commercial potential, and he saw no evidence that topics were reviewed for commercial potential before being published. More generally, it did not appear that topics were subject to significant screening or review.

Many DoE topics are highly specific, tuned to the specific technical needs of topic managers. The agency has now started adding broader topics and does occasionally fund them. XIA did win a Phase I for a broader topic, although it did not go to Phase II.

Commercialization review. Dr. Warburton sees a substantial disconnect between the demands of topic managers focused exclusively on science and their technical needs and commercialization review. He found difficult to pass both reviews. His personal view was that small instrument sales that supported the national laboratories' missions were in the national interest and that this class of SBIR topic should be given evaluation criteria that appropriately reflect their values to those missions. Or, if the DoE only wants responses capable of large commercial returns, it should revamp its calls for proposals to bring them into conformance.

DoE now appears to require projections of sales quite far downstream. These future expected sales have to be large enough to recover the current SBIR investment plus provide an annual internal rate of return of 8 percent. This is a substantial hurdle, especially for products which are high risk and where markets are small—it was not clear to Dr. Warburton that any company providing high tech, low volume scientific instruments would ever meet this hurdle rate. He also wondered whether DoE has ever compared actual commercial outcomes in funded Phase II projects to the outcomes projected in the submitted commercialization plans in order to evaluate whether the present methodology actually has any predictive capability or is just an exercise in creative writing.

Review process. More generally, Dr. Warburton said that he had been an NIH SBIR reviewer and saw a number of features of the NIH process that might be beneficially adopted at other agencies. In particular, he believed that the face to face (or phone conference) meeting of the review panel provided a strong boost to the effectiveness of the review overall. In particular, the discussions between the reviewers quickly exposed the strengths and weaknesses of the arguments of both proposers and reviewers. At DoE the reviewers never connect, and as result reviewers can misunderstand the proposal—in both positive and negative ways—without having to justify their criticisms to their peers on the panel. In one particularly glaring case, XIA experienced a reviewer who was clearly commenting (negatively) on a non-XIA proposal.

Dr. Warburton also noted that there was no appeal process at DoE, and no possibility for resubmission (as at the NIH). He was therefore a strong proponent of the idea that companies be given an opportunity to respond (briefly—1 to 2 pages maximum) to reviewer comments before final decisions were made.

Operations. Dr. Warburton noted that the DoE payment system is excellent.

STTR

XIA has not had good experiences with the STTR program, Dr. Warburton said. For example, a collaboration with Brookhaven National Laboratory worked out poorly, with no accountability for the project at the lab. The project was developed to help measure carbon levels in the soil, focused on evaluating farming processes that could potentially remove carbon from the atmosphere. The Lab’s main role was to develop a vehicle for safely moving the instrument, which included a neutron generator) across a field to be measured, but did not meet project objectives nor produce the vehicle within the time frame of the project.

National Labs have few incentives to cooperate fully with small businesses, Dr. Warburton observed. In the best of cases, the lab scientists involved saw STTR as a means of supporting their own research program, in exchange for providing the company with technical support. In other cases, though, lab staff saw the program simply as a means to generate funds and had no interest in commercial outcomes or even their partner’s interests

An ongoing collaboration with Lawrence Livermore National Lab (within the context of an SBIR grant) is proving more successful. It linked to a scientist whose life’s work is aimed at moving his technology out into the world. He provided access to detectors and sources and lots of feedback. In exchange, XIA supplied him with next generation electronics for his experiments. The collaboration had now lasted ten years, advanced the state of the art, and should be seen as quite successful.

XIA has not worked collaboratively with the national labs outside the SBIR/STTR program. It does provide customized instruments to lab staff, but on a contract basis. Sometimes this results in joint scientific publications. Dr. Warburton noted that each national lab had its own culture(s); XIA has worked quite successfully, for example, with Pacific Northwest National Lab generally, with a few departments at Lawrence Livermore National Lab, but essentially not at all with Lawrence Berkeley National Lab, even though it is the closest of the three.