Appendix E

Case Studies

To complement its review of program data, the committee commissioned case studies of 12 companies that received Phase II Small Business Innovation Research (SBIR) and or Small Business Technology Transfer (STTR) awards from the Department of Energy (DoE). These case studies were undertaken in 2015-2016. Case studies were an important source of data for this study, in conjunction with other sources such as agency data, the survey, interviews with agency staff and other experts, and workshops on selected topics. The impact of SBIR/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.

The committee studied a wide range of companies (see Box E-1). They operated in a wide range of technical disciplines and industrial sectors. Some firms focused solely on serving the national labs, while others focused on commercialization through the private sector. Overall, this portfolio sought to capture many of the types of companies that participate in the SBIR/STTR programs. Given the multiple variables at play, the case studies are not presented as any kind of quantitative record, and only a limited number of case studies were completed as part of this study. Rather, they provide qualitative evidence about the individual companies selected, and although they are not intended to be statistically representative of DoE SBIR/STTR award winners or their award outcomes, they are, within the limited resources available, as representative as possible of the different components of the awardee population. The featured companies have verified the case studies presented in this appendix and have permitted their use and identification.

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 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

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

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 opens 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 its 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.

Until the 1990s, special research facilities were required to generate such neutrons fluxes, either research nuclear reactors or spallation reactors.

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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.

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 on 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 more than 1 meter—they have significant advantages over x-rays in non-destructive, noncontact scanning.

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

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⁴ Hammoud, “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.

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 epithermal and thermal neutron sources for laboratories and industrial applications that require neutrons with safe operation, small footprint, low cost and small regulatory burden.”⁶

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

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⁶ See http://www.adelphitech.com/products/dd109-dd110.html.

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.

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

TABLE E-1 Adelphi Technology Patents

SOURCE: U.S. Patent and Trademark Office.

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 said to be 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 is 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.⁷

Calabazas Creek Research (CCR) is a private company founded in 1994 by Dr. R. Lawrence Ives, who remains as its 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

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⁷ Primary sources for this case study are an interview with Dr. Ives on August 21, 2015, and a review of the Calabazas Creek Research website (http://www.calcreek.com) and related company documents.

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 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.⁸

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 accelerators. Stronger electric fields within the resonators allow shorter accelerators, potentially saving millions of dollars in construction costs.⁹

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, Dr. Ives received the Champion of Small Business

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⁸ Bill Silverfarb, “It is rocket science,” The Daily Journal, August 15, 2011, http://archives.smdailyjournal.com/article_preview.php?id=165168.

⁹ “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.

Innovation award for his part in 2011’s campaign for the long-term reauthorization of SBIR program funding from Congress.¹⁰

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. CCR designs and develops a broad range of high power, short wavelength devices and components for these applications.

The principal 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.¹¹ CCR has designed RF 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.¹²

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

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¹⁰ “SBTC Honors "Champions of Small Business Innovation,’” February 7, 2012, http://www.nsba.biz/content/printer.4422.shtml.

¹¹ “How do klystrons work?” Berkeley Lawrence Livermore Laboratory, http://www2.lbl.gov/MicroWorlds/ALSTool/ALS_Components/RFSystem.

¹² “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/kfkberichte/KFK4898.pdf.

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) thermomechanical analysis, (4) electromagnetic analysis, and (5) CAD and other design services. Testing and support services are provided by Communications & Power Industries (CPI)¹³ in Palo Alto, California.

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

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¹³ Bill Silverfarb, “It is rocket science.”

TABLE E-2 CCR Patents

SOURCE: U.S. Patent and Trademark Office.

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.

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).¹⁴

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 Carolina State University
• University of Maryland
• University of Wisconsin
• Old Dominion University

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¹⁴ “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.

• 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/STTR funded 119 projects with CCR, amounting to nearly $31.4 million. Of this, DoE provided about 75 percent, DoD provided 23 percent, and the balance came 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, were said to have offered realistic licensing terms and welcomed collaboration with small companies. Others reportedly 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 was said to result 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 has received 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. According to Dr. Ives, some agencies appear 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. Dr. Ives observed that 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 does not appear that it is the responsibility of any other office within the agencies. Dr. Ives said that an 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.

COMPACT MEMBRANE SYSTEMS, INC.¹⁵

Compact Membrane Systems, Inc. (CMS) is a private company founded in 1993 by Stuart Nemser. Prior to creating CMS, Mr. Nemser worked in a range of engineering and management positions at Dupont and acquired the right to a set of Dupont patents related to certain membrane and thin film technologies. For over 20 years, CMS has developed these pervaporative fluoropolymer membranes and thin films technologies. CMS is headquartered in Wilmington, Delaware, and has approximately 25 employees.¹⁶

Having received over 200 SBIR/STTR grants worth nearly $50 million, CMS successfully developed various pervaporative membranes. CMS now owns a portfolio of effective, differentiated, separation technologies with broad commercial applications. The membranes are composed of highly fluorinated polymers with unusual gas transport properties. Also, they have extremely high thermal and chemical stability.

SBIR provided the first funding for the company, and in subsequent years permitted CMS to explore a range of possible applications, according to Mr. Nemser. That exploratory period is now over, and CMS uses SBIR in a much more targeted fashion (see below). He noted that the solicitation-based character of SBIR helped the company target its energies better—the solicitations at least indicated applications in which the government was interested.

CMS came to focus initially on applications related to the chemical industry and in particular developed expertise in using membranes for dehydration purposes. Subsequently the company developed applications in mining, marine, power generation, wind power, coal conveyers, and paper mills. It also generates significant sales through exports, especially to Asia.

CMS recently hired as President a senior executive from McKinsey’s pharmaceutical and medical products practice to commercialize these technologies more aggressively. Although CMS has developed a broad range of potential applications of this technology, its initial go-to-market strategy is focusing on two particular separation problems: dehydrating lubricants and solvents, separating olefins from paraffins.

At present, the company focuses on customers with large, industrial, capital-intensive operations in the petrochemical, maritime, power generation, and aerospace industries. CMS markets its systems to help customers lower cost, increase efficiency, and operate with lower levels of environmental pollution compared to current technologies.

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¹⁵ Primary sources for this case study are the interview with Stuart Nemser, company founder, and a review of the Compact Membrane Systems, Inc. website (http://www.compactmembrane.com) and related company documents.

¹⁶ Environmental Expert, “Company Membrane Systems, Inc.” http://www.environmental-expert.com/companies/compact-membrane-systems-inc-8184.

In addition to SBIR funding, CMS also sells pervaporative membrane-based separation equipment to customers in the petrochemical, heavy equipment, power generation, and aerospace sectors.

Technology

CMS membrane technology uses a physical process called pervaporation to separate two or more components in a chemical flow. Different rates of diffusion through a membrane enable highly efficient extraction of contaminants such as water or organic compounds from a flow. This technology is broadly applicable and can be utilized in a range of systems and processes, including lubrication systems (in marine vessels, power plants, mining, milling), solvent systems (e.g., in paint manufacture, semiconductor manufacture), and pharmaceutical ingredient manufacture.

In pervaporation, two components in a flow are separated using a thin polymer membrane. By maintaining a concentrate and vapor pressure difference across the membrane, one component—the permeate—will preferentially diffuse through the membrane. “A vacuum applied to the permeate side is coupled with the immediate condensation of the permeate vapors.” ¹⁷ There are two requirements for success. First, the membrane must be designed for high selectivity to the permeate component, and, second, the permeate must be a vapor at the expected operating temperature of the process.

Because of the low temperatures and pressures required, pervaporation often has cost and performance advantages in separating mixtures of liquids not easily separated using distillation. Pervaporation “can be used for the dehydration of organic solvents or the removal of organics” from aqueous streams. Pervaporation is a good process for separating heat sensitive products.¹⁸ Finally, pervaporative membranes work with liquids across a broad range of viscosities and tend to resist fouling.

Compared to other dehydrating technologies, the CMS pervaporative membrane technology has a number of competitive advantages. It is extremely effective, maintaining very low moisture levels in lubricants, oils, and solvents. In industrial environments, CMS membrane systems have been shown to remove 100 percent of free and emulsified water, reduce dissolved water to well below 100 ppm, and, under certain conditions, remove dissolved air. The system runs with minimal oversight and management, and fewer moving parts than other purification systems.

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¹⁷ “Pervaporation: An Overview,” CheResources.com: Your Chemical Engineering Community (November 8, 2010), http://www.cheresources.com/content/articles/separation-technology/pervaporation-an-overiew.

¹⁸ “Products,” Compact Membrane Systems, Inc.” http://www.environmental-expert.com/companies/compact-membrane-systems-inc-8184/products.

Products

CMS has developed membrane systems for four different applications targeting the petrochemical, heavy equipment, power generation, and aerospace sectors. Other applications—such as the elimination of fault gases in high voltage electrical transformers or the removal of NO_x emissions from diesel exhaust—are feasible, but CMS is currently focusing on the following applications of its technology.¹⁹

Oil Dehydration

Water in lubrication oil inhibits the oil’s capacity to enable performance and prevent damage to moving parts. The presence of water—whether in a free, emulsified, or dissolved state—degrades lubricity and accelerates component degradation that shortens the life of gears, bearings, and other elements in lubrication and hydraulic systems. CMS membranes manage water ingress in challenging environments such as power plants, paper mills, steam turbines, wind turbines, and various marine systems. Importantly, CMS technology dehydrates lubricating oil without removing performance additives.

Solvent Dehydration

In printing, electronics, fine chemicals, and other applications, solvents are used to transport a target substance. Some solvents are easily recovered and reused, but others—such as many alcohols—are simply discarded because of the cost of recovering and purifying them. CMS membranes can dehydrate solvents like alcohols. Applied in series with distillation and other technologies, CMS membranes can dehydrate alcohols (such as isopropyl alcohol) to a purity of greater than 99.5 percent at a fraction of the cost of purchasing new solvents.

Environmentally Acceptable Lubricants Dehydration

The release of lubricants into aquatic ecosystems during shipping operations is equivalent globally to over one Exxon Valdez disaster annually. Environmentally Acceptable Lubricants (EAL) are lubricants demonstrated to meet standards for biodegradability, toxicity, and bioaccumulation that greatly reduce the impact lubricants on aquatic environments. Shipping companies and ship builders are slowly adopting these new lubricating materials.²⁰

To meet EAL standards for biodegradability, EALs are often designed to be water soluble and attract an unusually high concentration of water

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¹⁹ Ibid.

²⁰ “Environmentally Acceptable Lubricants,” United States Environmental Protection Agency, EPA 800-R-11-002 (November, 2011), http://nepis.epa.gov/Exe/ZyPDF.cgi/P100DCJI.PDF?Dockey=P100DCJI.PDF.

compared to mineral oil-based lubricants. Adoption of EALs requires the implementation of EAL dehydration systems in real time to avoid corrosion. CMS provides systems that dehydrate reducing and maintaining water concentrations to ppm levels for a wide range of EALs including polyalkylene glycols, synthetic esters, and polyalphaolefins.

Olefin-Paraffin Separation

Olefin-Paraffin separations are a core process in the petrochemical industry. Outputs from these separations include polypropylene, polyethylene, polyester, polyvinyl chloride (PVC), rubber, nylon, and are more worth about $300 billion annually. Nearly every industry—from manufacturing and construction to electronics and pharmaceuticals—use these inputs to make consumer products. These separations are extremely energy intensive industrial processes, using an estimated 250 trillion BTU/year.²¹

Distillation is currently the method of choice for separation of olefins such as ehthylene or propylene from paraffins such as ethane or propane. Retrofitted to existing propylene/propane splitter units, the CMS hybrid membrane/distillation process can significantly reduce energy costs and increase yield (by 15 percent) compared to the energy-intensive distillation currently used. For initial, smaller applications, the CMS systems costs less than $1 million to install, less than $500,000/yr to operate, and has an estimated IRR of 150 percent.

Markets

Given the wide range of industry verticals in which CMS technologies could be applied, CMS decided that it made little sense to build distribution networks in each vertical industry and instead opted to find license or distribution partners better positioned to attack these markets. These partners can leverage their own brands and reputations, market access, and customer insight. This was especially important during the early days of CMS when the company, according to Mr. Nemser, lacked visibility and credibility among downstream customers.

Today, CMS has delivered more than 3,000 systems to these different markets. The company has its own well regarded brand, especially among original equipment manufacturers (OEMs) even if the CMS brand is still not widely recognized among end users.

The company is now strategically focused on growth in a number of sectors, including marine, where it plans to use a current EPA/Coastguard

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²¹ “SBIR/STTR Success: Compact Membrane Systems,” https://www.sbir.gov/sites/default/files/SBAsuccess_CompactMembraneSystemsFINAL.pdf.

initiative aimed at encouraging the use of better and more hydrophilic lubricants. A major advantage is that this initiative could allow CMS to start selling completed systems, rather than components or partner with a major service provider in the marine market to bring the product to market at a much larger scale than CMS could achieve alone. Mr. Nemser said that CMS now has the IP and the knowhow in making membranes, as well as the manufacturing capacity, to make a successful product. The key strategic question is how to best approach each market to maximize likelihood and magnitude of success. For example, should the company move downstream or indeed upstream to capture more value. One model being explored was to develop branded components as part of a partnership with players dominant in their sectors.

Patents and Other Intellectual Property

CMS is the assignee for five key patents since 1999. CMS has many other patents, and a number of recent applications. Many of these were under Compact Membrane Technology Holdings. The two companies were merged at the end of 2015.

SBIR/STTR

Between 1993 and 2015, SBIR/STTR funded 210 projects with CMS, amounting to over $49.9 million in R&D support. 43 percent was provided by DoE, 31 percent by NIH, and 8 percent by the U.S. Department of Agriculture. The balance derives from the NSF, DoD, NASA, and Commerce. SBIR awards account for 92 percent of the total by value.

Over the past five years, CMS has reduced its dependence on SBIR/STTR funding. The three year moving average for 2014 (the most recent year for which we have complete data) is $1.5 million, down 54 percent from the $3.3 million reported in 2010. Considering that the number of employees has grown slightly over the same period (going from 22 in 2010 to 25 in 2014), CMS appears to be shifting to a commercial business model based on product revenues.²²

Mr. Nemser said that changes made to the DoE SBIR/STTR programs had been a significant improvement. The program appeared now to be focusing further downstream, away from basic science, and CMS strongly supports the introduction of Phase IIA and Phase IIB at DoE, especially as CMS believes that a single Phase II award is often insufficient to develop a marketable product. Phase IIB provides up to one-third of Phase II funding to support getting the product to market. CMS has also participated in the introductory accelerator program.

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²² “COMPACT MEMBRANE SYSTEMS, INC.” https://www.sbir.gov/sbirsearch/detail/130036.

CMS also strongly supports the letter of intent (LOI) process. Mr. Nemser observed that while he never like being rejected, he would much rather be rejected on a one-page document than a 20-page proposal.

In addition, CMS supported the limit of 10 proposals per solicitation from any one company. This had in fact limited CMS applications, which had peaked at 17 in one year before the limit was put in place.

CMS has also used the “other” category within the DoE solicitation. Initial discussions with a topic manager has clarified that the CMS proposal would not be deemed responsive to a specific topic, but the topic manager suggested that CMS apply instead under the “other” category.

Mr. Nemser noted that the responsiveness of topic managers varied widely, and did not always compare favorably with responses at other agencies—he found managers at EPA and the USDA to be especially responsive. He also noted that it’s worth being creative in seeking funding: he said that NIH in fact has more funding available for environmental topics than EPA, and that NIH will fund ideas that might seem better aligned to the EPA’s goals and mission.

Ms. Nemser noted that this is especially important in light of the company’s focus on the current EPA/Coastguard initiative related to marine lubricants. EPA/Coastguard have announced that all 200,000 ships operating in U.S. waters must use hydrophilic lubricants. The CMS system is uniquely positioned to address this need by separating lubricating fluids from water. At a panel convened at the International Workboat Show, CMS, the EPA, and several manufacturers discussed lubricant options and provided guidance to vessel owners and operators.

Overall, Mr. Nemser observed that DoE uses Phase I and Phase II very effectively to advance technology that supports its technological objectives. He went on to say that CMS has been able to conduct research and develop products that would not otherwise reach the market. However, companies need to be aware that overcoming technical hurdles is just a first step. Companies will still need to face major challenges on the road to commercial success, which are out of the scope of grants. These typically include market and user insight, customer network and access, user awareness and feedback. He noted that companies that address these too late (i.e., in sequence after grants) or underinvest their own funds can find themselves facing the "valley of death" on their own. He noted that VCs understand the need to double down on their investments to get through this period before products are introduced into the market, but that DoE has no capacity in place to do so, and has made no real effort to help in this area. Best practice in new product development call for early discussions between marketing and commercialization teams on one side and the scientific and engineering team to influence product design at a stage when adjustments are inexpensive, and when the company can focus some energy on building a network of early adopters, as well as a preliminary set of

marketing decisions (which might for example include identification of key conferences). Ms. Nemser noted that this model of product development was mandatory in the pharmaceutical sector.

SBIR forces companies to undertake very high risk work, which makes it difficult to attract any kind of venture funding unless the product is targeting a very large market.

Topics are sometimes science oriented, but others can be very practical. They also support longer sequences of work that develop platform technologies and then permit a range of applications. For example, the Phase III accelerator program helped CMS launch its oil dehydration systems. Their success underpinned further grants focused on solvent dehydration, a technology which is now being commercialized by capitalizing on the existing infrastructure and manufacturing capability.

Recommendations

[The following recommendations were provided jointly by Ms. Nemser and Mr. Nemser on behalf of CMS]

Downstream Funding. The top priority for CMS is to see DoE find ways to shift more funding to downstream questions to help with commercialization. This is a key concern given the difficulties of finding outside money for further product development prior to revenue.

Direct to Phase II. Under current guidelines, direct to Phase II excludes work completed under a previous Phase I—the program only supports work completed by the company without SBIR/STTR Phase I funding. This simply seems an unnecessary barrier—previous Phase I work may have entirely novel applications but is currently excluded from the program. More flexibility is needed.

Proposal Review. CMS strongly prefers application systems that generate quantitative scores. That allows companies to see the funding line and to understand how close they were. DoE’s program would be improved by clearer scoring, although CMS noted that DoE provides strong technical feedback.

CMS also supported ideas that would help address errors or omissions in the review process. The company supported the resubmission approach adopted by NIH, and also recommended that DoE explore ways to provide feedback from the company before reviews were finalized—ideally through some version of face-to-face defense, to the extent that is possible.

STTR. CMS notes that there are always difficulties in dealing with research institutions. The latter do great work, but do not operate on the same timeline as an SBC. Their involvement is usually needed because they have a unique skill. Overall, CMS would not oppose the notion of folding STTR into SBIR, although it is also not a strong supporter. STTR is really just a vehicle to do joint work.

National Labs. So far as the National Labs are concerned, CMS has worked with the Labs on occasion (e.g. Sandia), and noted that recent program changes have excluded NETL from the SBIR/STTR program. CMS used to have an active program with NETL, and strongly believes it would be helpful to include the lab back into the program.

CREARE, INC.²³

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, 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 Creare’s Principal Engineer, 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 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. 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.²⁴

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²³ Primary sources for this case study are the interview with Jay Rozzi, Principal Engineer, Dr. Rozzi’s presentation at the National Academies’ of Sciences, Engineering, and Medicine workshop on STTR, May 2015, and a review of the Creare, Inc. website (http://www.creare.com) and related company documents.

²⁴ “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.

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 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&W²⁵ 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.

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²⁵ Jay Rozzi, “Cryogenic Machining,” p. 6.

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 this area provides expertise suitable to any situation, including stationary or rotating machinery, coupled fluid flow, heat, and mass transfer; and chemically reacting flows.

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 a 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.”²⁶

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.²⁷

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²⁶National 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.

²⁷ Jay Rozzi, “Cryogenic Machining,” http://www.nsrp.org/6-Presentations/Joint/100411_Cryogenic_Machining_Background_and_Application_to_Shipbuilding_Rozzi.pdf, p. 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-half of Creare revenues. Nearly 40 percent of Creare’s total revenues come from Phase III commercialization activities related to past SBIR/STTR programs.

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.²⁸ 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.²⁹

Creare has spun off 10 companies during its history, and creating spinoff companies is central to its efforts to commercializing 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 objective appears to be to provide a home for Creare technologies once demand

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²⁸ “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/6-Presentations/Joint/100411_Cryogenic_Machining_Background_and_Application_to_Shipbuilding_Rozzi.pdf, p. 4.

²⁹ National Research Council, An Assessment of the SBIR Program, p. 270.

TABLE E-3 Creare Patents

SOURCE: U.S. Patent and Trademark Office.

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.

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- to 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 proven 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 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 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 programs 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 the 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 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 who the best RI partner might be. In some cases this is a Federally Funded Research and Development Corporation (FFRDC), although the latter usually want full payment of their contract up front, and require approval of a CRADA.

Dr. Rozzi noted that International Trafficking in Arms Regulations (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’s 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. Dr. Rozzi noted that an STTR also requires 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.

DIVERSIFIED TECHNOLOGIES, INC.³⁰

Diversified Technologies, Inc. (DTI) is a private engineering product and services company founded in 1987 by Marcel Gaudreau. Prior to DTI, Dr. Gaudreau worked as the director of the Advanced Projects Group at MIT’s Plasma Fusion Center. By the late 1990s, DTI had developed into an industry leader in the application of solid-state devices to high-power, high-voltage switches.

DTI has won over 100 SBIR/STTR awards worth slightly over $30 million. This funding enabled DTI to develop its PowerMod™ technology and to test applications in radar, power conversion, high energy physics, and food and wastewater processing. In the 15 years after receiving its first SBIR contract to study semiconductor switching in 1991, DTI grew to approximately $11 million in revenue of which over 80 percent was generated by PowerMod™ product sales. Since 2008, however, DTI revenue has been flat, and was about $10 million in 2014.

PowerMod™ switches are stacked, semiconductor devices configured for very high voltages. They operate as a single, near ideal switch with extremely short switching times and minimal overshoot. The technology is modular and can be scaled to very high voltages and currents. Solid state transistors offer higher reliability, longer component life, and higher power conversion efficiencies than competing high power vacuum tubes.

SBIR funding was of critical importance to DTI in developing the PowerMod™ technology. SBIR awards from DoE funded the development of DTI’s core high power switching technology. Also, a series of SBIR awards enabled DTI to develop applications in radar, high energy physics, and food and wastewater processing. DTI sells high power switches to government agencies at the federal levels (Department of the Navy, to corporations (Kraft, General Mills) and to university laboratories (Stanford Linear Accelerator Center, ASU Arizona Center for Algae Technology and Innovation).

DTI has received recognition for its research. In 1997 and again in 1999, DTI received R&D 100 Awards—for its work on solid state switches and switch modules.³¹

DTI is headquartered in Bedford, Massachusetts and employs approximately 50 staff. Company headquarters include 33,000 square feet of office, lab, and manufacturing space, housing engineering, sales and marketing,

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³⁰ Primary sources for this case study are the interview with Mr.Kempkes, and a review of the Diversified Technologies, Inc. website (http://www.divtecs.com) and related company documents.

³¹ “PowerMod High Voltage Pulse Modulator,” (1997), http://www.rdmag.com/awardwinners/1997/01/powermod-high-voltage-pulse-modulator; “PowerMod Solid State Switch Module,” (1999), http://www.rdmag.com/award-winners/1999/01/powermod-solid-state-switchmodule.

and support functions. The company sells its products worldwide, and is represented by local distributors in selected overseas markets.

Company Development

When Marcel Gaudreau founded DTI in his home in 1987, his intention was not to build a product oriented company. DTI was a consulting company to enable Gaudreau’s various research activities. Although often unsuccessful, Gaudreau worked with MIT graduate students to write SBIR proposals as a means of focusing on real-world problems. In 1989, DTI won its first SBIR award, and in 1991 it won another to investigate development of a solid state, high power switching device. Completed with a Phase II award in 1992, the technology languished for a number of years after its demonstration.³²

Although performance, reliability, and cost considerations made semiconductor switches superior to the vacuum tube switches then in use, customers were reluctant to switch without validation of the technology. In 1996, DTI partnered with Communications and Power Industries (CPI)—a leader in the vacuum tube industry, which was a large potential market, to develop a high power test set-up at the CPI campus in Palo Alto, aided by a subsequent SBIR to demonstrate the scalability and practicality of the technology. With CPI as a customer, DTI’s standing in the market improved, and other customers began evaluating the DTI PowerMod™ technology.³³

Subsequently, DTI developed applications for radar, high energy physics, and food and wastewater processing. Each time SBIR funding allowed DTI to extend the capabilities of its technology. In 1998, DTI received SBIR funding from the Navy for an advanced radar system. In 1999, DTI received multiple Phase I and subsequently Phase II awards to assist the Stanford Linear Accelerator Center in adopting solid state switches and sources for the Next Generation Linear Collider (NLC). In 2003, SBIR funding from the Environmental Protection Agency allowed DIT to investigate the application of Pulsed Electric Field (PEF) processing to waste water treatment.³⁴

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³² “A Long Pulse, High Power Solid-State Gyrotron Modulator,” (1991), https://www.sbir.gov/sbirsearch/detail/147952; “A Long Pulse, High Power Solid-State Gyrotron Modulator,” (1992), https://www.sbir.gov/sbirsearch/detail/147834.

³³National Research Council, An Assessment of Small Business Innovation Research Program at the Department of Energy, Washington, DC: The National Academies Press, 2008, pp. 186-189, http://www.nap.edu/catalog/12052.html.

³⁴ Arntz, Floyd et. al. “New Concepts for Pulsed Power Modulators: Implementing a High Voltage Solid-State Marx Modulator,” http://www.divtecs.com/data/File/papers/PDF/ILC_Long_Pulse_Marx.pdf; “Advanced Solid State High Repetition Rate Modulator,” (1998), https://www.sbir.gov/sbirsearch/detail/147844; “Wastewater Treatment by Pulsed Electric Field Processing,” (2003), https://www.sbir.gov/sbirsearch/detail/147910.

Technology

Trademarked as PowerMod™, these solid state switches are built from series stacks of semiconductor devices (Insulated Gate Bipolar Transitors or IGBTs) configured for very high voltages and operated as a single, near ideal switch.

The technology is modular and scalable which allows designers to build switches with performance requirements up to 500 kV and over 20 kA. Because IGBTs always fail by shorting, PowerMod™ modulators continue to operate even if several IGBTs in the switch fail. Also, because each switch is rated at a lower level than its actual capacity, each switch has additional operating margin and reliability.

PowerMod™ systems are used in two general applications, to condition high voltage DC power and to switch high voltage, high power circuits. For power supply applications, ranging from radar, magnet control, magnetron heating, lasers, electron beams, and RF transmitters, DTI ‘s technology enables voltage regulation to within ±0.1 percent tolerance and maximum voltage ripple of less than 0.01 percent. High efficiency and a small footprint mean DTI power supplies can significantly reduce space and power costs.

For switch applications, PowerMod™ provide nearly ideal switching behavior. They transition between fully “on” and “off” states in as little 50 nanoseconds. Compared to conventional tube-based approaches, they also have substantially simplified ancillary circuitry. PowerMod™ switches require only 110 VAC power for operation and can accept commands via fiber optic link. Pulsewidths are variable on a pulse-to-pulse basis from 1 microsecond to DC, with pulse repetition frequencies of up to 300 kHz.

PowerMod™ switches perform better than vacuum tube-based modulators because solid state components offer higher reliability and longer component life. Also, they cost less to operate because of significantly higher power conversion efficiency. Because these switches consume less power compared to vacuum tube modulators, electrical costs are substantially lower (as are cooling costs).

Products

DTI has developed four different applications of PowerMod™ technology: radar, power conversion, high energy physics, and food and wastewater processing.

Radar

Radar systems use vacuum tube modulators (thyratrons, switch tubes, etc.) to generate trains of high frequency pulses. These modulators are expensive

to maintain. Worse still, relatively short operating lifetimes make replacement a significant operational expense. DTI retrofits vacuum based radar systems, upgrading transmitters to DTI’s solid state PowerMod™ switches to reduce failure rates and improve system up-time. For example, Navy estimates indicate that retrofits of fire control radar systems with DTI technology would increase the mean time between failure by a factor of over 150, from 300 to 50,000 hours.³⁵

Power Conversion

DTI technology enables AC-to-DC and DC-to-DC power conversion. High frequency switching allows output power to be tightly regulated even when driving nonlinear and transient loads. The technology can also be applied to variable frequency power converters such as those needed for synchronous AC motor drives. Applying this technology to higher voltage (tens of kV) and higher power (MWs) enables a variety of applications such as pulsed power systems and high speed utility switching.

High Energy Physics

The DoE's national laboratories and leading universities worldwide use DTI modulators and power supplies in RF power systems for accelerators and fusion systems. Both applications require careful control of voltage, pulsewidth, and pulse repetition frequency at very high power (more than 20 MW) and voltage (more than 100 kV). PowerMod™ switches can also be used to protect sensitive equipment—such as klystrons or gyrotrons—from electrical arcs with only the smallest interruption in operation.

Food and Wastewater Processing

Pulsed Electric Field processing is used in food processing to pasteurize liquids or increase yields in starch and sugar extraction from plants such as sugar beets and to enhance digestion of biomass in wastewater processing. PEF uses a high-energy pulsed electric field to break down vegetative cell walls in a process called “electroporation.” Liquids pass through processing chambers and are “pulsed” rapidly with very high voltage electric pulses generated using DTI electronics. PEF processing is a “non-thermal” technology. Because the target is not significantly heated, in food sterilization applications PEF processing maintains the taste, color, anti-oxidant content, and

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³⁵ “Department of the Navy SBIR/STTR Success Stories,” (September, 2004), 10, http://www.navysbir.com/docs/NavyBook-04.pdf.

consistency of fresh food, eliminating the need for chemical or radiation treatment.³⁶

Markets and Commercial Development

DTI’s commercial perspective has evolved over the years. Initially the company focused on high end modulators for European installations and for National Labs, which cost up to $1 million plus each. This has been a low volume and somewhat variable market over the last 15 years, according to Mr. Kempkes. 20014 and 2015 were good years, but in some years there have been no sales at all into high energy physics.

Predominantly, DTI’s sales have in recent years focused on radar modernization. Since 2008, these products have according to Mr. Kempkes been the company’s largest and most consistent market, primarily through direct sales to Air Force or Navy, and in addition to government agencies seeking to upgrade air defense radars in other countries.

Mr. Kempkes noted that sales were made directly to agencies, rather than indirectly through prime contractors. He observed that prime contractors are primarily focused on building new systems, which are almost all solid state now, and do not have large TWTs or klystrons in them as did the previous generation. Since new radars are incredibly expensive, and slow to be fielded, their emergence has a by-product generated substantial demand to keep existing radars operational and to extend their anticipated lifecycles. That in turn had created market for DTI, and the company had turned toward that market as a primary focus. Clients needed to extend life cycles for another 10-20 years, and make their radars more reliable, rather than improving their capabilities.

Demand for these products came primarily from the services themselves, rather than from the acquisition programs which are focused on developing new tools and technologies. So while new radar systems are funded by acquisition programs, the improvement and extension of existing systems comes from the services maintenance budgets. This also in part explains the lack of interest from the primes.

DTI has by now developed strong relationships with the radar community, a small and tight-knit group where DTI’s reputation continues to generate sales. DTI also works with a few support contractors (e.g., BAE and Harris). The community quickly becomes aware of options for improving existing installations, and DTI has capitalized on this via word of mouth. It is, according to Mr. Kempkes, difficult to really market into this community—it is in general aware of what works and quick to share tools and techniques. This

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³⁶ Bob Sperber, “Milk Processors Work on Making Pasteurization Cool Milk Processors Work on Making Pasteurization Cool,” (May 11, 2011), http://www.foodprocessing.com/articles/2011/pasteurization/.

market is also difficult to enter for other reasons—there are no central acquisition authorities—funding comes from the operational or support budgets.

Finally, it is worth noting that while this market is large enough to sustain DTI, it is essentially a steady state market. Specific products and services are in demand, then eventually become obsolete, but the overall amount of work remains relatively steady. The reliability of DTI’s products also works against them to some extent—there is very little ongoing need for repairs or spares for these systems.

At the same time, DTI uses SBIR to find opportunities to develop new technologies into products that can supplement the core business. For example, DTI won an SBIR from NAVAIR to replace a transmitter on a beacon used to land planes on aircraft carriers (a magnetron transmitter). This amounts to an application of the technologies developed for use with radars. Successful Phase I and Phase II awards have led to a Phase III contract from NAVAIR to upgrade every one of the approximately 100 units currently in operation. Mr. Kempkes noted that in this case, Navy had been able to utilize the sole source provisions of SBIR to award DTI the contract directly. He observed that Navy is the best of the agencies in working on sole source procurement—it has even published a booklet that DTI has sent to contracts officers in the Air Force and Army to explain how sole source contracting works under SBIR.

According to Mr. Kempkes, power conversion offers many different markets and opportunities. DTI builds large, high voltage, power supplies. The company still sells a few as a stand-alone power supplies, but it recognized the need to advance the technology further. DTI won an SBIR from NAVSEA to build a more compact power supply, and developed a much more power-dense power unit for the Electromagnetic Rail Gun (EMRG) program. This product is now shipping, with DTI having built four units as part of the Phase II award for the first railgun on a ship. This could turn into a big program with hundreds of units for DTI.

The potential commercial importance of the power-dense HV unit has generated some significant commercialization challenges for DTI, specifically related to ITAR (the unit is currently ITAR-restricted). DTI has identified some possible markets in high energy physics and possibly with the European Spallation Source (ESS), but DTI does not see a clear path forward. It appears that the options are either to apply for an export license or to find a way to redevelop similar technology without Navy (or other DoD) funding.

DTI believes that while the specific product built for Navy is ITAR, that the technology itself is generic and should not be subject to ITAR regulations. There have been some cases in which blanket determinations have been made that for a specific power range/frequency range no export license is needed (e.g., for microwave tubes). However, those determinations are made case by case, and power sources have not yet been addressed.

DTI entered the Pulsed Electric Field (PEF) market some years ago, according to Mr. Kempkes, but is only now just starting to get some traction. PEF went on the market in 2006, and quickly generated a lot of press coverage

and an award. Unfortunately, the company marketing the product went under after trying to grow too quickly. Since then DTI has sought other partners, but this was delayed by the market crash in 2008. Over the past two years, sales have started to grow again in this area.

Patents and Other Intellectual Property

DTI is the assignee for 24 patents since 1989.

DTI has not taken advantage of the funding that DoE now allows to SBIR awardees for patenting purposes. DTI, as a rule, does not patent any technologies based on DoD contracts unless there is also a large commercial potential for the technology.

Work with DoE is largely based on SBIR awards. Contracting in the DoE sector comes through DTI’s work with the National Labs. Mr. Kempkes observed that “for the most part, patents have no meaning for the National Labs.” They view all government funded technologies as inherently open.

DTTI typically patents a technology if it believes that it will help to keep a competitor out of that technology, or if it believes that the path forward is to license the technology. The PEF patent will for example likely be licensed, but patents are not really needed for standard direct sales.

The 2011 reauthorization fixed one concern: companies can now extend data rights on the basis of a Phase III contract or equivalent. Now there is a defined methodology under which companies must write a letter to the original contract officer stating that the company considers the data rights to be extended because of this new contract.

SBIR data rights mean little in the real world, Mr. Kempkes said. It was until recently not even possible to prove that the company owned them. Now at least there is a record through this letter to the contracting officer. This provides a contracting trail, which is a substantial improvement. He also suggested that data rights should be extended beyond 5 years—that in terms of product development, this was far too short. For example, DTI had worked on helicopter blades under an Army SBIR contract. It entered negotiations with a helicopter manufacturer, but in the end, the manufacturer simply decided to wait out the 5 years.

SBIR/STTR

Between 1989 and 2015, SBIR funded 111 projects with DTI, amounting to over $31.7 million in R&D support. Of the $31.7 million provided in SBIR/STTR funding, 62 percent was provided by the Department of Energy and 37 percent by the Department of Defense. The National Science Foundation and the Environmental Protection Agency also provided two Phase I grants

amounting to less than 1 percent of total funding. DTI has never received STTR funding. Overall DTI converts 48 percent of Phase I grants into Phase II awards.

Although DTI continues to receive SBIR funding, the company appears to have successfully transitioned to commercial activities based mostly on other product and service revenues. The Hoovers website reports annual revenue of $9.34 million. Assuming that this number is for 2014, this suggests product revenue was approximately $8.7 million dollars. See Table E-5 for a breakout.³⁷

Although DTI has successfully transitioned to a product-based business model, it has not grown substantially over the past decade. DTI revenues were reported at approximately $11 million in 2008.³⁸

SBIR/STTR Recommendations

Topics

Mr. Kempkes was critical of the DoE topic development process. He noted that the agency does a poor job of updating the topics, and that many of them remained unchanged from year to year, even after interest in a particular area has waned. He also said that the topics themselves provide insufficient information on which to base a proposal: it was critical to contact the technical staff interested in the topic to find out what was really being sought.

While DoE does publish the contact information for subtopic managers, these are according to Mr. Kempkes in most cases not the technical staffer (usually working at a National Lab) who is really driving the topic. It is often quite difficult to find the right contact who really knows the details; listed points of contact are typically not the right people.

From Mr. Kempkes’ perspective, DoE seems to include two distinct types of technologies within SBIR/STTR: generic technologies that possibly might useful someday, and very specific narrow technologies designed for use in existing programs. The agency does not distinguish between these two types of topics.

TABLE E-5 Diversified Technologies Revenue Breakdown, 2014

SOURCE: Hoovers.

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³⁷ “Diversified Technologies, Inc.” http://www.hoovers.com/company-information/cs/revenuefinancial.Diversified_Technologies_Inc.8004553a443318fc.html. Hoovers does not report a year; revenue is assumed for 2014.

³⁸ National Research Council, An Assessment of Small Business Innovation Research Program at the Department of Energy, 185.

Mr. Kempkes said that DoE SBIR topic managers are forthcoming if you can contact them. In his experience, one staffer is often listed as manager for 4-10 subtopics, and as a result they are quickly overwhelmed. Soon after the solicitation is published they will pick up the phone and answer questions; after that it becomes more challenging to contact them. Email responses vary—some are good, but others not at all. To be fair, topic managers are spread too thin; improvements in this area would be helpful.

In contrast, topic managers at DoD often have only one topic to manage and they are often the technical point of contact with a deep technical understanding of the topic. This led to a better match between proposals and agency needs. For example, a recent Navy solicitation offered what was for DTI a marginally interesting topic. DTI contacted the TPOC, who said that he was interested in DTI’s technical approach. DTI proposed, and was selected. This would not have happened without the contact to the TPOC.

DTI continues to be concerned about unfunded topics and about proposals that are marked fundable but are not funded. Mr. Kempkes observed that DoE SBIR/STTR is selective in the way that Harvard is selective—there are invisible processes and perhaps an invisible lottery behind the scenes. DoE doesn't publicly prioritize its topics, and as a result DTI has written proposals to address a solicitation only to find out later that “DoE didn’t care about that anymore.” Subtopics all compete with each other, so not all subtopics get funding. DoE prioritizes after the proposals are reviewed. He believed that this has nothing to do with proposal quality—it simply reflects program need. This process could and should have been undertaken before the solicitation was published, not after companies had expended hundreds of hours of effort on topics that were in fact a low priority and were unlikely to be funded in any event.

In fact, some companies—according to Mr. Kempkes—have now ceased to address DoE solicitations because they regard outcomes as unrelated to proposal quality. DTI agrees that this is the case, but keeps applying because their success record is reasonable (in part, because DTI continues to write a lot of proposals).

National Labs and SBIR/STTR

The National Labs vary widely in their capacity to address SBIR, according to Mr. Kempkes. Some people in National Labs have figured out how to use SBIR to help them accomplish their programs, and do what they need to do. Others see SBIR as competition. These differences were often more personal than institutional—it was not possible to say that some Labs were better to deal with than others; it was more a case that some National Labs staff were easier to deal with. For example, one national lab contains both the best partners DTI has found across the system, and the worst. Mr. Kempkes feels that, in general, there

is fairly widespread feeling at the Labs that the SBC is a potential competitor—that at a minimum it is working on a technology that the lab might wish to work on at some point. Some in the labs also believe that SBIR funding is wasted, because they don’t see real products or technologies emerging directly from SBIRs.

As noted earlier, Mr. Kempkes thought that the Labs did a poor job of protecting company IP. The Labs are more academic than commercial, and hence have a different mindset. They see their jobs as in part to collect and disseminate information that they find. They are not set up for, or interested in, keeping track of whose IP is whose: “They live for publication.”

Dealing with the Labs is challenging in other ways. The dual nature of the Labs as both customer and reviewer can be a problem. SBIR proposals are considerably stronger when they are bolstered by letters of support from potential users. However, National Labs are not asked for such letters because that could prevent the specific lab (or contact) from reviewing the proposal. More generally, there are difficulties in creating an agreement between an SBC and a national lab. Overall, SBIR/STTR reverses what the National Labs expect in terms of technology transfer. They are comfortable with the notion that the Labs develop technology and provide it to others to commercialize; much less so with the idea of funding SBC's to develop technology for use within the Labs.

STTR

DTI is wary of undertaking STTR projects. It is currently in partnership with MIT Lincoln Laboratory on one SBIR, and has in the past bid on some STTR solicitations in partnership with Arizona State University. Typically, DTI does not bid on STTRs unless there is something that the company really cannot do itself (e.g., ASU grows algae). Usually, there is not enough funding in an STTR to start with, and sharing the funding with a research institution makes this problem even worse.

Technical and Commercial Review

While Mr. Kempkes in general supported the concept of the letter of intent (LOI) at DoE, he noted that it would be more helpful if it provided more concrete feedback, and better signals with regard to possible funding. More recent solicitations had asked for more information at this stage, and he said that it would be helpful to limit the page count of the LOI.

Review quality varies widely, according to Mr. Kempkes. DoE typically provides three reviewers. In his experience, one would typically be thoughtful and one would be cursory. Sometimes reviews are very high quality, but in other cases it is unclear whether a specific reviewer is qualified to address the proposal. In some cases, technical reviews are simply wrong, and DTI is frustrated that the (anonymous) reviewer didn’t understand something or had an erroneous view of the technology area. It is possible that a subtopic for a

rejected proposal will come up again, and DTI will fix or refute the previous review, but there is no assurance that the same reviewer will be assigned, and in general the success rate of re-submittals is very low.

The reality is that at DoE, a proposal needs three positive reviews to have any chance of being funded. There is no appeal mechanism, and no opportunity for rebuttal. Other agencies force reviewers to emerge with a unified view or joint position. That would be a self-check mechanism, but is even more cumbersome and would be difficult within the tight DoE timelines.

Commercial review at DoE is generally poor quality. What the application demands is essentially worthless. If a company is developing a new technology, it is important to have a good general idea of possible uses, but at the P1 stage neither the company nor the reviewer has any idea whether it will be beneficial or adopted. The market is simply too far away. By Phase II it makes sense to have a better understanding of potential transitions, but sometimes even then it is too early for more than a cursory assessment. For a commercialization plan to be useful it should probably be part of the Phase II final report. There is often very little connection between DoE topics and potential commercial applications to begin with, and no clear pathways to getting SBIR technology into DoE projects. Commercialization reviewers also seem to have little experience: sometimes they provide useful feedback, but in other cases do not have an understanding of the market.

Mr. Kempkes said that Navy provides the best example of a successful commercialization support program. The Navy has done an excellent job of linking topics to users and funding, and will not support an SBIR that does not have a transition plan from its sponsors. In contrast, DoE is not an acquisition agency; any acquisition would be for technologies used by the National Labs. He recommended that DoE should require each Lab to develop a plan to integrate SBIR technologies into their programs, as SBIR funding, in effect, makes the Labs acquisition agencies. At minimum, National Labs should be required to report back on the uses of SBIR/STTR technologies that they have sponsored, and how these technologies are being incorporated into their programs. Ideally, having such a plan in advance would be required to get a topic into the SBIR solicitation each year. That would resolve several issues at once, significantly reducing both the number of topics and wasted proposals chasing topics where interest no longer exists.

LI-COR BIOSCIENCES, INC.³⁹

LI-COR Biosciences (LI-COR) is a private company founded in 1971 by William Biggs. The company designs, manufactures, and markets “high quality instruments, software, reagents, and integrated systems for plant biology, biotechnology, drug discovery, and environmental research.”⁴⁰

Biggs had recently completed a master’s degree in engineering at the University of Nebraska and wanted to commercialize a light meter technology that he had developed. The company’s first product, the LI-185 Quantum/Radiometer/Photometer, embedded this technology and enabled the measurement of light as a photon flux.

As the company expanded its product line to include other light sensors, porometers, spectroradiometers, and photosynthesis systems, it expanded its ability to use electromagnetic radiation to measure the characteristics of physical matter. In the 1980s, the company successfully developed fluorescent dye-based instrumentation systems for DNA sequencing and entered the biosciences business. At the same time, with the help of SBIR funding, it developed key technologies for measuring gas exchange in global climate change research.

The company currently operates two product lines, LI-COR Environmental and LI-COR Biotechnology. LI-COR Environmental is a global leader in the design, manufacture, and marketing of high quality, innovative instrument systems for plant biology and environmental research. LI-COR has been in this field for more than 45 years, and its instruments are used worldwide in many environmental applications, including agronomy, ecology, plant physiology, plant pathology, carbon cycle studies, and climate change.

The LI-COR Biotechnology business was built on the use of near-infrared (NIR) fluorescence dyes (currently commercialized under the label IRDye® Infrared Dyes) to perform gene sequencing with higher sensitivity and wider dynamic ranges than its competitors. LI-COR now has a mature business selling automated infrared imaging systems and reagents. The company is also licensing its NIR dye technology to start-ups investigating the application of photoimmunotherapy and image-guided surgery in the treatment of cancer.⁴¹

LI-COR instrumentation is used in over 100 countries by more than 30,000 customers worldwide in scientific studies ranging from global climate change to cancer research. In addition to its Lincoln, Nebraska headquarters, LI-COR has offices in Germany and the United Kingdom. The company also sells

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³⁹ Primary sources for this case study are the interview with Dr. Dayle McDermitt, Vice President for Environmental Research (November 23, 2015), and a review of the LI-COR Biosciences website (http://www.licor.com) and related company documents.

⁴⁰ See http://www.licor.com/bio/news/4.21.10.html/.

⁴¹ Frost & Sullivan, “2013 North American In-Vivo Molecular Imaging Technology Leadership Award,” 2013 https://licor.app.boxenterprise.net/s/oslq79yyjyhynj4nccbsecxcg7fw1o1p; IRDye® 700DX Infrared Dye,” https://www.licor.com/bio/products/reagents/irdye/700dx/.

products through a global network of distributors. LI-COR now employs more than 330 people.

LI-COR has received substantial recognition for its work both nationally and locally. In 2015, the SBA awarded LI-COR a Tibbetts Award for its work on low-cost carbon sensors. In 2010, R&D Magazine awarded LI-COR a Top 100 award for its work developing an open path methane detector. LI-COR also received the 2010 Nebraska Governor’s Bioscience Award for the development of its automated DNA sequencing technology.⁴²

LI-COR scientists and engineers work closely with the scientific community through extensive internal R&D, collaborations with leading scientists, presentations at scientific conferences, and publication in peer-reviewed scientific journals.

Products

LI-COR operates two product lines, LI-COR Environmental and LI-COR Biotechnology. While these product lines are distinct, they are based on the shared need to measure biological parameters based on the interaction between electromagnetic radiation and physical matter.

Environment

LI-COR instruments have become the global standard for measuring gas exchange between the atmosphere and various sources such as landfills, plants and the oceans. In the mid-1980s, LI-COR began designing instruments to measure such processes. Unfortunately, they were not easily transported. An SBIR award in 1998 allowed LI-COR to develop a portable solution based on a technique called eddy covariance. Dr. McDermitt estimates that more than 80 percent of the measurements examining the carbon balance of agricultural and natural ecosystems have been made using LI-COR instruments, noting that “much of what we now know about how climate change might influence ecosystems comes from data provided by these instruments; it's made all this scientific work possible.”

With scientists specializing in agriculture, environmental science, and climate change as a market focus, LI-COR has developed a broad range of instrumentation for photosynthesis, gas analysis, and light measurement. In particular, LI-COR sells gas analyzers, photosynthesis systems, area meters

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⁴² Matt Olberding, “LI-COR’s climate change science wins Tibbetts Award from SBA,” May 26, 2015, http://journalstar.com/business/local/li-cor-s-climate-change-science-wins-tibbetts-awardfrom/article_389b0fa2-4371-5a07-b2d5-b523385f5e61.html; “Keeping Tabs on Methane,” R&D Magazine, August 11, 2010, http://www.rdmag.com/award-winners/2010/08/keeping-tabs-methane; “LI-COR Collaborators Honored with 2010 Governor's Bioscience Award,” April 16, 2010, https://www.licor.com/env/news/04.16.10.html.

(including canopy meters), light sensors, data loggers, and dew point generators. These products have been used by scientists seeking better estimates of greenhouse gas exchange in locations world-wide, including forests, deserts, cities, and landfills.

Biotechnology

LI-COR also pioneered the development of infrared fluorescence labeling and detection systems for life science domains, such as protein analysis and DNA sequencing. These platforms comprise imaging systems (such as the Pearl® Trilogy and Odyssey®) and related fluorescent reagents (such as IRDye). Using IRDye infrared dyes researchers can label a wide range of entities—antibodies, proteins, peptides, small molecules, lectins, some polymers, and even nanoparticles—and measure their presence using various techniques including Western blotting, protein arrays, cell-based assays, and in vivo molecular imaging. LI-COR products played a significant role in the work of the Human genome Project, according to Dr. McDermitt.

Bio-medical Applications

Based on its success with NIR fluorescent dyes in gene sequencing, LI-COR is now licensing its dye technology to develop therapeutic and surgical methods for cancer treatment. LI-COR has licensed its IRDye to Aspyrian Therapeutics to develop a light activated anti-cancer therapeutic, and the FDA recently gave Aspyrian permission to begin clinical trials testing RM-1929, an antibody conjugate that precisely targets cancer cells and is subsequently light activated to elicit a rapid, targeted anti-cancer response. Aura Biosciences is developing a similar product in which a viral nanoparticle conjugated with the laser-activated IRDye- molecule efficiently and selectively destroys cancerous cells.⁴³

LI-COR is also partnering with researchers to investigate the use of IRDye to improve surgical procedures. By causing somatic structures to fluoresce, researchers hope to increase the visual information available to the surgeon. Near-infrared (NIR) fluorescent probes are being developed for several procedures, including angiography, lymph node mapping, and tumor resection.

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⁴³ “Aspyrian Therapeutics Inc. Announces FDA Acceptance of an Investigational New Drug Application for RM-1929, a First-in-Class, Precision-Targeted Therapy for Cancer,” May 12, 2015, http://www.prnewswire.com/news-releases/aspyrian-therapeutics-inc-announces-fda-acceptance-of-an-investigational-new-drug-application-for-rm-1929-a-first-in-class-precision-targeted-therapy-forcancer-300081377.html; “Aura Biosciences Closes $21M Series B Financing Prepares to enter clinical trials for the treatment of rare ocular cancers,” March 5, 2015, http://www.aurabiosciences.com/aura-biosciences-closes-21m-series-b-financing/.

Patents and Other Intellectual Property

LI-COR is the assignee for 89 patents published between 1981 and 2015, according to the U.S. Patents and Trademark Office. Recently, LI-COR’s patenting activity has substantially accelerated. As Table E-6 shows, in the period 2012-2015, LI-COR received 37 patents (42 percent of the total patented since the company’s creation in 1971) and nearly triple the number of patents in the previous 4-year period.

Business Model

Dr. McDermitt explains that LI-COR has since its inception been a product-oriented for-profit company, where research is designed to meet the need for new products. The company was founded because research scientists sought access to its initial technology, and its products have always been developed at least partly in response to strong market demand. As a result, LI-COR has always managed its own sales and distribution channels, now in part served by subsidiaries located in Germany and the UK.

The company founder is an engineer, and the company was built because scientists and engineers from many countries requested his product; as a result, infrastructure for marketing and customer service was deployed immediately, and LI-COR has grown as a product oriented, customer focused entity since its inception.

The company originally worked with plant physiologists to develop the first practical quantum sensor for measuring photosynthetically active radiation. Following the publication of some seminal papers in the early 1970s, a scientific consensus quickly emerged about the best approaches for measurement in this area, and the first LI-COR product aligned closely with the consensus, which drove a rapid increase in demand for its instruments. Related instruments followed, such as an instrument for measuring leaf area in plants.

TABLE E-6 LI-COR Patenting Activity, 1981 to 2015

Throughout this period of early growth, the company had been marketing to scientists and engineers on a global basis. Dr. McDermitt notes that exports consistently accounted for two-thirds of LI-COR sales, which in turn required a strong international sales and marketing presence. Further, the company is dominated by scientists and engineers, and as a result sought to ensure that the needs of scientists were well served. Dr. McDermitt said that LI-COR had by far the strongest reputation in its niche for providing high quality customer support.

Ongoing business operations are the principal source of funding for R&D activity. The Hoovers/Dun and Bradstreet website reports annual revenue of $100 million by LI-COR Biosciences and an additional $14.8 million from its pair of European subsidiaries.⁴⁴ (See Table E-7.)

SBIR/STTR

The company’s grant philosophy is to apply for awards only when the topics are consistent with the company’s strategic direction and there is a high possibility that the project will result in a commercial product. Dr. McDermitt observes that SBIR funding never covered total out of pocket costs for a project, and certainly did not cover the opportunity cost of devoting company resources to the project. Hence the company could not afford to apply for grants simply to expand the size of its R&D base; grants were instead exclusively sought to subsidize R&D for projects leading to a new product that would be profitable and would make a difference. Grants are especially helpful because the cost of developing advanced instruments is high.

SBIR has been used to support four key projects, of which two have led to commercial products. One was technically successful but was superseded commercially by other approaches, and one is expected to be commercially successful in the future.

TABLE E-7 LI-COR Biosciences, Inc. Revenue Breakout, 2014

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⁴⁴ “LI-COR, Inc. Revenue and Financial Data,” http://www.hoovers.com/companyinformation/cs/company-profile.Li-Cor_Inc.b4245b76644713ab.html; “LI-COR BIOSCIENCES UK LTD Revenue and Financial Data,” http://www.hoovers.com/company-information/cs/revenuefinancial.LI-COR_BIOSCIENCES_UK_LTD.650c82d750559ca4.html; “LI-COR Biosciences GmbH Revenue and Financial Data,” http://www.hoovers.com/company-information/cs/revenuefinancial.LI-COR_Biosciences_GmbH.69ff7789c35f7144.html. Hoover does not report a year; revenue is assumed for 2014.

The first SBIR award resulted in the LI 7500 open path water vapor instrument—the most widely used of its type, and by LI-COR’s estimate producing more than 50 percent of measurements in this area world-wide. This project was based on a single Phase I award: the project had moved extremely rapidly, and the company had not needed a Phase II award before reaching the market.

The second SBIR Phase I and Phase II awards had led to the LI 7700 open path methane analyzer, now sold as a product primarily for methane emissions from natural ecosystems, from landfills, and natural gas leak detection.

The third SBIR award was used to develop a three-gas analyzer for CO₂, water vapor, and methane. The project had been technically successful, but was superseded by new technology (also produced by LI-COR) before it could reach the market.

The fourth SBIR award has funded development of a low cost high performance gas analyzer, initially focused on CO2 but readily adaptable for use with other gases such as methane and nitrous oxide. A variant of this technology to address national needs for gas leak detection has been funded by ARPE-E.

SBIR at DoE

Like many companies, LI-COR had over time developed a relationship with key agency staff, and particularly with the previous director of environmental research at DoE, who had made a point of visiting conferences such as the annual Ameriflux meeting (a consortium of scientists who are measuring carbon balance in a range of ecosystems). As a result, DoE topics in this area have been closely attuned to the cutting edge of the research community, and DoE was also open to ideas for new topics.

Under a new director, LI-COR has not noticed any significant changes, but relationships always take time to develop. The company has not found any topics of interest during the most recent solicitation, but Dr. McDermitt observed that it was also unlikely to have pursued any given that the R&D staff are fully occupied currently.

Dr. McDermitt notes that as LI-COR has grown, the markets it is interested in serving have grown as well: niche products are of lesser interest; however, LI-COR was not finding any difficulties in identifying markets of appropriate size as targets. At the same time, he observed that SBIR can be an important instrument for agencies in ensuring the development of products that may be uneconomical because a market is too small, but provides important scientific or social benefits.

STTR

LI-COR received one STTR award, which was in the late 1990s in conjunction with the University of Nebraska at Lincoln (UNL), working on a

precision agriculture system for optimizing nitrogen usage, and the company has a patent on using IR and near-IR reflectance for measuring crop growth. However, it turned out that the product would be too expensive for farmers given the low price of nitrogen-based fertilizer at the time, and the project was shelved.

Dr. McDermitt said that the experience had not been very positive. It had involved a considerable amount of paperwork and issues related to intellectual property that were hard to resolve. As a result of this experience, the company has not applied for STTR awards since that time.

Dr. McDermitt notes that beyond STTR, LI-COR continues to work with universities on a regular basis, including UNL, and in fact had developed a close relationship with the latter—his staff works as adjunct professors there, and the company has had numerous and valuable interactions with the university, and two former employees now worked in the UNL TTO office. LI-COR and UNL faculty had worked together on a DNA sequencer in the 1990s, which had been used on the human genome project; this technology was still in use for protein detection and was now being used by LI-COR for the development of clinical applications.

One of the most complex issues with a research institution (RI) collaboration is how IP gets managed. This was a serious issue for LI-COR, which wanted to own the IP in part because the company usually provided most of the funding. According to Dr. McDermitt, some universities are good to work with and others are not. If they view it strategically as a revenue generation opportunity, that almost always generates significant problems.

Recommendations

Overall, Dr. McDermitt said that the company found the SBIR program at DoE to be managed effectively. The proposal process was clear, the letter of intent process was not too burdensome, and—aside from the enforced no-contact period during the application—project managers were readily available for discussion. The administration of grants and the necessary level of documentation were reasonable and workable. Overall, SBIR was considered a good program to work with.

One frustration was that during the application phase companies were not permitted to contact program managers to get clarifications. While he understood that the no-contact period was necessary in order to ensure that the competition was fair, Dr. McDermitt noted that it did cause some frustration, as there were often technical decisions to be made in designing the proposal that could use program manager input.

Dr. McDermitt said that he strongly supported the idea of providing an “open” category in the solicitation (currently available for most DoE divisions but not EERE). He had for example looked at the current solicitation and had found nothing there for relevance to LI-COR.

Overall, Dr. McDermitt was positive about the review process as well. The company had a good success rate so had no real complaints. LI-COR had not experienced a review where the reviewer missed the point, which does happen sometimes with peer reviewed papers. Some reviews have offered significant insights to important questions that improved the project. He does not have strong views on the review of commercialization plans, as LI-COR was primarily a for-profit product-oriented company, which had strong business plans for its own purposes and where it owned distribution and marketing channels itself.

MUONS INC.⁴⁵

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 in 2002 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

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⁴⁵ This case study draws primarily on materials published by Muons on the company’s website, an interview with Rolland Johnson, CEO and Founder, August 27, 2015, and other company materials.

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 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 Laboratories. 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, of whom three women and one man received their degrees in the past 2 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, it is 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 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 2011-2012 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 nine National Laboratories:

• 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. Thirty-six 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 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 9 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 website, are welcome improvements.

NANOSONIC, INC.⁴⁶

NanoSonic, Inc. is a small nanotech company based in Blacksburg, Virginia. 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 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.

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⁴⁶ The primary sources for this case study are an interview with Dr. Jennifer Lalli, CEO, August 25, 2015, the NanoSonic Inc. website (http://www.nanosonic.com/), and other materials from NanoSonic.

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 Virginia, 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 million to $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 square feet 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 5 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.

Moreover 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.⁴⁷

Physical Sciences, 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 more than $40 million.⁴⁸ 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

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⁴⁷ Primary 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.

⁴⁸ David 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.

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.

At its headquarters in Andover, Massachusetts, PSI operates over 68,000 square feet of general office, laboratory, and prototyping space. PSI has two satellite offices in Haverhill, Massachusetts, and Pleasanton, California. 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, California, 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 to 20 people has 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 nondestructive 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 website, 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, Maryland; Princeton, New Jersey; 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.⁴⁹

Q-Peak, Inc.

PSI acquired Q-Peak in 2001. From its offices in Bedford, Massachusetts, 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

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⁴⁹ “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.

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.⁵⁰

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.⁵¹

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.⁵² Another medical instrumentation

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⁵⁰ “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.

⁵¹ “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.

⁵² “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-photonics-

firm failed when it could not 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 however in the end 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 an 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 of 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.⁵³

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raises-3-million-in-second-round-financing-71066127.html; “Auxora Acquires Confluent Photonics,” March 6, 2006, 

⁵³ “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.

According to the PSI website, 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, 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.⁵⁴

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.⁵⁵ PSI reports its revenue breakdown for FY 2010 as that listed in Table E-8 (including subsidiaries).⁵⁶

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

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⁵⁴ Dan Hammer, et. al. “Biomedical Optics Instrumentation,” September 15, 2010, http://www.psicorp.com/pdf/library/VG10-182.pdf, p. 7.

⁵⁵ Dan 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.

⁵⁶ David Woolf, et. al, “High-temperature Selective Emitter,” http://www.psicorp.com/sites/psicorp.com/files/articles/VG14-148-final.pdf, p. 1.

TABLE E-8 Physical Sciences, Inc.’s Revenue Breakdown, FY 2010

SOURCE: Physical Sciences, Inc.

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.⁵⁷

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 programs 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

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⁵⁷ “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.

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 6-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 no one 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. He said that 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 to 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.

VISTA CLARA, INC.⁵⁸

Vista Clara, Inc. 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 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 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.⁵⁹

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.⁶⁰

The company’s clients include various corporate (Rio Tinto, BHP Billiton), university (Rutgers University, Stanford University), government

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⁵⁸ Primary sources for this case study are the interview with Dr. David Walsh, CEO, August 18, 2015, and a review of the Vista Clara website (http://www.vista-clara.com) and related company documents.

⁵⁹ David 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.

⁶⁰ Rosemary Knight, “J. Clarence Karcher Award for Elliot Grunewald,” The Leading Edge, January 2015, 15; http://www.tleonline.org/theleadingedge/january_2015?pg=15#pg15.

(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.⁶¹

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.⁶²

Conveniently both hydrogen and carbon show this phenomenon. NMR was first applied in geophysics to oil exploration in the 1960s to help develop 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.⁶³ In a hydrogeologic study, NMR allows the measurement of key hydrological soil characteristics. It can

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⁶¹Non-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.

⁶² Abi 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 63(8):467, August 1991, http://pubs.acs.org/doi/pdf/10.1021/ac00008a732.

⁶³ David Walsh, et. al. “A Small-Diameter NMR Logging Tool for Groundwater Investigations,” Groundwater 51(6):914-915, November-December 2013, http://www.alphageofisica.com.br/vistaclara/papers/groundwater_javelin_www.alphageofisica.com.br.pdf.

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.⁶⁴ 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 system 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.

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,

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⁶⁴ David 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.

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 with 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, the most recent of which resulted in the sale of three GMR surface NMR instrumentation systems.⁶⁵

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⁶⁵ “Vista Clara secures leading position in China,” http://www.vista-clara.com/news/vista-clarasecures-leading-position-in-china/.

TABLE E-9 Vista Clara Patents

SOURCE: U.S. Patent and Trademark Office.

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 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. He thought that 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 of the seven to eight partnerships formed for SBIR/STTR did the university add real value.

WOODRUFF SCIENTIFIC INCORPORATED⁶⁶

Woodruff Scientific Inc. (WSI) is a private company located in Seattle, Washington. WSI was founded in 2005 by Dr. Simon Woodruff, with the objective of accelerating the development of commercial fusion energy, after working at Lawrence Livermore National Laboratory as postdoc. He received two SBIR awards in 2005-2006 which were sufficient to make the company a going concern.

Dr. Woodruff noted that these were very ambitious technically. The first award supported development of a set of products and services for the company. Although these awards were not in themselves designed to generate commercial products, they helped the company to develop capabilities that have sustained the company over the past ten years, according to Dr. Woodruff. These awards were followed in 2007-2008 by two follow-on Phase II awards focused on shortening the pathway to fusion power.

WSI owns a subsidiary, Woodruff Scientific Ltd. (WSL), based in Guildford, England. WSL was created to provide the same services and products as WSI, to clients in the European scientific community, but is currently dormant.

Products and Technologies

Capacitors and Pulse Forming Networks

WSI builds, tests, and installs pulsed power capacitor banks used in different applications. Capacitors are essentially batteries; both hold electricity, but capacitors can discharge it instantly (that is why capacitors are used in high intensity devices like defibrillators and particle accelerators). Capacitor banks are groups of capacitors that effectively act as a single capacitor, linked to instantly discharge all of their energy.

Capacitor banks are a type of Pulse Forming Network (PFN), a network of cells (capacitors in this case) that accumulate energy and can discharge it instantly. The time a PFN takes to unload its energy defines its power: One joule of energy stored within a capacitor evenly released over one second delivers peak power of 1 watt. However, if all stored energy were to be released in one microsecond (one millionth of a second), the peak power would be one megawatt (one million times greater). Making PFNs more efficient and hence higher energy could therefore have a substantial effect on particle accelerators and other high energy applications.

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⁶⁶ Primary sources for this case study are the interview with Dr. Simon Woodruff, CEO, on August 19, 2015, and a review of the Vista Clara website (http://www.vista-clara.com) and related company documents.

Capacitors and capacitor banks are used in many electrical products, so multiple designs are required. WSI has developed three capacitor bank designs: Modules A, B, and C. They also custom-make banks to client specifications.

Model A is a spark-gap switch bank with 12 kV (kilovolt), 4uF (microfarad) caps in a circular arrangement. Model B is a spark-gap switch bank with 12kV, 120uF caps, and a linear arrangement. Model C is a bank with IGBT switch, 8kV, 4700uF caps, and a linear arrangement. All three models are built to accommodate stand-alone applications.

Plasma

WSI produces custom magnetized plasma sources made to meet specific requirements in fusion energy sciences. These plasma sources require high field strengths, resistance to high currents and high voltages, and often Ultra-High Vacuum compatibility. Most WSI sources have been used for compact torus configurations (doughnut-shaped plasmas).

WSI is also developing Plasma-Material Interfaces: surfaces designed to handle the pressure and heat of a chamber containing plasma-based nuclear fusion. These chambers contain hydrogen atoms heated to high temperatures. Chamber walls have multiple layers: the first wall, several layers of blankets, and a vacuum.

In addition, WSI makes Controls, Data Access, and Communication (CODAC) systems. These are used to control plasma fusion devices. CODACs make physics measurements, control the plasma, and maintain safety during device operation. CODACs have four main components: sensors to measure a control parameter, an analogue to digital converter to convert signal into a form that can be stored or acted on, programming logic to control the variable, and output instrumentation for controlling the parameter. All magnetic fusion chambers use electrical pulses (some from PFNs), but current duration varies. Some fusion chambers use shorter electrical pulses, where a passive stabilization approach can contain the conditions (a well-designed wall, possibly with copper plates, bars, or in some cases a flux-conformal first wall, or flux conserver). For longer electrical pulses, the environment inside the chamber becomes more volatile, so active stabilization is required, and control systems must actively work to contain the conditions to protect Plasma-Material Interfaces. WSI intends to offer custom-made active stabilization for protection of Plasma-Material Interfaces.

Other Devices

WSI custom designs and sells a range of other devices related to fusion and plasma physics. These include:

• Spheromaks, which arrange plasma into a toroidal shape. WSI designed and created the Spheromak in use at Florida A&M University. The

• simple geometry and lack of complex magnets required for spheromaks may allow the construction of much simpler and less expensive fusion reactors.

• Dense Plasma Foci device, which uses a process called “pinching”—electromagnetic acceleration and compression—to produce short-lived plasma hot and dense enough to cause nuclear fusion and the emission of X-rays and neutrons.
• Inertial Electrostatic Confinement devices, usually spherical but sometimes cylindrical or linear. These devices use electricity to heat charged ions to fusion conditions.
• Magnetic field coils custom made for specific pulsed power applications in fusion energy. These coils are used in many products such as magnets that operate in the strongest man-made vacuums, used in settings like the Los Alamos National Laboratory’s Plasma Liner Experiment (PLX).

WSI is developing concepts and seeking further SBIR support for (amongst other areas) compact fusion neutron sources and plasma material interfaces:

• Fusion neutron sources which isolate neutrons, mainly used for nuclear medicine. WSI claims that their patent-pending fusion neutron sources would have a competitive advantage over traditional isotope production because their system is much more compact and independent of any nuclear fission source. Their fusion neutron is also easier to sell: it is illegal to export heavy-enriched uranium outside the United States, and nuclear medicine isotopes are usually developed using a process involving heavy-enriched uranium. WSI’s fusion neutron source is not illegal to export, and it supplants the need for heavy-enriched uranium in developing nuclear medicine isotopes. SBIR proposal was submitted this year.
• Flowing liquid metals could serve as an ideal Plasma-Material Interface (PMI): the surface is continually replenished so the damage sustained by solid PMI concepts will not require periodic maintenance. WSI works in collaboration with national laboratories on this subject, and will be resubmitting a Phase I application this year.

Consulting Services

High Performance Computing

WSI has capabilities in high performance computing which it provides on a consulting basis. Most of their computing is done at the National Energy

Research Scientific Computing Center on HOPPER, the 67th ranked supercomputer in the world.⁶⁷ However, WSI also perform pre-production runs and private contracts in-house on a small computer cluster, and installs and configures operating systems, libraries, and applications for high performance computing applications.

Design and Engineering Services

WSI offers consulting in all stages of the device development process: concept design, engineering design, procurement, fabrication, installation, testing, and operations.

Business Model and Commercialization

Since the initial SBIR awards, WSI has primarily provided consulting services to the fusion research community. Dr. Woodruff is a well know figure in this sector, and his company provides highly specialized services for which there is significant but limited demand.

WSI works primarily to help other organizations deal with pressing physics problems, and to manage legacy code projects in particular where the lead scientist is retiring (e.g., a major project for a company in the UK).

The company focuses its marketing efforts on the fusion community, and attends one to two key conferences annually where sales leads are developed by word of mouth. Company staff also publishes technical papers that sometimes act as lead generators.

The opportunities facing the company can be divided into short term activities related to fusion products, and longer term opportunities related to fusion power itself. While venture firms and other investors are more interested in the scale of the latter, they find that the long timeline to market and the high level of technical and market risk are too formidable to overcome. Conversely, there is limited appetite among investors for shorter term fusion products that service more limited research markets.

Dr. Woodruff said that WSI is currently focusing on diversifying its offerings at the end of the current Phase II award, particularly in the area of 3D printing of metal components and instrumentation.

WSI and SBIR

WSI received a pair of Phase I awards starting in 2006 from DoE, both of which converted to Phase II. Dr. Woodruff noted that WSI has been in business for 10 years, and that all of its commercial offerings had been developed using SBIR funding. The initial awards had been followed more

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⁶⁷ See HOPPER description at https://www.nersc.gov/users/computational-systems/hopper/.

recently by an additional Phase I in 2014, and Dr. Woodruff said that the company had recently been awarded a follow on Phase II for this project. Overall, WSI has to date received $2.3 million in DoE SBIR funding, and has been approved for a further $1 million award in 2015.

Commercialization Support

Dr. Woodruff said that the work of Foresight, a third party commercialization support provider under the DoE commercialization support program had been excellent. Foresight had worked hard to put WSI in contact with the CTO’s of energy companies that could be possible partners, and in general had helped substantially with marketing strategy. Given that fusion energy is still so far from the market, Foresight was not able to help develop a business plan related to fusion products.

WSI had also participated in the DoE Dawnbreaker commercialization support program, and Dr. Woodruff said the program has been “world class.” WSI had attended monthly during its Phase I award through lectures and teleconferences. The program encouraged him to ask key questions, and provided substantial help in developing the commercialization plan needed for the phase II application. WSI was now seeking non-executive directors to help with commercialization planning for the current Phase II award.

SBIR Issues and Recommendations

Dr. Woodruff noted that even though DoE was quite efficient in limiting the funding gap between Phase I and Phase II, the gap could be a major problem for small companies like WSI, and he urged the agency to close it still further if possible.

Dr. Woodruff said that commercialization had apparently become considerably more important at DoE; the commercialization plan had been of limited importance in 2007, but now seemed to be among the most important elements of the application.

The letter of intent required for all SBIR/STTR applications was primarily used by DoE to help determine which technical reviewers would be needed for the upcoming solicitation, Dr. Woodruff observed. He did not believe it provided particularly useful information to the applicant. Experienced PI's were well aware of the program managers for subtopics and could call for advice about possible applications. This access was however less available to more inexperienced PIs in Dr. Woodruff’s opinion.

Dr. Woodruff had a number of concerns about the DoE SBIR review process. He noted that all reviews are anonymous although he sometimes learns of reviewer identities through his own contacts network. Reviewer comments rarely mention the commercialization prospects of the project, even though that

was a significant part of the application. He did not think overall that reviewers really understood the aims or objectives of the SBIR program, and were often not sufficiently familiar with it overall to differentiate it from the very different and much larger projects typically funded through DoE. And typically, reviewers simply used standard DoE metrics for assessing proposals, which focused heavily on academic inquiry.

While contracting issues at DoE had been a major concern during the first SBIR award, experience with the program now meant that these were minimized, according to Dr. Woodruff. However, he observed that the agency used profit and loss for the previous three years to work out indirect rates; this led to determination of rates in a series of negotiations based on historical and current expenditures. More recently, WSI had used a pre-spending program available at DoE to fund work prior to Phase II initiation. WSI had used this for the 30 days prior to Phase II, but believed that small lines of credit (a practical reality of small businesses) prohibit the use for the full 90 days.

In conclusion, Dr. Woodruff said that the SBIR program is very well tuned to the real needs of the fusion community, although the limited funding available makes it difficult to build any sustainable business around the program that could be focused on DoE’s long term needs.

XIA, LLC⁶⁸

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 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

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⁶⁸ Primary sources for this case study are the interview with Dr. William Warburton, CEO and founder, August 24, 2015, and a review of the XIA website (http://www.xia.com) and related company documents.

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 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.⁶⁹

The company maintains research relationships with a broad range of academic, government, and corporate entities such as University of California, 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 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

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⁶⁹ XIA LLC, https://www.linkedin.com/company/xia-llc.

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 $60,000.⁷⁰

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 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

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⁷⁰ XIA, LLC, https://www.linkedin.com/company/xia-llc.

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.⁷¹

Patents and Other Intellectual Property

XIA is not the assignee of any U.S. patents. However, the patents (listed in Table E-10) assigned to William Warburton, the CEO of XIA, are solely licensed to XIA and potentially applicable to any hardware or software developed by XIA.

SBIR/STTR

Between 1990 and 2013, SBIR/STTR funded 53 projects with XIA 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. He said that 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

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⁷¹ SBIR Success Story: XIA, LLC, http://www.nist.gov/tpo/sbir/sbir-success-story-xia.cfm.

TABLE E-10 Patents Assigned to William Warburton, CEO of XIA

SOURCE: U.S. Patent and Trademark Office.

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 awards 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 testing-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 it 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 provided a link 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 10 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.