Today, BIO’s Executive Vice President of Emerging Companies Cartier Esham presented testimony to the U.S. House of Representatives Committee on Small Business regarding oversight of the Small Business Innovation Research and Small Business Technology Transfer Programs (SBIR/STTR).
Dr. Esham emphasized that SBIR plays a critical role in supporting small biotech companies and funding their early-stage research as they navigate the “valley of death,” a critical time when the scientific concepts have shown promise but the development is not far enough along to attract later-stage investors that could fund expensive clinical trials. Biotech innovators and entrepreneurs use these funds to speed the delivery of the next generation of medical breakthroughs.
The extended biotech development timeline, driven by the complicated nature of scientific advancement, means that it can cost more than $1 billion to bring a single life-saving therapy to market. This entire process is undertaken without the benefit of product revenue – instead of using the sale of one product to finance the development of another, growing innovators turn to external sources to fund their breakthrough R&D.
The SBIR program provides biotech companies an opportunity to obtain funding for early-stage research projects in order to advance their research and development to the point that it can attract the hundreds of millions of dollars from the private sector necessary to develop the initial project into a publicly available new medicine.
Dr. Esham pointed out that BIO supported the SBIR/STTR Reauthorization Act of 2012, which made two vital reforms to the SBIR program. First, it allowed majority venture-backed companies to once again be able to participate in the SBIR program; and second, it modified affiliation rules so that SBIR applicants will not be affiliated with their investors’ portfolio companies simply on the basis of shared investors.
The restoration of SBIR eligibility to venture-backed companies will be vital for the success of the program in the biotech industry. Virtually all biotech companies depend on venture financing at some point in their development cycle. Dr. Esham lauded the Small Business Administration (SBA) for issuing eligibility and affiliation rules that implement clear, bright-line tests that will not unduly ensnare growing companies.
Programs like SBIR are particularly important in a difficult fundraising environment for companies that generally depend on venture capital investment to finance early-stage research. In 2013, first-round venture financings (which support the earliest stages of breakthrough research) were down 35 percent compared to 2008 and in 2012 they were at a 15-year low, according to the National Venture Capital Association. Further, the first round’s share of the total venture market is decreasing each year. As a result, breakthrough, early-stage biotech innovation is receiving less funding, meaning that the next generation of promising cures could be left on the laboratory shelf.
The importance of supporting biomedical research and innovation and the development of new treatments and therapies in the U.S. cannot be overstated, especially in a time where we are driving towards building a 21st century economy while simultaneously facing increased competition from around the globe to sustain our world leadership in biomedical innovation. We must focus on creating and delivering new solutions to our nation’s most critical and costly public health issues and work towards continuing to improve the quality of life for patients and their families.
We are also facing unprecedented competition from around the globe to be the leader in biomedical research. While America has developed more cures and breakthrough medicines than any other country and is home to over 2,500 biotech companies, this is not a position that will be sustained without continued investment and policies focused on supporting and incentivizing the next generation of biomedical discoveries, treatments, and cures.
Additionally, the U.S. biotech industry is an economic driver, directly employing over 1.6 million workers and supporting an additional 3.4 million jobs, according to Battelle/BIO State Bioscience Industry Development. Emerging companies are the heart of the industry, and SBIR plays a critical role in ensuring that these companies are able succeed and provide the next-generation of medicines to the public.
BIO applauds Congress for making key reforms to the SBIR program to ensure eligibility for innovative small businesses in the biotech industry, and we look forward to continuing to support this vital program.