111^th Congress

Small Business Innovation Research/Small Business Technology Transfer Programs (SBIR/STTR)

S. 177, H.R. 1541 (P.L. 111-10)

Background

The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grant programs at the National Institutes of Health (NIH) and 10 other participating agencies provide an important funding source for U.S. small businesses that help translate scientific knowledge and discoveries into tangible biomedical products that benefit public health. The SBIR program was created in 1982 with two overarching goals: 1) to more effectively meet research and development (R&D) needs of small innovative firms in the United States and 2) to attract private capital to commercialize the results of Federal research. The STTR program was created in 1992 as a pilot program to stimulate partnerships between small businesses and nonprofit research institutions such as universities.

The SBIR grant making process is structured in three distinct phases to achieve these goals. Phase I grants, currently $100,000 per award for 6 months, are feasibility studies focused on a limited amount of research aimed at establishing an idea's scientific and commercial promise. Phase II grants, currently $750,000 per award for 2 years, fund more extensive R&D to further develop the scientific merit and commercial potential of the research ideas. Phase III does not normally involve SBIR Federal funds, but is the stage at which grant recipients should be obtaining additional funds, either from an agency procurement program or from private investors from capital markets. The objective of Phase III is to move the technology to a prototype stage and then into the marketplace while leveraging Federal investments.

The long timeline (8–12 years or more on average) and extremely high costs involved in turning new ideas into marketable products often require small businesses to seek outside sources of funding. Small biotechnology firms, for example, can leverage their SBIR funds by attracting venture capital funding in order to support breakthrough technologies in fields such as gene therapy, proteomics, and pharmaceutical development. In December 2004, the Small Business Administration (SBA), which sets the regulations and guidelines for participating agencies, issued a rule that defines eligibility criteria to allow the participation of small business concerns in the SBIR program that are at least 51-percent owned by another small business concern (e.g., a venture capital company) that is also 51-percent owned by individuals who are U.S. citizens or permanent resident aliens. Furthermore, the small business concern must meet the 500 or fewer employees size standard. Following this change to program eligibility criteria, a number of previously participating SBIR awardees have been deemed ineligible for future SBIR funding. The STTR program is not affected by this rule change.

The SBIR reauthorization of 1992 (P.L. 102 564) doubled the set aside rate to 2.5 percent for SBIR and 0.3 percent for STTR programs. These are the levels at which agencies are currently required to allocate funds from their total extramural R&D budgets. The subsequent reauthorization in 2000 (P.L. 106 554) extended the program authority until September 30, 2008, for SBIR and until September 30, 2009, for STTR.

Reauthorization efforts began early in 2007 in the House of Representatives under the leadership of House Committee on Small Business Chair Nydia M. Velazquez (D NY), who held several hearings and moved H.R. 5819, the SBIR/STTR Reauthorization Act of 2008, to the floor, where it passed by a large majority. As the 110th Congress drew closer to the 2008 presidential election, reauthorization efforts in the Senate failed to advance. (The reauthorization measure, S. 3362, was sponsored by Senator John F. Kerry [D MA].) Instead, the Senate issued a temporary extension for programs under the Small Business Act and Small Business Innovation Act of 1958 until March 20, 2009, codified in P.L. 110 235, also sponsored by Senator Kerry. More recently, a short term extension, P.L 111 10, has extended the date to July 31, 2009.

Note: NIH has received new stimulus funds for fiscal years (FYs) 2009 and 2010 as part of the American Recovery & Reinvestment Act of 2009, P.L. 111 5, signed by the President on February 17, 2009. The Act waived the requirement of the total 2.8 percent set aside for small businesses for purposes of the funding provided to NIH. NIH has designated at least $200 million in FYs 2009–2010 for a new initiative called the NIH Challenge Grants in Health and Science Research, for which all small businesses are eligible and strongly encouraged to apply.

Provisions of the Legislation/Impact on NIH

S. 177, the Strengthening Our Economy Through Small Business Innovation Act of 2009, was introduced by Senator Russ Feingold (D WI) on January 8, 2009. The measure would extend the SBIR program through 2022 and the STTR program through 2023. S. 177 would also increase SBIR set aside allocations to 5 percent by 2010, 7.5 percent by 2011, and 10 percent by 2012. The set aside levels for the STTR program would double by 2010 and then increase to 0.8 percent by 2011 and 1.0 percent by 2012. The measure would also increase the SBIR and STTR award levels for phase 1 and 2 grants to $300,000 and $2.2 million, respectively. Finally, the bill would give greater priority consideration to specific research areas, including those related to energy, security, transportation, and water.

H.R. 1541 was introduced by Representative Velazquez on March 17, 2009, to temporarily extend certain authorities of SBA. The measure was passed by the House on March 17 by a two thirds majority voice vote. This extension provides for the continuation of programs under the Small Business Act and the Small Business Investment Act of 1958, which includes the SBIR and STTR programs, through July 31, 2009. The amendment took effect on March 19, the day before the previous SBA authority extension was due to expire. The measure was passed by the Senate by unanimous consent later that day. On March 20, President Obama signed H.R. 1541 into law as P.L. 111 10.

Status and Outlook

S. 177 was referred to the Senate Committee on Small Business and Entrepreneurship. It currently has no cosponsors and is not likely to be considered in the foreseeable future. No further action has occurred on this legislation.

Representative Velazquez plans to introduce legislation to reauthorize the SBIR and STTR programs this spring and move it through the Committee before the August congressional recess. It is unclear at this point whether Representative Velazquez plans to hold any hearings on the subject.

June 2009