Summary

Created in 1982 through the Small Business Innovation Development Act, the Small Business Innovation Research (SBIR) program remains the nation’s largest innovation program for small businesses. The SBIR program offers competitive awards to support the development and commercialization of innovative technologies by small private-sector businesses. At the same time, the program provides government agencies with technical and scientific solutions that address their different missions.

Seeking to bridge the gap between basic research and commercialization of resulting innovations, the Small Business Technology Transfer (STTR) program, created in 1992 by the Small Business Research and Development Enhancement Act of 1992, seeks to expand joint venture opportunities for small businesses and nonprofit research institutions. Under the STTR program a small business receiving an award must collaborate formally with a research institution.

The SBIR/STTR programs consist of three phases for which standard amounts of funding are specified:¹

• Phase I provides limited funding (up to $100,000 prior to the 2011 reauthorization and up to $150,000 thereafter) for feasibility studies.
• Phase II provides more substantial funding for further research and development (typically up to $750,000 prior to 2012 and $1 million after the 2011 reauthorization).

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¹NIH and other agencies can and do exercise flexibility in the size of awards to take into account the nature of the technology and to address agency mission priorities.

• Phase III reflects commercialization without providing access to any additional SBIR/STTR funding, although funding from other federal government accounts and other sources is permitted and encouraged.

In FY2014, the Department of Health and Human Services (HHS) awarded $774,065,517 to 1,134 SBIR/STTR projects. Since the beginning of its participation in the program in 1983, HHS has funded 33,797 SBIR/STTR projects totaling $11.1 billion.²

CALL FOR ASSESSMENT

Adopting several recommendations from a 2008 National Research Council (NRC) report, Congress reauthorized the SBIR/STTR programs in December 2011 for an additional 6 years. As a part of this reauthorization, Congress called for further studies by the Academies of the SBIR/STTR programs. In turn, the National Institutes of Health (NIH) requested the Academies to provide a subsequent round of analysis, focused on operational questions with a view to identifying further improvements to the program.

The committee’s findings and recommendations, summarized below, are based on a complement of quantitative and qualitative tools including a survey, case studies of award recipients, agency data, public workshops, and agency interviews. The methodology is described in Chapter 1 and Appendix A of this report.

The survey, designated the 2014 Survey to distinguish it from an earlier survey conducted in 2005, was sent to 1,652 of a total of 3,375 principal investigators (PI) in companies that received a Phase II award from NIH during fiscal years 2001-2010. The remaining 1,723 PIs could not be contacted at the company listing in the NIH awards database. The 1,652 PIs who were contacted, constitute the effective population for this study. From these, 726 responses were received, for a preliminary population response rate of 21.5 percent and an effective population response rate of 43.9 percent.³

This study recognizes that the NIH SBIR/STTR programs are relatively unique in terms of scale, integrity, and mission focus. Therefore, it focuses on the SBIR/STTR programs at NIH and does not purport to benchmark the program with those at other agencies or non-SBIR programs in the United States or abroad. Furthermore, the study does not consider whether or not the NIH SBIR/STTR programs should exist; rather, it assesses the extent to which they

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²Small Business Administration website: https://www.sbir.gov/analytics-dashboard. Accessed on October 6, 2015. The Department of Health and Human Service (HHS) SBIR and STTR programs operate at each of the 24 participating NIH Institutes and Centers (ICs), Centers for Disease Control and Prevention (CDC), Food and Drug Administration (FDA) and the Administration for Children and Families (ACF).

³See Appendix A for a description of the survey methodology.

have met the objectives set by Congress, examines the extent to which recent initiatives have improved program outcomes, and provides recommendations for further improvements to meet program objectives.

FOCUS ON LEGISLATIVE OBJECTIVES

This report assesses the performance of the NIH SBIR/STTR programs against the broad congressional objectives for the SBIR and STTR programs.⁴

For SBIR, these objectives were reiterated in the 2011 program reauthorization and elaborated in the subsequent policy directive of the Small Business Administration.⁵ Section 1c of the Small Business Administration (SBA) SBIR Directive states program objectives as follows:

The parallel language from the SBA’s STTR Policy Directive is as follows:

CAVEAT

This study does not seek to provide a comprehensive review of the value of the SBIR/STTR programs, in particular measured against other possible uses of federal funding. Such a review is beyond the study scope. Our work is focused on assessing

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⁴See Box 1-2 and the discussion of the Committee’s task in Chapter 1 (Introduction).

⁵SBA SBIR/STTR Policy Directive, October 18, 2012.

⁶Ibid., 3.

⁷Small Business Administration, Office of Investment and Innovation, “Small Business Technology Transfer (STTR) Program – Policy Guidance,” updated February 24, 2014.

the extent to which the NIH SBIR/STTR programs have met their congressionally mandated objectives, determining in particular whether recent administrative initiatives have improved program outcomes, and providing recommendations for further improvements.

Thus, this study does not consider whether or not the SBIR/STTR programs should exist—Congress has already decided affirmatively on this question, most recently in the 2011 reauthorization of the programs. Rather, the committee is charged with providing assessment-based findings of the benefits and costs of the SBIR and STTR programs in order to improve public understanding of the program and to recommend improvements to the program.

KEY FINDINGS

The NIH SBIR program is having a positive overall impact. It is meeting three of its four legislative objectives, namely, stimulating technological innovation, using small businesses to meet federal R&D needs, and increasing private-sector commercialization of innovations derived from federal R&D. However, more work needs to be done to “foster and encourage participation by socially and economically disadvantaged small businesses (SDBs), and by women-owned small businesses (WOSBs), in technological innovation.” The committee also finds that the NIH STTR program is meeting its statutory objectives. Key findings about the SBIR/STTR programs are highlighted and cross referenced below. Chapter 8 of this report lists the committee’s findings in full.

Commercialization

• SBIR/STTR projects at NIH commercialize at a substantial rate. Forty-nine percent of SBIR and STTR respondents reported some sales or licensing revenues at the time of the survey, and a further 25 percent expected sales in the future, according to the 2014 Survey. (Finding I-A)
• There is room for improvement: The large number of companies with small-scale revenues suggests that while many companies reach the market, fewer can be described as successful in commercial terms. Despite the high percentage of SBIR/STTR projects with sales, the amount of sales was often small: of those with some sales, 39 percent had sales less than $100,000. Six percent had sales over $10 million.
• For small innovative firms, SBIR/STTR funding makes a substantial difference in determining project initiation, scope, and timing. Seventy-four percent of respondents reported that the project probably or definitely would not have proceeded without SBIR/STTR funding. (Finding I-E)

Fostering the Participation of Women and Underserved Minorities

• Current outcomes data show that the objective of fostering the participation of women and underserved minorities has not been met by the NIH SBIR/STTR programs. (Finding II-A)
• Participation by Black, Hispanic, and Native Americans in the NIH SBIR/STTR programs is low. The 2014 Survey indicates that Black-owned small businesses account for only 0.7 percent of all respondents; Hispanic-owned small businesses, about 1.7 percent.
• Levels of participation by women are also low. NIH data show that 10 percent of SBIR/STTR Phase I awards were to women-owned small businesses (WOSBs) and that these firms receive 12 percent of Phase II awards. However WOSB success rates were persistently lower than those for non-WOSBs for both Phase I and Phase II.

Using Small Business to Meet Federal R/R&D Needs

• The SBIR/STTR programs at NIH support the development and adoption of technological innovations that advance the agency’s mission. (Finding III-A)
• The NIH SBIR/STTR programs continue to connect companies to universities and research institutions. (Finding III-B)
• NIH SBIR/STTR projects generate substantial knowledgebased outputs such as patents and peer-reviewed publications. (Finding III-C)

Fostering Innovative Companies

• The NIH SBIR/STTR programs support the foundation of new innovative firms. Many of the survey respondents reported that SBIR/STTR funding was instrumental in the founding of the company. The formation of new innovative companies is a positive outcome for the program. (Finding IV-A)

Program Management

• The NIH SBIR/STTR programs are managed in a flexible way in terms of application topics, dates, and funding. (Finding V-A)
• The NIH application review system can be improved. Case studies, survey responses, and discussions with agency managers all indicate that, although the system is highly regarded and has many positive characteristics, it is not serving the SBIR/STTR community as well as it could. (Finding V-B)

• NIH Institutes and Centers are pioneering new models of program management (e.g., the National Cancer Institute and the National Heart, Lung, and Blood Institute). (Finding V-C)
• A substantial gap remains between the end of Phase I and the beginning of funding for Phase II. (Finding V-F)

STTR

• STTR is meeting the program objectives defined in the Small Business Administration’s Policy Guidance for STTR. (Finding VI-A)

KEY RECOMMENDATIONS

Address Underserved Populations

• NIH should immediately examine past and current efforts to address the Congressional mandate to foster the participation of underserved populations in the SBIR/STTR programs, examine and report on best practices, develop an outreach and education program aimed at expanding participation of under-served populations, create benchmarks and metrics to relate the impact of such activities. (Recommendation I)
• Quotas are not recommended. It is not recommended that NIH develop quotas for inclusion of selected populations into the SBIR/STTR programs, because of the potential problems that this might entail, such as raising issues of fairness and lack of transparencies with the selection process. At the same time, it is important that steps be taken to improve the current situation. (Recommendation I-A)

Improve Commercialization Outcomes

• NIH should continue to address the challenges that conducting clinical trials pose for to the commercialization of SBIR/STTR technologies. NIH should provide improved support for awardees in meeting the challenges in funding clinical trials. (Recommendation II-A)
• NIH should continue to operate the Phase II B program and consider expanding its size within the context of a more flexible approach. (Recommendation III-A)

Improving Monitoring, Evaluation, and Assessment

• NIH should improve data collection and organization. NIH should collect outcomes data and improve program evaluation, management, and outcomes. This data collection effort should address the entire range of con-

• gressionally mandated outcomes, not only commercialization, and should be extended to other aspects of the program, including demographic data for applicants and awardees. (Recommendation IV-A)

• NIH should take advantage of modern information management and data visualization tools both in its data collection effects, for communication with companies about program activities and operations, and to facilitate networking of program participants. (Recommendation IV-A)
• NIH should improve the utilization of outcomes data. As NIH starts to collect effective outcomes data, it should ensure that these data are systematically employed to guide program management. (Recommendation IV-B)
• NIH should prepare an SBIR/STTR Annual Report to the NIH Director and Congress. (Recommendation (IV-C)

Improving Program Management

• NIH should improve its application review system. In consultation with experts in this process, NIH should convene a high-level task force to improve the consideration of commercial potential in the selection process for SBIR/STTR applications. (Recommendation V-A)
• NIH should address the funding gap between Phase I and II awards. (Recommendation V-B)
• NIH should track and evaluate new program management initiatives. (Recommendation V-C)

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