Summary

The National Institutes of Health (NIH) asked the National Academies of Sciences, Engineering, and Medicine to conduct a quadrennial review of its Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, in accordance with a legislative mandate. Using quantitative and qualitative analyses of data, the committee convened by the National Academies to conduct that review produced this report on the operations and outcomes stemming from NIH’s SBIR/STTR awards.

The report documents a detailed examination of the SBIR and STTR programs in compliance with the legislative mandate. Drawing on published research and conducting new analyses based on both publicly available data and applicant data provided by NIH, the committee analyzed (1) the effectiveness of NIH’s processes and procedures for selecting SBIR and STTR awardees; (2) the effectiveness of NIH’s outreach to increase SBIR and STTR applications from small businesses that are new to the programs, from underrepresented states, and from woman-owned and minority-owned businesses; (3) collaborations between small businesses and research institutions resulting from the programs; and (4) a range of direct economic and health care impacts attributable to the programs.

NIH is the largest funder of biomedical research in the world. Its 2020 budget was $46 billion, the vast bulk of which (80 percent) was allocated to extramural research and development (R&D), which funds researchers from universities, institutes, hospitals, and companies. Its most common funding mechanism is the Research Project Grant (R01), awarded primarily to academic researchers. A small portion (less than 4 percent) of NIH’s extramural R&D budget is devoted to NIH’s SBIR and STTR programs, which, among other things, promote technology development in small firms and facilitate the mission of NIH and those of its various institutes and centers (ICs). The two programs represent a critical component of NIH’s mission-specific development of public health innovations, having been instrumental in helping academic laboratory research achieve markers of nascent commercial development, such as patents and early-stage clinical studies.

Overall, the committee found that the NIH SBIR and STTR programs fulfill their broad missions by providing funds for U.S. small businesses to conduct rigorous and commercially relevant life sciences biomedical research and innovation, thereby contributing to U.S. leadership in life sciences innovation. While straightforward, this observation offers insight into both the strengths of the programs and their challenges and choices going forward. While the programs have produced notable outcomes, their complexity and the heterogeneity of their outreach and selection processes translate to challenges, especially in underserved communities.

A body of evidence accumulated over the past two decades documents the significant financial and public health impact of NIH funding, primarily R01 grants, but also the SBIR and STTR grants, which have funded notable technological advances in new drugs and devices. Firms receiving awards under the programs developed many drugs, devices, and trademarks (many of which are products) after receiving their first SBIR/STTR funding. Moreover, the committee’s analyses of the patents reported in NIH’s RePORTER database show that the programs produce at least as many patents per dollar as result from NIH’s R01 program. The similar output of early-stage biotech and medtech innovations resulting from R01 and SBIR and STTR grants provides compelling evidence of the value of the SBIR/STTR programs in this innovation ecosystem, even allowing for the underreporting of patents that the committee identified among SBIR/STTR awardees.

NIH is a complex organization comprising 27 institutes and centers, each with a unique health focus, budget, origin date, and internal organization. Twenty-four of them administer SBIR/STTR awards, each currently setting aside 3.2 percent of its extramural R&D budget for its SBIR program and 0.45 percent for its STTR program. With a combined budget of more than $1 billion per year, NIH’s SBIR and STTR programs are among the federal government’s largest such programs. Still, they operate in many ways as a collection of smaller life sciences innovation programs that vary in significant ways. Although the application and centralized review processes are generally consistent across all 24 institutes and centers, each has its own approach to conducting outreach, selecting awardees, and supporting awardees during their participation in the SBIR and STTR programs.

Although NIH has worked to improve the diversity of its awardees, it still faces challenges in this area. Over the past two decades, NIH has increased its funding to first-time award winners relative to multiple-award-winning firms. First-time award winners are likely to be startup firms with limited access to capital markets that would therefore derive the greatest benefit from the programs. At the same time, evidence suggests the need for caution in striving to reduce the number of awards a firm can receive, because the committee found that firms with the largest number of NIH SBIR/STTR awards achieved the most innovation and commercialization outcomes. NIH has also increased funding for topics related to women’s and minority health issues, but large, persistent disparities in NIH’s SBIR/STTR award allocations to these underrepresented groups remain (with

respect to both owners of small businesses and principal investigators), with little indication of change in this disparity over time. Analysis of STTR awards and patterns of collaboration between small businesses and research institutions corroborates this lack of improvement in diversity measures: STTR collaborations with research partners at minority-serving institutions are rare and have not increased over the past two decades.

The committee’s analysis led to a set of 17 findings and 11 recommendations, listed in full in Boxes S-1 and S-2 at the end of this summary. The discussion below first presents an overview of the study scope and methodology and then highlights 10 findings and 6 recommendations that the committee believes, based on its work, are most important.

STUDY SCOPE

Congress first requested that the National Academies undertake a study of the SBIR program as part of the Small Business Reauthorization Act of 2000. This study mandate was expanded in the National Defense Authorization Act for Fiscal Year 2012, wherein Congress directed agencies with SBIR program budgets of more than $50 million to engage with the National Academies to conduct quadrennial assessments of each agency’s SBIR and STTR programs.¹ The assessments called for in the congressional mandate are expected to examine how the SBIR and STTR programs have stimulated technological innovation, used small businesses to meet federal research and development needs (SBIR), and stimulated technology transfer (STTR). The mandate also calls for several specific analyses and evaluations, including the value and quality of R&D conducted under the programs and their economic and noneconomic benefits.²

STUDY METHODOLOGY AND LIMITATIONS

As noted, the committee based its assessment on a wide range of evidence, both quantitative and qualitative.

The quantitative evidence used for the assessment included such data as (1) SBIR/STTR application data provided to the committee by NIH; (2) NIH’s public RePORTER database; (3) the Small Business Administration (SBA) SBIR/STTR Company and Award Listing; (4) data on Food and Drug

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¹ The National Academies has completed previous sets of studies in response to the legislative mandate. The first was completed in 2009 and included reviews of the SBIR programs at the Department of Defense, National Institutes of Health, Department of Energy, National Aeronautics and Space Administration, and National Science Foundation. The second, produced by a separate committee, was completed in 2016 and included reviews of both SBIR and STTR programs at those same agencies. And in early 2020, a third National Academies committee completed a review of the SBIR and STTR programs at the Department of Energy.

² Section 108 of the Small Business Reauthorization Act of 2000 as amended by the National Defense Authorization Act for Fiscal Year 2012.

Administration (FDA)–approved drugs from the Drugs@FDA database; (5) data on devices from the FDA’s Premarket Approval Applications (PMAs) for Class III devices; (6) data on devices equivalent to currently marketed devices from the FDA’s premarket application clearance (510[k]’s, which represent clearance to market and sell a device in the United States); (7) data on clinical studies from ClinicalTrials.gov; (8) patent data from the U.S. Patent and Trademark Office’s (USPTO’s) PatentsView database; (9) data on trademarks from the USPTO trademark case files; (10) venture funding data from the Crunchbase database; (11) publications data from the National Library of Medicine’s PubMed database; (12) data from the Startup Cartography Project’s (SCP’s) Entrepreneurial Quality index; and (13) data from the General Services Administration’s System for Award Management (SAM.gov). Data from various different sources were compiled, matched, and verified to provide the empirical basis for this study.

The qualitative evidence used by the committee included discussions with program managers from each institute and center administering SBIR/STTR awards and from the Center for Scientific Review (CSR); presentations by personnel from NIH’s Small Business Education and Entrepreneurial Development (SEED) Office; and consultations with researchers, SBIR and STTR award recipients and other entrepreneurs, and venture capitalists specializing in biomedical and life sciences innovation. In addition, the committee used archival data available from the NIH website, such as webinars, publicly available documents, and funding opportunity announcements from the programs.³ The committee looked for descriptive patterns in the landscape of awards, firms, and related geographic and demographic characteristics and descriptive evidence of program impacts on collaborations, and conducted its own analyses of direct program efforts on innovation and commercialization.

One of the challenges of assessing commercialization with respect to the SBIR and STTR programs at NIH or elsewhere is the difficulty of systematically observing links between federally funded R&D and any commercialization outcomes. The difficulty lies in the long lags between research and ultimate impact; the wide diffusion of distribution of benefits across multiple firms and industries, not just those that received the funding; and the challenges of measuring other spillovers.

Although NIH maintains a systematic dataset with information on publications, patents, and clinical trials in the RePORTER database, the committee found this database incomplete compared with other government data sources. In particular, the committee found many patents missing from the RePORTER database that had been reported in the government interest statement for a patent application with the USPTO. This gap made the assessment of

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³ Information in the report that is based on the NIH SBIR/STTR program websites may not in some cases be consistent with the current sites, which were revised in November 2021, after the committee had completed its assessment. This footnote was added to the text after a prepublication version of the report was provided to NIH.

innovation and commercialization outcomes difficult. Additionally, the committee could not obtain access to a sufficient level of granular data, such as internal scoring for any of the SBIR/STTR applicants, to allow for a more comprehensive assessment of the programs, which limited the committee’s ability to determine differences in commercial success between awardees and unsuccessful applicants.

KEY FINDINGS

The committee developed 17 findings based on the available evidence, 10 of which it considers key. The first set of key findings relates to the effectiveness of the SBIR/STTR programs in fulfilling their missions of stimulating technological innovation, increasing private-sector commercialization of innovations derived from federal R&D funding, and meeting R&D needs central to NIH’s mission to spur public health innovations. In both its quantitative and qualitative analyses, the committee found that NIH’s SBIR and STTR programs are linked to firms that play a significant role in the overall life sciences innovation system and produce meaningful early-stage research and innovation output, most notably clinical trials and patents. Overall, since the grants were first offered, 8,300 awardees have been linked to at least 99 drugs, 34 PMA devices, 2,475 510(k)’s (FDA clearance to market and sell a device in the United States), and 8,974 trademarks.

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⁴ The committee’s findings and recommendations are numbered according to the chapter and the order in that chapter in which they appear. Thus Finding 3-7 is the seventh finding in Chapter 3.

The committee also found that increased funding allocated to an institute’s or center’s SBIR/STTR programs would generate future outcomes in the form of publications, patents, trademarks, clinical trials, and drug approvals at a rate consistent with that of federally funded innovation outcomes. The marginal program costs indicate how much funding is necessary to spur one more outcome (recognizing that the SBIR/STTR money is only part of the financing that gets these firms to these outcomes). The implied marginal program cost of publications, patents, clinical trials, and drug approvals is $715,000, $1,530,000, $2,530,000, and $368,900,000, respectively.

The committee found that significant health care innovations were associated with funded firms. When the focus was limited to firms applying for the first time to the NIH SBIR/STTR programs, however, and after controlling for the growth potential of firms (measured using data before their application to the SBIR/STTR programs), the committee found no statistically significant difference in outcomes between those firms that received an SBIR/STTR award and those that applied to the program but were not funded during that application cycle. As a result, the committee was unable to determine how much of the increase in outcomes found for SBIR/STTR-awarded firms was due to selection by the NIH SBIR/STTR programs (i.e., funding of higher-quality firms) versus causal effects of the program (i.e., funding that led to outcomes that would not have occurred in the absence of those funds).

These findings do not mean that SBIR/STTR awardees did not produce significant innovation outputs. Indeed, as highlighted in Findings 5-1 and 5-2, SBIR/STTR awardees did produce significant innovation outputs on many dimensions compared with the other applicant firms. Instead, this result is consistent with the idea that, given the high selectivity for an SBIR/STTR award, unfunded firms similar in quality to funded firms were able to attract or obtain resources (e.g., from other federal agencies, venture capital, or state-level grant programs) that allowed them to produce meaningful innovation outputs.

Other findings, articulated below, are related to NIH’s SBIR/STTR programs’ outreach and success at attracting applications from women and

underrepresented minorities. Such efforts are important because women and minorities may have less access than others to alternative sources of capital or funding. However, outreach from the SBIR/STTR programs to underserved groups is not coordinated, and there has been little improvement in the share of applications from or awards to these groups in the past 20 years.

Although firms funded by the SBIR/STTR programs have produced a considerable number of clinically important biomedical innovations, the committee also found that several processes and programs could be improved, particularly with regard to review, selection, and commercialization assistance processes, as articulated in the following two findings. NIH’s current system for reviewing SBIR and STTR awards is based on its system for evaluating its R01 awards and is heavily focused on the science behind the proposals submitted. It is also important, however, for SBIR/STTR reviewers and staff to understand the needs and readiness steps for product development; quality systems; regulatory requirements; critical manufacturing; and the packaging, delivery, and storage of a clinical product—all of which must be addressed ahead of a product’s commercialization.

KEY RECOMMENDATIONS

Based on its findings, the committee formulated 11 recommendations intended to help NIH and Congress continue to strengthen the SBIR/STTR programs. Six of these recommendations stand out as key to improving the programs’ ability to fulfill their stated missions and goals.

The first two recommendations are designed to help improve NIH’s application and award rates among underrepresented communities.

In addition to improving information on NIH websites and leveraging existing networks, the committee recommends more outreach to minority-serving institutions. In particular, increasing the number of reviewers from such institutions could help promote awareness of the programs and their mechanisms.

The next two recommendations are focused on enhancing NIH’s commercialization focus and potential, especially by improving the time frame for making awards and the relevant expertise of reviewers and program managers. SBIR/STTR review and selection processes are lengthy compared with those of other federal agencies. As discussed above, the SBIR/STTR programs across the institutes and centers are extremely different, with differing award amounts, time frames, selection and review processes, and commercialization assistance. On the one hand, this customization may aid in meeting the needs for different diseases. At the same time, these differences mean that life sciences innovators, especially those new to NIH, can have difficulty navigating the different requirements when searching for the appropriate institute from which to seek funding. For example, an innovator with a proposal for a new therapeutic for childhood leukemia may be attractive to several institutes and centers—from one focused on cancer, to one focused on blood diseases, to one focused on childhood diseases, or even a center focused on translational sciences—all of which have different amounts budgeted for awards and different rules for what they fund.

Undertaking a pilot with standard funding amounts and timelines, perhaps focused on proposals targeting areas of highest health impact, could help applicants new to the SBIR/STTR programs, free up time for program managers to devote to outreach to new applicants rather than specifics of the application process, and shorten the time period for notification of awards. NIH’s time from application to funding is also out of alignment with the needs of small businesses focusing on innovation. Access to financing is essential to the growth of small businesses, and more rapid selection and funding could positively impact a firm’s job growth and valuation. Congress has noted the need for more timely selection and award processes in some agencies.

At the same time, the expertise on review panels used by CSR and review criteria set by Congress may not be sufficient to achieve the statutory purpose of

the SBIR/STTR programs of increasing private-sector commercialization of innovations derived from federal R&D. And except for those relatively rare cases in which an institute or center used program announcements with special receipt, referral, and/or review considerations, the CSR review does not appear to address institute/center needs and priorities. In general, the review criteria used to evaluate SBIR and STTR awards are the same as the criteria used for R01s. But R01s are geared toward health-related research, and the review criteria and expertise of reviewers for those grants may not be consistent with what is needed to review awards for commercialization of health-related technologies from innovative small businesses. While NIH SBIR/STTR awards provide a signal of scientific validation, the review criteria and expertise for selection decisions need to address the translation of science into marketable products and services to achieve the programs’ congressional objectives. Reviewers are much more likely to come from academia than from industry, and program staff are unlikely to have business degrees or experience.

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⁵ After a prepublication version of the report was provided to NIH, this sentence was added to the recommendation to emphasize that there is a legislative alternative to NIH’s reclassifying the SBIR/STTR grants as small business innovation awards, as discussed in Chapter 3.

The committee’s final key recommendations are related to improving SBIR and STTR databases by adding information that would be helpful for future evaluations.

First, although NIH’s RePORTER database provides uniform and accessible data, it could easily be improved by linking awards to other government databases as a means of filling in missing data.

In addition, other information needs to be made available to facilitate evaluation of the impact of the SBIR/STTR programs. This can be accomplished by requiring that additional data be maintained in both the public and government databases for SBIR and STTR awards.

FINAL THOUGHTS

Although a core competency of NIH lies in the ability of its staff and reviewers to understand the state of the art of biomedical science, as well as its trajectories, the timeliness of the SBIR/STTR selection process may not be adequate for many biotech startups. The receipt of NIH funding is an important and unique signal for young firms indicating that their work has scientific and technical novelty. It may be possible, however, for this core competency to be better connected to the commercial prospects of young firms. Many, if not most, private investors for small firms lack the ability to assess a new firm’s scientific and technical development. However, they have expertise in assessing the fit between a firm’s products and potential customers and the potential size of the market, and helping firms professionalize and grow. The committee is recommending a number of changes to NIH’s SBIR and STTR programs that would help bridge the gap between the agency’s core competencies and the collaborators, partners, consultants, and investors whose involvement the majority of biomedical firms will need to bring their products and services to market.

The SBIR/STTR programs follow the processes used by NIH for awarding R01 grants, using the same review criteria. Although those processes and review criteria help in selecting awardees with the best science, they may omit important commercialization considerations, as well as leave the SBIR/STTR programs open to the challenges facing the R01 program, which has seen racial and gender disparities in funding. To meet the latter challenges, the committee is recommending a number of ways to promote outreach to and select and review applications from underserved and underrepresented groups, which could not only encourage a broader set of participants but also bring attention to products with commercialization potential.

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⁶ After a prepublication version of the report was provided to NIH, this sentence was added to the recommendation to emphasize that there is a legislative alternative to NIH’s reclassifying the SBIR/STTR grants as small business innovation awards, as discussed in Chapter 3.

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