Federal programs provide early-stage money for bio-tech projects

As venture capitalists and angel investors continue to demand increased results and development before handing out cash, biotech startups across the state are looking to federal and state programs to bridge the gap.

That’s where Robert Brooke, director of deferral funding programs at Virginia’s Center for Innovative Technology, enters the picture. CIT is a state-supported non-profit that works to close funding gaps, helping companies with innovative ideas or products reach the stage where they can win federal grants from agencies like the National Institutes of Health or attract outside investment.

Brooke led a panel discussion about winning federal grants at Thursday’s Greater Richmond Bioscience Luncheon, organized by the Virginia Biotechnology Association.

The two largest federal grant areas funnel through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Both feature grants from numerous agencies, including the NIH, the Department of Defense, the National Science Foundation and NASA.

Greg Fralish, president and CEO of iTi Health Inc., helped form the Charlottesville-based company about a year ago. Fralish and his co-founders are developing a product that would help with earlier detection of pancreatic cancer, a disease with a five-year survival rate of just 4 percent.

“We had the product idea but needed money to do clinical trials,” he said during Thursday’s panel discussion. “So we raised angel money and an SBIR grant for a total of about $1.5 million.”
One challenge of using the federal SBIR and STTR programs is that different agencies have different goals. The Defense Department is often searching for a specific solution to a problem; they want to fund a low-risk, high-impact product that could reach the market (and start saving lives) within two or three years.

The NIH, in contrast, is more willing to take on higher-risk, higher-reward projects that may not have an immediate route to commercialization. But a long-term commercial opportunity is usually the key to a grant, according to Crystal Icenhour, president and chief science officer at Phthisis Diagnostics, a biotech research and development company in Charlottesville.

“You must constantly reinforce that this is a commercially viable product,” she said. “Show that you’ve [taken past products to market] and that you can do it with this one. If you don’t include that sort of information you won’t get a good read from proposal reviewers.”

Once the business has the federal grant and is getting good feedback, it can leverage that with private investors. Fralish said his company took positive feedback from the SBIR program and showed it to potential private investors. That feedback from the government review helped smooth the way for private funding.

A leading challenge with the government grants is the uncertain time-frame for approval. If a proposal requires multiple amendments and re-submissions, it can take two or more years from the time work starts to the time the grant money hits a company’s bank account. On the flip side, Icenhour’s company recently got its grant approved far faster than expected, forcing it to scramble to ensure it was ready to begin work.

“I learned you can’t delay or defer the money,” she said. “You either take it then or lose it.”
Nee-Yin Chou has been through the federal grant process dozens of times in her role leading CW Optics, a company based on the Virginia Peninsula. She said that it is sometimes easier to get approval on projects near the end of the federal fiscal year (Sept. 30), but that there are no guarantees.

“As time has gone by, I’ve learned that after submission you should just put the project aside and start on the next one,” she said. “We have lots of ideas, so don’t wait around for just one.”
Though Icenhour and Fralish said they generally stick to products with obvious commercial applications and relatively low development risks, Chou said entrepreneurs shouldn’t shy away from a high-risk project.

Chou said the trick to winning investments — from a federal agency or a venture capital firm — is to start small.

“We ask for a small amount of money in phase 1 [the earliest round of studies] and go to bigger amounts and bigger grants after we can show some results.”

By: Jacob Geiger
Work It, Richmond