An Introduction to Federal Funding for Innovation

An Introduction to U.S. Federal Funding for Healthcare Innovation

September 8, 2021 – By Amrika Ramjewan, Principal Strategist – Mayo Clinic Innovation Exchange

Each year, U.S. government agencies with extramural research and development (R&D) budgets invest in federal funding programs designed to stimulate technological innovation and foster entrepreneurial activity. Coordinated by the U.S. Small Business Administration (SBA), these federal funding programs are accessible via a competitive award process through major research agencies such as the National Institutes of Health (NIH), Department of Defense (DoD), and National Science Foundation (NSF).

Entrepreneurs seeking to advance research and bring their innovations to market have the opportunity to compete for these funds and access a wealth of support from these agencies. Through 2019, over 179,000 awards have been granted totaling over $54.3 billion in investment by the federal government.

Jon Zurn, director of the Strategic Funding Office for Research at Mayo Clinic, spoke with the Exchange’s members about the variety of federal funding options available, how the non-dilutive granting process works, and the resources available to entrepreneurs.

Q: Can you share an overview of the types of federal funding programs available to entrepreneurs?

JZ: The U.S. Small Business Administration (SBA) coordinates non-dilutive, research innovation funding programs to assist entrepreneurs and small businesses with planning and conducting R&D activities and advancing their products and technologies through validation and commercialization. Two types of grants are available including the Small Business Innovation Research (SBIR) award and the Small Business Technology Transfer (STTR) award. These awards focus on R&D, stimulating technological innovation, and increasing private-sector commercialization of innovation derived from federal R&D funding.

SBIR funds are offered by 11 federal agencies and divisions within these agencies including the National Institutes of Health (NIH), Department of Defense (DoD), National Science Foundation (NSF) and the Environmental Protection Agency (EPA), among others. The funds are intended to assist small businesses with conducting principal investigator-led R&D on their own or with subcontractors, with the expectation that a majority of the work will be completed by the small business.

STTR funds are offered by five federal agencies, including the Department of Health and Human Services (HHS, and its constituents NIH, FDA, CDC, and ACL). The funds are intended to facilitate collaboration and foster technology transfer between small businesses and non-profit research institutions. The government recognizes that small firms often don’t have the research resources and infrastructure to complete early-stage R&D, and that there is tremendous value in partnering with large, research-intensive institutions to bring innovations to market.

Both awards are non-dilutive sources of funding, meaning that the government takes no interest or equity stake in your business. Recipients of these funds are expected to fulfill the reporting requirements laid out by the awarding federal agency, and all intellectual property is owned by the small business (except in special circumstances).

Q: What can the funds from these programs be used for?

JZ: SBIR and STTR grants are intended for performing R&D. Purchasing equipment, commercializing a technology that has already been developed, or pursuing a low-risk idea that requires capital will typically not be funded by these programs. Before applying, it’s best to consult with an agency’s program officer to make sure your idea meets the R&D criteria.

Award solicitations for these grants, called an Omnibus or Parent Announcement, are published by the NIH three times each year — in January, April, and September. Each participating NIH institute and center (I/C) has its own research priorities. It is important to understand how these priorities align with your projects. Additionally, targeted solicitations for specific needs may also be published, but these are not released on a regular cycle. Other federal agencies tend to post opportunities throughout the year.

Funding for each award is focused on distinct phases. In Phase I, the objective is to establish technical merit, feasibility and commercial potential prior to seeking Phase II funding. Phase I SBIR/STTR awards normally do not exceed $150,000 in total over six months (for SBIR), or over one year (for STTR) — with some exceptions.

In Phase II, the funding is based on the results achieved in Phase I, with the possibility of funding through Phase IIB. Phase II awards normally provide up to $1,000,000 in total over two years. However, exemptions may even be granted for approved research areas that may extend the award ceiling up to $1.7 million for Phase II.

Phase III research on the path of commercialization is not funded by SBIR/STTR. However additional, late stage development federal dollars are available through programs such as the NIH’s Commercialization Readiness Pilot (CRP).

Q: Who is eligible for these funds?

JZ: Small, for-profit business organizations that are U.S. concerns, and operating primarily in the United States with a U.S.-based location are eligible to apply for SBIR and STTR dollars. The small business, including its affiliates, must have no more than 500 employees, and must be more than 50% directly owned and operated by one or more individuals who are citizens or legal permanent residents of the United States. Small businesses that are subsidiaries of larger companies are not eligible.

However, if a small business is majority-owned by multiple venture capital operating companies (VCOCs), hedge funds, or private equity firms that each meet small business size criteria, it is eligible to apply for an NIH SBIR funding opportunity. These grants are also not designated for large institutions, universities, or non-profit organizations.

Foreign (non-U.S.-based) firms may access SBIR and STTR dollars through two avenues — either as a subcontractor to a U.S.-based firm, or by having a U.S. location where the work for which the funds being sought will be completed. That is, all grant dollars must be spent in the U.S. For example, if a foreign firm owned by a U.S. legal permanent resident were to receive a three-year grant for $100,000, all of the funds must be spent in the U.S. to complete the research.

For SBIR grants, subcontracting is limited to 33% of the total effort in Phase I of the project, and 50% of the total effort in Phase II. Also, the principal investigator (PI) leading the research must be employed by the small business seeking the funds. This means that the PI will be unable to work elsewhere during the project period, as more than 50% of their time must be spent in service to the small business.

For STTR grants, 40% of the work must be completed by the small business, and 30% by the collaborating research institution (RI). The remaining 30% may be completed by the small business, or outsourced to either the RI or another subcontractor. The PI may be primarily employed by either the small business or the RI. Co-investigators may be affiliated with either the small business, or the RI, or they may serve as consultants — however, this is dependent on any restrictions that may be set by the funder.

Any organization located in the U.S. that is a university, non-profit institution, or contractor-operated federally funded research and development center (FFRDC) is eligible to collaborate with small firms on STTR projects.

Q: What resources are available to entrepreneurs and small businesses interested in seeking funding through these programs?

JZ: There are a tremendous number of online resources, tutorials, as well as local SBA affiliates in every state. Many agencies provide applicant assistance programs for businesses interested in applying for SBIR and STTR grants, and technical support staff provide good, free advice — remember, they are there to help.

The National Institute of Allergy and Infectious Diseases (NIAID) publishes sample applications, as well as many useful templates for preparing proposals. Agencies such as the NIH and NSF offer Innovation Corps (I-Corps™) programs, which offer more in-depth support, including funding, mentoring, and networking opportunities on a team’s journey towards commercialization.

The realm of finding funding and development opportunities can seem complicated, but once you’re in it, the ecosystem is quite exciting, with many resources available to help you navigate.

Q: What breakthrough innovations in healthcare delivery or technology excite you most?

JZ: Artificial intelligence (AI) is already a burgeoning field and seems to be growing daily. It’s being applied in nearly every corner of biomedical research and healthcare, from mechanistic studies to improving staffing workflows. It’s also ripe for multidisciplinary collaboration, including small businesses with specialized skills or AI technologies.

Federal agencies are increasing their AI investments, including a plan to stand up an entirely new $6.5 billion office at NIH, the Advanced Research Projects Agency for Health (ARPA-H). The goal is to build high-risk, high-reward capabilities (or platforms) to drive biomedical breakthroughs. This includes achieving viable products and market feasibility. Undoubtedly, small businesses will be welcome in this new arena.

I’m excited, too, about microbiome research, which is an interest area to not just the NIH, but 15 other federal agencies as well. The biome is another new frontier in medicine that we’re now learning plays a role in numerous diseases. Like AI, we’re finding application of microbiome research in a wide span of applications, including unlocking molecular secrets, developing biomarkers, creating therapeutics, and improving lifestyles.

This is such an exciting time to be involved in medical research.

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