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| NIH to the rescue | Published by: Globes
www.globes.co.il
Aviva Mishmari
24/07/2003
| Israeli biotechnology companies having trouble raising money until the recession passes can try their luck among US government funds.
At a time when Israel's biotechnology industry is "out for the count" as FreeMind Business Promotion Consultants CEO Eyal Schmidt puts it, there might be new ways for companies to get the financing they need to reach their goals.
FreeMind specializes in helping companies obtain government incentives. It is now trying to help Israeli biotechnology companies find a new source of research grants in addition to those of the Office of the Chief Scientist. The proposed alternative is much more expensive and frighteningly difficult. It is US federal government funds from the National Institutes of Health (NIH), Defense Advanced Research Project Agency (DARPA), and other agencies. Schmidt is trying to convince Israeli companies that the US is a possible source of grant money.
The NIH grant budget in 2002 was $17 billion. Over half the NIH tenders are open to foreign companies, although one of the conditions for financing a foreign company is that similar and/or identical research is not being conducted by a US company. "The Israeli CEO usually knows about other companies and researchers around the world," says Schmidt, "and knows how to differentiate himself from them. This could be the key for obtaining financing."
To date, FreeMind has submitted "fewer than ten" grant applications by Israeli companies. Some are hoping for positive answers any day now. Besides Savient Pharmaceuticals (Nasdaq:SVNT) (formerly Bio-Technology General), which announced an NIH grant this week, there are no Israeli applicants for grants today. "I know of many companies whose grant applications were turned down," says Schmidt. "Israelis sometimes think they know how do everything by themselves."
One might think that Israeli companies have to cope with greater problems than applying for grants. Their circumstances proscribe big plans. Besides, in the case of the Chief Scientist, a contract only comes into effect when its budget is transferred. With the NIH, a company has to implement its plan the day its grant is approved.
Sometimes, says Schmidt, there is a tender perfectly tailored for a company, but the company doesn’t know if it will even exist in another two weeks. "It's sometimes hard for a company to pay $1,000 a year for a subscription to a database. Then there are companies that appear suitable, but when I ask them, 'What will you be doing in another year?', the CEO tells me, 'I don't plan that far ahead.' Companies must know how to invest for the future."
This involves effort and financial risk. It is not necessary to repay NIH grants, just to invest time and effort. A lot of time and effort. Four to eight weeks preparation work is necessary for submitting a grant application, and tender bids are always sent back for amendments. A company will repeatedly apply and amend its grant applications, and usually succeeds only at the third attempt. The grant application is a 30-page technical document that has to explain the proposal, methodology, and goals.
Every grant applications undergoes three examinations. First, the application is checked to see if was written according to the regulations governing type of paper, font, etc. The application is then screened by different departments to see if there is a match between requirements and response. Only if it passes this test is the application sent to a science committee for peer review. The application is graded on a score between 100 and 500, with 100 the highest mark.
A grade of 100-150 is awarded for extraordinary research; 150-200 is considered excellent; and 200-250 is a very good grade. After grading, the company revises its application in line with the NIH's comments, and resubmits it. Financing comes only at the end of this exhausting procedure. "If you know what to expect in advance and how they are going to examine you, you'll have the right attitude," says Schmidt.
What is the NIH looking for? First, it looks at the degree of innovation and promise in the research. The key question is to what extent has the NIH not previously funded the exact research. The NIH then looks at the researcher's track record, pertinent publications, and whether he or she is a world leader in the field. The academic world is a small one, and most of the grant reviewers know the researcher. In cases of grant applications for more than $500,000, the NIH sets up 3-4 member peer review committees.
Schmidt emphasizes that scientific writing is important to the NIH. The NIH also checks the applicant company's ability to achieve its stated goals. The entrepreneurs must explain where they are and where they want to go. The NIH places particular emphasis on the researcher's professionalism and how much detail is provided. Finally, the company's financial resources account for 10-15% of the grant application's final grade. "The NIH wants to know that you're serious," says Schmidt.
For which companies is an NIH grant not suitable? Biotechnology companies that are not proposing innovative R&D are out of the running. On paper, says Schmidt, over 100 Israeli companies could be candidates for an NIH grant, but in practice only 40 are suitable.
Suitability is not necessary related to a company's life cycle. Although the NIH wants to see a product, not a raw concept, it might approve advanced-stage inventions. The number of employees at a company is probably irrelevant, but sufficient cash reserves for nine months until a grant is approved or rejected, is.
Schmidt stresses that a company should not apply to the NIH at any cost. A grant application should fit in with the company's growth strategy. "The grant application should be something planned for from the outset, not something dreamed up because the NIH exists. There are companies already conducting clinical trials, but don't know how things will develop. You can't apply for a grant while you're trapped in a financing round or in the eye of a storm, and start investing in R&D. It doesn’t work."
The NIH has 27 independent departments that collaborate. The grant application process described above sound very bureaucratic, but Schmidt can testify that it is astonishingly efficient. "They respond to e-mails within 90 minutes to two hours. They're very efficient and cooperative," he says.
In addition to publishing tenders, the NIH also accepts research proposals and publishes research applications on specific topics. There are three financing periods a year, each amounting to $200-300 million, in February, June, and October. Schmidt estimates that 15% of the money is allocated to entrepreneurial research proposals, 5% to academic research, and 80% to industry.
"With each publication, the NIH fills a gap for industry research," says Schmidt. "In order to identify what's needed at the moment, it's necessary to analyze the demand environment, understand the current knowledge at the NIH, and what it needs. We respond to information in the field and map needs to know what the NIH is interested in."
The large proportion of NIH grants awarded for industrial research should not be taken for granted. "The current US administration wants the free market to set the direction," says Schmidt. "As if to say, 'Let them make the effort and we'll do the rest'. There is greater contact with industry, and it is getting a greater budget."
R01 is the most respected among the NIH research grants, designed for 3-5 year research programs with commercial applications. Grants can total several million dollars. R21 grants are designed for scientific research, with grants of $250,000-300,000 a year. Most researchers try to get R01 grants.
Schmidt says there is now a third type of grant, R33, which blends the other two types. "This is a program designed to get you moving. Nevertheless, you still have to submit a new application each year. You must take care to be completely open with the NIH. If you agree to cooperate with them and can show progress, they stick by you even if something fails or milestones are postponed, so long as they know why."
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