Government backing specifically incentivizes biotech R&D.

Terence Chea, September 28 2001, “Government Grants Boost Biotech Firms,” The Washington Post, https://www.washingtonpost.com/archive/business/2001/09/28/government-grants-boost-biotech-firms/381f032f-3996-42dd-b85d-1a8e88cf1355/

At a time when investors are skittish and private capital is scarce, Panacea Pharmaceuticals Inc. is seeking help from an unlikely source: the government.

The two-year-old Rockville start-up is using a $107,000 federal grant awarded in July to research a potential treatment for Parkinson's disease. Panacea has applied for four more grants and plans to apply for several others to pursue its research.

"Given the market, the search for government grants has become an important component of our funding strategy," said Kasra Ghanbari, Panacea's chief operating officer. "It allows us to continue to develop our technology pipeline without diluting the financial story of the company."

The biotechnology industry raised billions from private investors and the stock market in recent years, but the climate has changed. More biotech companies now are turning to government grants to research potential therapies, diagnostic tests and other biotechnologies.

Although such grants are rarely enough to finance a product's complete development, they help companies conduct early-stage research and stay afloat while they wait for market conditions to improve.

"Government funding can provide companies the money they need to keep going until they can gain private-sector financing," said Monica P. Medina, a lawyer at the Washington firm Heller Ehrman. She helps local biotech firms find and apply for government grants.

Federal funding of private research is not new. Some of Maryland's more established biotech companies, such as MedImmune Inc. and Martek Biosciences Corp., supported their research programs with grants when they were start-ups in the 1980s.

But government grants are becoming a more important and reliable source of money in a difficult financing environment.

Government grants provide many benefits and few drawbacks, local executives say. Unlike venture capital, public stock offerings or corporate partnerships, government grants do not require owners to give up equity, future royalties or product rights. Grants don't need to be paid back. And the government doesn't interfere with a company's management or ask for a seat on its corporate board.

"The government's focus is on small business, job creation and research," Medina said. "It's helping to finance the research that will bring cures to all the disease that society faces. They're not in it for the profit, and that gives them a different perspective and different goal."

Confidence-Builder

For biotech start-ups, winning government grants means credibility. Investors often feel more confident in a start-up if government scientists have evaluated a new technology and found it promising enough to fund.

Government grants are especially important to small research firms such as Cell Works Inc., a Baltimore firm founded in 1996 with 33 employees. The company has won more than $1 million in grants from the National Cancer Institute, Department of Defense and National Science Foundation to conduct early-stage research on its cancer detection tests and drug-delivery technology.

"It's validation," said Alan Cheung, Cell Works's executive vice president. "It helps us raise money and further develop our technology into applications."

Many companies use grants to evaluate early-stage technology that investors may not be willing to fund.

Panacos Pharmaceuticals Inc. , a Rockville startup founded two years ago, has raised $3.25 million from venture capitalists, but the nine-employee company has also won several grants to advance research on potential anti-HIV drugs and vaccines.

"It enables you to get funding for programs that are higher risk," said Graham Allaway, Panacos's president and chief executive. "It's clearly a way of raising funds to move things forward faster and expand our discovery efforts beyond what would be possible through venture financing."

Public companies also take advantage of government grants. Rockville-based Bioqual Inc., which is traded on the Chicago stock exchange, announced yesterday that it won a two-year $739,000 Small Business Innovation Research grant to study genes related to Alzheimer's disease in chimpanzees.

Cel-Sci Corp. of Vienna, which spends most of its money on costly clinical studies for its experimental cancer drug Multikine, depends on grants to conduct studies of its delivery technology for a herpes simplex virus vaccine.

"If we didn't have access to those funds, that technology basically wouldn't be developed, or the efforts would be so minimal that it would take forever," said Douglas Winship, Cel-Sci's senior vice president of regulatory affairs and quality assurance. "It helps us develop the technology to the point where we might be able to interest licensing partner or take it to the clinic."

Local firms are applying for research grants from federal agencies such as the National Institutes of Health, NASA, the Environmental Protection Agency, and the departments of defense, energy, agriculture, transportation and commerce. The Maryland and Virginia state governments also provide research grants.

The most common type of federal grants are Small Business Innovation Research (SBIR) grants and Small Business Technology Transfer (STTR) grants, which support private research that could benefit the public and spur economic growth. These grants typically run from $100,000 to $1 million.

The National Institutes of Health in Bethesda, one of the largest distributors of federal research grants, set aside about $435 million of its $20 billion budget for such grants this year. Last year, the NIH awarded 1,375 SBIR and STTR grants, according to JoAnne Goodnight, who coordinates the NIH's SBIR and STTR programs. Most grant recipients have fewer than 40 employees and about one-third haven't received NIH funding before, Goodnight said.

Government's Stake

Government agencies are under increasing pressure to work with industry to develop scientific discoveries into commercial products. So they have set aside a percentage of their annual budgets to sponsor private research.

Government agencies often have a stake in the projects they sponsor. Take Antex Biologics Inc., a Gaithersburg company that is developing a vaccine to combat traveler's diarrhea, a major problem for troops fighting overseas. "If you're experiencing bad diarrhea, you can't fight the enemy," said Stephen Keith, the company's president and chief operating officer. "It's a major problem around the world."

Antex has grants from the Army and the Navy to study various vaccines to fight the bacterium that makes travelers sick. If the vaccine is approved, the company plans to sell it to the armed forces.

While the government is good at generating basic scientific discoveries, private companies are better at turning those discoveries into products, Keith said.

"It's a good marriage," he said.