Teaming up: universities and businesses come together in a pilot program to fund innovation

Entrepreneur, August, 1996 by Stephen Barlas

Ed Ledford Jr., president of Zoex Corp., a laboratory instrument manufacturing firm, was debugging a gas chromatograph in his lab in Lincoln, Nebraska, one day in 1989. A GC, as it is known, is used to analyze the chemical composition of mixtures. When Ledford accidentally separated a test mixture of six drugs in six seconds - a process that normally takes @O minutes-he began to think hard about the potential of the GC.

Ledford did a literature search and ran across John Phillips, a chemistry professor at Southern Illinois University, Carbondale (SIUC), who was way ahead of him. Phillips had developed new GC technology. In 1990, Ledford signed a license with SIUC for exclusive worldwide rights. He later sold a sublicense to Hewlett Packard. With the HP funds, some other limited capital sources and their own sweat and blood, Ledford and Phillips tried for four years to transform Phillips, technology into a marketable product. By late 1994, their funds were low and their frustrations high.

Then Ledford applied for a grant from the Small Business Technology Transfer (STTR) Pilot Program. An offshoot of the much larger Small Business Innovation Research (SBIR) program, which began in IN@, the STTR was set up in 1994 as a three-year pilot program. Zoex Corp. and Phillips received an STTR award from the National Science Foundation in late 1994 for $100,000.

With new funding, Ledford and Phillips looked at their problem from a different perspective and finally came up with a viable commercial product. That was partly because Phillips was able to use some of the STTR money for a sabbatical in Ledford's lab. Thirty-three percent of the STTR money goes to the academic investigator to be used at their discretion," explains Ledford. "Having John in Lincoln really worked."

Zoex's Model KT2000 Retrofit Kit is now on the market. The Centers for Disease Control and Shell International Chemical have each purchased one, the U.S. Coast Guard Academy has purchased two.

* REAPING REWARDS

Numerous other small businesses have also reaped what the STTR has sown. During the first two years of the STTR Pilot Program, 436 Phase 1 awards were given, valued at $40.5 million; 22 Phase 2 awards worth $10.7 million were also made. The program's third and last year ends on September 30, 1996. The question is whether the program will be extended.

The House Small Business Committee passed a bill (H.R. 3158) on March 29 that extends the STTR program until 2000. As yet, the Senate has no companion bill. Kenneth Bricker of the Senate Small Business Committee declined to comment on any plans to move legislation in this area.

It is far too soon for most of those 458 Phase 1 and 2 awards to have led to a commercial product, as in the case of Zoex. But the STTR program has received very early reviews. In a recent study, for example, the General Accounting Office (GAO) reported that technical evaluations of STTR research proposals and their commercial potential typically rated both highly.

Not only do federal agencies give the STTR high marks; so do the small companies that benefit from the program. Brian Clevinger, president of Megan Health Inc., a vaccine technology company In St. Louis, has won two STTR grants from the National Institute of Health. He says the grants allow professors to develop commercially viable ideas without having to leave their universities. Small businesses gain, too: "Many small technology companies can't afford high-priced scientists," Clevinger notes.

Under the STTR program, federal agencies with more than $1 billion in external research and development fund, must make a percentage of those dollars available for eligible small businesses. This year. the required percentage was not less than .15 percent; the House bill raises the minimum percentage to .25 percent for the years 1997 to 2000.

To be eligible, a business must have fewer than 500 employees, be Independently owned and operated, be at least 51 percent, owned by U.S. citizens or legal permanent resident aliens, and not be one of the "dominant" firms in its industry.

The STTR program involves two phases. Phase I generally lasts one year, during which an idea's scientific and commercial merit Is established; Phase 2 continues the process and runs for a maximum of two years. Awards are between $100,000 and $500,000 per phase. Phase 2 deals with commercialization or further research and development, and has no time limit. There is no federal funding awarded in Phase

The critical difference between the STTR and the parent SBIR program is that while a university or nonprofit research institution can participate in SBIR, one must participate in STTR. The point of that requirement, according to the GAO, was to provide a strong incentive for small companies and researchers at universities, federal laboratories and nonprofit research institutions to find each other and work together.,

That objective is being accomplished, making continuation of the STTR program something more than academic.