Washington Editor

WASHINGTON - A new report from the Government Accountability Office found that venture capital-backed biotech firms received an increasing share of Small Business Innovation Research (SBIR) awards between 2002 and 2004, contrary to arguments that those types of companies have been missing out.

But the conclusions from the GAO report were drawn from the wrong data, some said. The analysis examined the distribution of SBIR grants before and after the Small Business Administration (SBA) reinterpreted eligibility requirements to preclude companies that are majority owned by venture firms from receiving the awards.

"Suffice it to say, this report has a lot of problems," said Lauren Choi, the director of capital formation policy for the Biotechnology Industry Organization. "They studied apples, but they drew conclusions about oranges."

That's partly because the reinterpretation of eligibility requirements that has led to a restriction in those grants wasn't put into practice until 2004, even though the clarification was made in 2002; the GAO looked at grants for two years before and after 2002. Also, the findings are difficult to quantify because the GAO did not distinguish between companies that had majority or minority venture backing.

"The data presented in the report have no bearing on program eligibility," concluded the SBA's Karen Hontz in a letter to the GAO, adding that as a result, the analysis of SBIR eligibility is "unclear and potentially misleading."

Choi told BioWorld Today that the GAO should have looked at numbers from 2005 to capture data sought by those who requested the report: Sens. John Kerry (D-Mass.), Edward Kennedy (D-Mass.), Mike Enzi (R-Wyo.), Olympia Snowe (R-Maine) and Rep. Don Manzullo (R-Ill.).

The GAO analysis showed that firms backed by venture investments received an increasing share of total dollars awarded by both the National Institutes of Health and the Department of Defense. Among NIH awards, in the two years prior to the 2002 clarification, firms that received any amount of venture backing were awarded about 14 percent of total SBIR program funds, and in the two years following the clarification, their share had increased to about 22 percent.

Of note, a response letter from the NIH was not included in the GAO's report, although the DoD and SBA responses were attached to the final copy.

Two bills seeking to restore SBIR eligibility to biotech companies with majority venture backing remain under consideration, S. 1263 and H.R. 2943. The former was introduced last year by Sen. Kit Bond (R-Mo.), and the latter was introduced by Rep. Sam Graves (R-Mo.).

Choi said BIO is hoping they "would see some daylight" as part of a bill to reauthorize the SBA, a measure to be considered in the coming months.

GAO Also Critical Of FDA

Another recent GAO report said the FDA is failing on the drug safety front.

More specifically, the analysis found that the agency lacks the ability to manage safety issues after products are approved for marketing. Of concern is the FDA's relatively new drug safety office, which is housed within its Office of New Drugs.

The safety division's apparent lack of independence from the approval division has been a source of outside criticism from the moment of its inception.

Nevertheless, the agency has resisted proposals to position the safety group elsewhere.

Almost coincidental to the fresh criticism, the FDA made a safety appointment in naming Paul Seligman its associate center director for safety policy and communication in the Center for Drug Evaluation and Research (CDER). In the newly created position, he will oversee drug safety issues and policies and manage staff that disseminates safety information to health care professionals and patients through the agency's website. In particular, Seligman will have oversight of the Drug Safety Board staff and the MedWatch program, and will have a role in implementing recommendations from external organizations such as the GAO and the Institute of Medicine, which also has been examining the FDA's drug safety processes.

Seligman joined the agency in 2001 as the director of the CDER Office of Pharmacoepidemiology and Statistical Science.

Final SOX Reforms Proposed

The SEC's Advisory Committee on Smaller Public Companies voted 18-3 in favor of scaled reform recommendations for Section 404 (internal controls) of the Sarbanes-Oxley Act of 2002, agreeing to final suggestions to be submitted to the SEC.

In particular, the recommendations include relief from management and external auditor attestation requirements for companies defined as small cap or having market caps of $787 million with less than $10 million in product revenues; microcap or the bottom 1 percent in market cap (which usually fluctuates between $125 million and $128 million), and companies with less than $125 million in revenues. The committee recommended relief for small caps with a market cap no higher than $787 million with less than $250 million in revenues.