Appendix D
Case Studies



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Appendix D Case Studies 7

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7 APPENDIX D Advanced Brain Research, Inc.1 Robin Gaster North Atlantic Research EXECUTIVE SUMMARY ABM is a small company whose research has been funded almost entirely by a series of successful SBIR awards. Currently, ABM is poised to enter Phase III, and is seeking the funding needed to do so successfully. The company was founded on SBIR awards in 1997, and expanded based on Phase II awards in 1999. It received additional SBIR awards in 2002, and some additional funding from DARPA, during the development of two complementary products: home sleep diagnosis products, and an initial sleep disorder screening product for use in office or other settings. ABM has received six Phase II NIH awards, and seven Phase I NIH awards, and has been supported almost entirely by $6.3 million in SBIR awards and $700,000 from DARPA. Primary Outcomes: • One product with FDA clearance and a second that has been submitted for clearance, both entering Phase III. • Six patents. • Publications. • Additional employment. • Partnerships: Possible pilot program with Waste Management, Inc. Key SBIR issues: • Failure of Fast Track. • Better program manager accountability. • Commercialization/Phase III support. • Commercialization review. • Review quality and oversight. Key recommendations: • Optional training program for reviewers. 1 Interview: In Carlsbad, CA, at Advanced Brain Monitoring, Inc., with Daniel Lebedowski, Chief Scientific Officer, and Chris Berkas, CEO. Both are co-founders.

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77 APPENDIX D • Accelerate shift to electronic submissions. Consider using DoD submis- sion system. • Improved program manager assessment using report cards during the Final Report and/or Edison submission processes. • Review. Improve commercialization reviews, possibly by instituting two- phase screening system. • Phase III. Improve electronic matchmaking by improving online tools at NIH Web site. BACKGROUND Advanced Brain Monitoring, Inc., was founded in January 1997 to create low cost, easy-to-use, portable systems to monitor and interpret physiological signals indicating brain activity, and has developed patented data acquisition technology with automated analysis software to measure the brain’s electrical activity (EEG), oxygen levels in the blood and cardiac activity. ABS used a Phase I award as a founding grant. It opened in 1997 with two full-time and two part-time employees. Phase I awards took the company to Janu- ary 1999, when it received three Phase II awards. This allowed all three founders to go full time, funded the company’s move to Carlsbad, and paid for three EEG technicians who were hired in June 1999. The founders have invested about $400,000 on the company, funding primar- ily used for FDA 510k filings and patent filings, which cannot be delayed while more funding is found. Overall, the company has received more than $6 million FIGURE App-D-1 SOURCE: Advanced Brain Research. D-1

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7 APPENDIX D from NIH in SBIR awards and an additional $700,000 from DARPA under the Augmented Cognition program. ABM has worked with Honeywell and Lockheed in the context of its DARPA-sponsored research. All current awards will end in March 2005. Company is currently seeking ongoing capital for product rollout. PRODUCTS ABM is currently focused entirely on bringing products to market. It has two products that are ready for pilot sales: (1) The Apnea Risk Evaluation System (ARES™) integrates physiological data acquired in-home with clinical history and anthropomorphic data to quantify level of risk for Obstructive Sleep Apnea (OSA). ARES has three components: • ARES Unicorder: a battery powered, self-applied, single site (forehead) physiological recorder that acquires and stores nocturnal data for use in the diagnosis of OSA. • ARES Questionnaire (ARES Q): designed to assess pre-existing risk factors for OSA, including age, gender, body mass index (BMI), neck circumference, daytime drowsiness, frequency and intensity of snoring, observed apneas, and history of hypertension, diabetes and cardiovascular disease. • ARES Insight Software: automated software to recognize and quantify abnormal respiratory events. The ARES received FDA clearance in October 2004, and its CE mark in February 2005. It must be ordered by a prescription. ABM sells the AREA system through two channels: • Directly to primary care physicians and industrial customers (em- ployers) (as prescribed by a physician). • Licensed to larger users. This service includes the technology and training for user staff, and is designed for larger facilities such as hospitals or other bulk purchasers. (2) Alertness and Memory Profiling System (AMP™). The AMP simultane- ously acquires data on brain function and cognitive performance during vigilance, attention and memory tests. Its components can be used together or separately: • The patented Sensor Headset addresses many of the technical concerns with EEG recordings, including ease of use, comfort, cosmetic accept- ability for the workplace, and high quality data acquisition in challenging environments.

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7 APPENDIX D FIGURE App-D-2 SOURCE: Advanced Brain Research. D-2 • B-Alert® Software. The patented B-Alert software identifies and decon- taminates artifacts, monitors changes in the EEG on a second-by-second basis, and classifies each second of brain activity on a continuum from highly vigilant to sleep onset. • Neurocognitive test battery. A battery of vigilance, attention, and mem- ory tests that assess and quantify alertness and memory. The Sensor Headset has been submitted for FDA clearance in March 2005, and it received its CE mark in February 2005. The medical application must be ordered by a prescription. There are numerous nonmedical applications for the EEG system. MARKETS ABM is addressing two markets: • The traditional market for sleep diagnostics, where its lower cost and easier to use system has competitive advantages. • New industrial markets for undiagnosed OSA, where companies need better knowledge about employees operating critical equipment. According to NHLBI, approximately 20 million (6.6 percent) Americans who suffer from OSA, approximately 90 percent are currently undiagnosed. 2 The general market is therefore substantial. More specifically, companies whose employees operate critical machinery—e.g., trucks, air traffic controls, trains, etc.—are a very likely market. 2 National Sleep Foundation.

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0 APPENDIX D ABM faces some significant challenges in marketing its products, even though they address important problems. The ARES system is essentially de- signed to replace current sleep diagnosis procedures, substituting inexpensive and relatively convenient home diagnosis for expensive and inconvenient sleep studies currently performed in hospitals. Existing sleep diagnosis labs—potentially a major source of customers—are firmly opposed to in-home studies because it will reduce their own income. Insur- ance reimbursement for in-home unattended studies is inconsistent. Managed care groups reimburse. The PPOs follow CMS’ lead and either don’t reimburse or at a very low rate. CMS had a review of in-home unattended studies, and—according to ABM—after substantial lobbying of the sleep labs, chose not to categorically reimburse for these studies. ABM is in discussions with two sleep labs to establish pilot projects that augment rather than cannibalize the sleep labs revenue. ABM has a meeting scheduled with CMS at the end of April to present the results of its study that was funded by NIH (the largest study of its kind for in-home unattended studies). The AMP system also faces substantial marketing challenges. ABM has es- tablished a relationship with Waste Management, Inc., one the country’s largest employers of commercial truck drivers. The pilot—which was to be implemented using a Fast Track since rejected by NIH—involved using the ARES and AMP on Waste Management drivers to 1) determine the level of undiagnosed OSA, and 2) develop a model for incorporating sleep apnea screening into the biannual fitness for duty physicals. The rejected application defunded the pilot, and ABM is now seeking other mechanisms to implement this program. More generally, addressing the problem of undiagnosed sleep apnea potentially opens companies such as Waste Management to significant liability issues. This problem has not yet been resolved. Despite these difficulties, it is clear that ABM has successfully completed the initial research phase for two complementary products, and is now entering Phase III with both. Its current emphasis is acquiring the funding necessary to implement its marketing strategy. PATENTS The company has been awarded 6 patents, funded primarily from founder’s investment and the 7 percent fixed fee received from SBIR awards. All the patents are based on work developed under the NIH SBIR program. REGULATORY APPROVAL Both of the company’s products have received the FDA CE mark after com- pleting FDA clinical trials.

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 APPENDIX D PROGRAM MANAGEMENT DIFFERENT ICS ABM has had dramatically different experiences at different ICs, which it be- lieves are entirely due to the capabilities and approaches of the different program managers. ABM has had a very positive experience with one program manager, but had problems with another who they believe has been, at best, unsupportive, and does not provide the support that reflects NIH guidelines on collaboration between program managers and companies. Short of changing its products and research goals, ABM has not found a way around this program manager, and no way to generate improvement. ABM’s experience highlights the problem of using program managers as gatekeepers without any tools in place to monitor their effectiveness, or in some cases apparently to train them in relation to new programs. FAST TRACK ABM was encouraged by presentations made by Jo Anne Goodnight and started submitting Fast Track applications almost from the start of the program, but has had very mixed experiences at best: (1) Fast Track Application 1. The application received a very high quality review, which recommended splitting the application into Phase I and Phase II. ABM agreed and did so, receiving first a Phase I and then $1.2 million for Phase II, where ABM noted the extensive help from the relevant program manager in preparing a justification for the extra-sized funding. (2) Fast Track 2. This award ran into major administrative problems. The Fast Track was approved in March 2003. The Phase I work was completed in August and a “streamlined noncompeting award process” (SNAP) report was submitted (a short version report designed for projects that are not subject to further competition). This is standard procedure for a Fast Track award and was provided by the program manager in his/her instructions to ABM. However, several problems developed: • The total amount of the award was reduced by 5 percent by the review committee because of their opinion that a key consultant was not needed. After discussion with the program manager, the company submitted justi- fication for the payment but the program manager said the review commit- tee’s suggestion was final. If the company needed to pay the consultant, they would have to rebudget form other areas. • Even though the program is designed to avoid a gap in funding between Phase I-Phase II, review of the Phase I report was delayed until after October because the Institute needed the new fiscal year to begin in order to have funds for Phase II.

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 APPENDIX D • According to ABM, the program manager and the Institute conducted an internal review of the Phase I and turned down the Phase II award due to insufficient detail on what was accomplished in Phase I. (The inves- tigators could easily have written a full Phase I final report but instead provided the amount of information required by the SNAP submission as instructed.) This notification occurred in November, approximately 2.5 months after ABM had notified their program manager that they began the Phase II work that that the pre-award authorization would be used to re- capture the funds. The program manager felt that was appropriate because at the time the only delay was due to the new fiscal year. The company wanted to push forward toward commercialization and since the award was noncompetitive and because the company had met its Phase I goals, there was no reason to expect this financial commitment might jeopardize the company’s future. • After much negotiations with the NIH program coordinator (which in- cluded reviewing with the program coordinator that he/she provided in- structions to the company to submit the SNAP, preparation of a full Phase I report, and subsequent re-review), this error was eventually re- versed. Because the company had to stop work in November, approxi- mately 12 of the subjects being studied had to be dropped and there was a gap in funding from August when the Phase I ended until the following February. • Although the funding was delayed and it interrupted some of the studies, there was no compromise on the part of the program officer about the number of subjects and other research issues. The net result was money was allocated in a manner that reduced the benefits of the large study and reduced the power of the data needed for commercialization. (3) Fast Track 3. An application to take the technology developed during earlier SBIR awards and apply it in to the needs of the trucking industry. An agree- ment for a pilot implementation program was made with Waste Management, Inc., one of the largest operators of commercial trucks. • An initial score of 320 meant substantial revisions were needed. • ABM resubmitted and was awarded a priority score of 274. Key criticisms included some scientific objections, privacy concerns, issues to do with drivers (social issues), and the lack of women in the study. To address the concern of inadequate female representation, the company had to rewrite the proposal to impose enormous potential costs on ABM including test sites right across the country to increase the number of women in the study. The percentage of female drivers at Waste Management is less that 2 percent of 35,000 drivers. This stringent guideline applied to this unique situation was, in the company’s view, mindless adherence to new

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 APPENDIX D guidelines designed to ensure that projects are not based on male-only research (guidelines which ABM supports in general). • ABM resubmitted the application a third time, but in a new year and with an entirely new panel. This time ABM’s review was so poor, it did not receive a priority score at all. One of the lead reviewers simply said that he did not believe that sleep apnea was a widespread medical problem. Because this was the third submission of the application, ABM was forced to give up on this SBIR application. The lessons from this experience seem to be that the Fast Track application is not very well implemented, or at minimum people were not trained prior to implementation. ABM endorses the concept of the Fast Track program. Given the likelihood of obtaining a Fast Track award vs. Phase I and II, the fact that the Phase II dollars are not set aside at the beginning, and misunderstandings about the Fast Track, the company has decided to avoid this program in the future. REVIEW PROCESS ABM identified some substantial problems in the review process. The com- pany has noted apparent changes at NIH in how priority scores are calculated, and in the nature of reviewers—notably a pronounced shift toward quasi-commercial concerns. Specifically— • Beginning in 2003, the company noticed that reviewer comments (“pink sheets”) no longer tracked closely with the scores. • ABM believes that in recent panels, business people may have been over- influencing panel reviews, even when they are not the primary reviewer. The impact of business-based reviews may help to explain the apparent disconnect betweens cores (generated form the panel as whole) and pink sheets (generated primarily from lead reviewers). • Study sections often suffer from substantial confusion between the func- tions and objectives of RO1s and R44s (SBIR awards). Section mem- bers who are used to reviewing RO1s are often not prepared for the application-heavy focus of ABM’s applications. • Reviewers are sometimes not properly briefed. In one case, for example, a Phase I proposal was sharply criticized for not having a commercializa- tion plan—even though no such plan is required for Phase I. • Lead reviewers are sometimes not properly monitored. There appears to be no process for assessing major biases (e.g., the second resubmission on the pilot study). • Panel memberships. Letters seeking to affect participants in study sections do not work. ABM knows that in one case it explicitly asked for specific

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 APPENDIX D reviewers to be excluded for conflict of interest—and two of those review- ers was the lead reviewer for their application. • In a recent review, of both RO1s and R44s, the Committee gave ABM the third highest priority score of 270. The best score was less than 200 and the second highest score was between 200 and 270, both R01s. ABM had the highest R44 score. Over 65 percent of the grants received no priority score. COMMERCIALIZATION TRAINING ABM has been a long-time participant in the San Diego Regional Technol- ogy Alliance (SDRTA), and is now participating in the NIH commercialization program operated by LARTA. Initial events were not especially helpful, but ABM will be participating in a major technology showcase organized by LARTA in May 2005, for which it has substantial expectations. LARTA is currently funding a few hours a month from three business consultants, all of whom are viewed fairly positively by ABM, and they have provided some useful market research as well as a contact with Innovex, which provides turn-key national sales forces to sell to physicians, although none has yet provided a real potential partner—which is their primary assigned role. ABM has also presented posters at the NIH annual conference twice, but in neither case did any business connections result. PHASE III SBIR does not permit use of funds for marketing or market research, which makes the transition to Phase III very difficult. ABM did receive CAL-TIP (state) funding of $175,000, which the company said was crucial for the market research necessary to get toward product launch. AWARD FUNDING LEVELS ABM’s experience is that applications for more than $1 million get reduced during review. PROGRAM MANAGEMENT ABM believes that funding can be delayed when submitting in the April funding cycle: This inevitably means getting caught up in delays in the review process due to summer vacations and the end-of-fiscal year problems at NIH. From a standpoint of counting on an SBIR grant to meet payroll, delay of funding until October can be a significant disruption to a small company that is reliant on the SBIR program as a primary funding source.

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 APPENDIX D However, this contradicts points made in interviews at other companies, who noted that while funding is delayed to October, it does become available as soon as the appropriation is passed, in contrast to funding allocated toward the end of the fiscal year where there may be a liquidity crunch. SBIR AND VENTURE CAPITAL ABM has experienced mixed reviews of its SBIR awards from venture capi- talists. Some write it off, others view the peer review process as a prohibitive indication of research quality. Receiving more than $6 million in funding from NIH gives ABM immediate legitimacy in discussions with funders, although VCs always discount this funding in the course of valuation. RECOMMENDATIONS • Training program for reviewers (e.g., one-day, on a regional basis). This would not only encourage a more standardized approach, perhaps based on a standard curriculum. It could also encourage some potential participants who might oth- erwise feel unqualified to become reviewers (e.g., Mr. Levendowski, an MBA with scientific training). • Accelerate shift to electronic submissions. ABM is very favorably impressed by the DoD electronic submission process, in comparison to NIH. • Improved program manager assessment. ABM felt strongly that final reports and/or Edison submissions should include a report card for the program man- ager concerned, and that NIH should have review processes in place to improve or eliminate underperforming managers. • Review. Commercialization reviews are a problem. ABM suggested that an online questionnaire might help companies answer key commercialization questions, and would also highlight obvious problem areas. ABM supported two phase reviews, with an initial screening by study sec- tions focused entirely on science, and a second level screening of commer- cialization plans for Phase II. Problems at the second level could then be fixed within a single funding cycle, or applicants could be asked to resubmit for commercialization review only, substantially shortening the entire ap- plication process for many awards while improving quality and eliminating many of the current problems with commercialization review. • Commercialization. NIH could do much more electronic matchmaking. Rec- ommended in particular that NIH implement technology that would permit companies to update their own listings and identify information that is available for review (e.g., business plans, results from Phase I or II, patent applications, etc). Current listings are usually out of date and hence not used much by po- tential partners.

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 APPENDIX D a supplement to expand the scope of the Program Archive on Sexuality, Health & Adolescence (PASHA) from teen pregnancy prevention alone to teen STD/HIV/AIDS prevention as well. This expansion had been rec- ommended by the PASHA Scientist Expert Panel, in light of the national spotlight on HIV/AIDS and the similar sexual-risk behaviors underlying both unintended pregnancy and STD/HIV/AIDS. The supplement request was forwarded by NICHD to the Deputy Assistant Secretary of Population Affairs who serves simultaneously as Director of the Office of Population Affairs. This political appointee interviewed the Sociometrics PI, and then personally approved the requested additional $750,000 in Phase II fund- ing, transferring the monies to the NICHD grant. • Program archive for HIV/AIDS in adults. Initially funded by the National Institute of Allergy and Infectious Diseases (NIAID), supple- mentary funding was requested for the HIV/AIDS Prevention Program Archive (HAPPA) to expand the project to include programs targeted directly at minorities. In this case, the request was for approximately $575,000 over three years. However, an end-of-year budget underrun at NIAID resulted in the full requested funding being provided over one year, instead the requested three years. • Complementary and alternative medicine data archive. Sociometrics had Phase II funding from the National Center on Alternative Medicine (NCAM) to establish the Complementary and Alternative Medicine Data Archive (CAMDA) when it responded to an RFA issued by NCAM en- couraging research on minorities and CAM. Sociometrics responded to the RFA by proposing to expand CAMDA to include data sets especially focused on minority populations. Its proposal received a high priority score and NCAM decided to fund the project via an administrative supple- ment to the Phase II project rather than via a new grant award. RECOMMENDATIONS Sociometrics believes that the SBIR program provides an essential resource for generating innovative and effective research-based products in efficient fash- ion. In response to questions about its support for various issues and trends in the program, Sociometrics makes the following recommendations: • Normalization of scores. Scores should be normalized across SBIR study sections. • Award size and duration. Phase I duration should be one year, and ad- ditional funding (beyond $100,000) should be available with justification. Phase II size and duration limits could remain as they are ($750,000 over two years); Sociometrics has always found it possible to split larger proj- ects into two or more ideas qualifying for separate SBIR funding. While

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 APPENDIX D Sociometrics has no a priori objection to “supersized” Phase II awards (awards exceeding the Phase II guidelines of $750,000), it recommends that if such awards are indeed becoming common, then information about them should be fully communicated to applicants and transparency in- creased. The increasing prevalence of larger Phase II awards might tend to benefit well-established companies and could result in fewer SBIR grants being made. These consequences should be taken into account in approving very large Phase II awards. Direct to Phase II. Phase II competition should be open to all appli- • cants meeting small business qualifications, permitting bypass of Phase I awards (though not of the need to show equivalent results). This might also, however, tend to benefit well-established companies. Resubmission. The one-page Phase I proposal limit for summarizing • applicants’ responses to reviewer comments is insufficient. The limit should be increased to two pages or even three, as is the case for Phase II proposals. Evaluation. NIH should develop a program to evaluate the health, social, • and economic impact of SBIR projects. Sociometrics would very much like to undertake evaluations either of its own SBIR projects, or of a group of projects that would include some of its own. Chartered study sections for SBIR. Given the now-permanent character • of the program, NIH should consider asking Congress to charter what are currently Special Emphasis Panels (SEPs), or should consider changing its guidelines for SEPs to mimic those for chartered study sections. In this manner, the composition of review panels would be more stable from one review round to the next, resulting in better reviews.

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 APPENDIX D SOCIOMETRICS—ANNEX TABLE App-D-10 Sociometrics’ SBIR Awards, NIH-Sponsored Phase I Projects Started in FY1992-2002 Award Funding Fiscal Phase Size Institute- Year Type ($) Project Title Center 1994 Phase I 80,991 AMERICAN FAMILY DATA CENTER HD 1995 Phase II 216,369 AMERICAN FAMILY DATA CENTER HD 1996 Phase II 222,496 AMERICAN FAMILY DATA CENTER HD 1998 Phase II 114,998 AMERICAN FAMILY DATA CENTER HD 1997 Phase I 99,817 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE DA PREVENTION PROGRAMS 1998 Phase II 343,632 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE DA PREVENTION PROGRAMS 1999 Phase II 396,232 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE DA PREVENTION PROGRAMS 2001 Phase II 24,999 ARCHIVE—EFFECTIVE YOUTH DRUG ABUSE DA PREVENTION PROGRAMS 1999 Phase I 95,825 CHILD WELL-BEING & POVERTY: STATISTICAL HD ABSTRACT & DATA 2001 Phase II 377,391 CHILD WELL-BEING & POVERTY: STATISTICAL HD ABSTRACT & DATA 2002 Phase II 371,768 CHILD WELL-BEING & POVERTY: STATISTICAL HD ABSTRACT & DATA 1999 Phase I 94,833 COMPLEMENTARY AND ALTERNATIVE MEDICINE AT DATA ARCHIVE 2002 Phase II 375,345 COMPLEMENTARY AND ALTERNATIVE MEDICINE AT DATA ARCHIVE 2003 Phase II 374,587 COMPLEMENTARY AND ALTERNATIVE MEDICINE AT DATA ARCHIVE 2004 Phase II 215,070 COMPLEMENTARY AND ALTERNATIVE MEDICINE AT DATA ARCHIVE 2005 Phase II 258,084 COMPLEMENTARY AND ALTERNATIVE MEDICINE AT DATA ARCHIVE 1992 Phase II 162,492 DATA ARCHIVE ON MATERNAL DRUG ABUSE DA 1993 Phase II 174,720 DATA ARCHIVE ON MATERNAL DRUG ABUSE DA 1993 Phase II 18,336 DATA ARCHIVE ON MATERNAL DRUG ABUSE DA 1997 Phase I 99,834 DATASET DEVELOPMENT SOFTWARE & FAMILY HD RESEARCH ITEM BANK 1998 Phase II 382,614 DATASET DEVELOPMENT SOFTWARE & FAMILY HD RESEARCH ITEM BANK 1999 Phase II 356,870 DATASET DEVELOPMENT SOFTWARE & FAMILY HD RESEARCH ITEM BANK

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7 APPENDIX D TABLE App-D-10 Continued Award Funding Fiscal Phase Size Institute- Year Type ($) Project Title Center 1995 Phase I 70,770 ESTABLISHING A CONTEXTUAL DATA ARCHIVE HD 1996 Phase II 338,926 ESTABLISHING A CONTEXTUAL DATA ARCHIVE HD 1997 Phase II 409,298 ESTABLISHING A CONTEXTUAL DATA ARCHIVE HD 1993 Phase I 49,975 ESTABLISHMENT OF A RESEARCH ARCHIVE ON HD DISABILITY 1994 Phase II 236,145 ESTABLISHMENT OF A RESEARCH ARCHIVE ON HD DISABILITY 1995 Phase II 230,731 ESTABLISHMENT OF A RESEARCH ARCHIVE ON HD DISABILITY 1996 Phase II 31,288 ESTABLISHMENT OF A RESEARCH ARCHIVE ON HD DISABILITY 1997 Phase II 149,709 ESTABLISHMENT OF A RESEARCH ARCHIVE ON HD DISABILITY 1992 Phase II 220,955 ESTABLISHMENT OF AN AIDS/STD DATA HD ARCHIVE 1993 Phase II 236,301 ESTABLISHMENT OF AN AIDS/STD DATA HD ARCHIVE 1994 Phase II 42,070 ESTABLISHMENT OF AN AIDS/STD DATA HD ARCHIVE 1995 Phase II 10,000 ESTABLISHMENT OF AN AIDS/STD DATA HD ARCHIVE 1998 Phase II 350,655 HIV/AIDS PREVENTION PROGRAM ARCHIVE AI 1999 Phase II 397,449 HIV/AIDS PREVENTION PROGRAM ARCHIVE AI 2000 Phase II 574,670 HIV/AIDS PREVENTION PROGRAM ARCHIVE AI 1997 Phase I 99,221 INSTITUTE FOR PROGRAM DEVELOPMENT AND HD EVALUATION 1999 Phase II 337,465 INSTITUTE FOR PROGRAM DEVELOPMENT AND HD EVALUATION 2000 Phase II 412,385 INSTITUTE FOR PROGRAM DEVELOPMENT AND HD EVALUATION 2001 Phase II 49,987 INSTITUTE FOR PROGRAM DEVELOPMENT AND HD EVALUATION 1993 Phase I 49,494 INSTRUMENT ARCHIVE OF SOCIAL RESEARCH AG ON AGING 1992 Phase II 223,017 MICROCOMPUTER DATA ARCHIVE OF SOCIAL AG RESEARCH ON AGING 1993 Phase II 19,106 MICROCOMPUTER DATA ARCHIVE OF SOCIAL AG RESEARCH ON AGING 2001 Phase I 197,562 PROMOTING EVALUATION/TEACHING/RESEARCH MH ON AIDS (PETRA) continued

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 APPENDIX D TABLE App-D-10 Continued Award Funding Fiscal Phase Size Institute- Year Type ($) Project Title Center 2003 Phase II 420,281 PROMOTING EVALUATION/TEACHING/RESEARCH MH ON AIDS (PETRA) 2004 Phase II 329,507 PROMOTING EVALUATION/TEACHING/RESEARCH MH ON AIDS (PETRA) 1994 Phase I 80,991 SOCIONET—ONLINE ACCESS TO SOCIAL SCIENCE HD DATA 1995 Phase II 446,682 SOCIONET: ONLINE ACCESS TO SOCIAL SCIENCE HD DATA 1996 Phase II 303,033 SOCIONET: ONLINE ACCESS TO SOCIAL SCIENCE HD DATA 1998 Phase I 99,340 STATISTICS ON DEMAND: DATA ANALYSIS OVER HD THE INTERNET 2000 Phase II 381,525 STATISTICS USING MIDAS: DATA ANALYSIS HD OVER THE INTERNET 1999 Phase II 367,726 STATISTICS USING MIDAS: DATA ANALYSIS HD OVER THE INTERNET 2002 Phase I 99,011 VIRTUAL PROGRAM EVALUATION CONSULTANT HD (VPEC) 2003 Phase II 383,357 VIRTUAL PRACTIONER EVALUATION HD CONSULTANT (VPEC) 2004 Phase II 363,923 VIRTUAL PRACTIONER EVALUATION CONSULTANT (VPEC) 1993 Phase I 50,000 ARCHIVE OF TEEN PREGNANCY PREVENTION HD PROGRAMS 1995 Phase II 408,644 PROGRAM ARCHIVE ON SEXUALITY, HEALTH, & HD ADOLESCENCE 1996 Phase II 987,378 PROGRAM ARCHIVE ON SEXUALITY, HEALTH, & HD ADOLESCENCE 1997 Phase II 45,000 PROGRAM ARCHIVE ON SEXUALITY, HEALTH, & OPA ADOLESCENCE 1994 Phase I 79,383 ESTABLISHING A STROKE DATA ARCHIVE NS 2002 Phase I 199,922 PROMOTING CULTURALLY COMPETENT/ AI EFFECTIVE HIV/AIDS PREVENTION PROGRAMS 2004 Phase II 361,223 PROMOTING CULTURALLY COMPETENT/ AI EFFECTIVE HIV/AIDS PREVENTION PROGRAMS NOTE: For a list of codes for National Institutes of Health institutes and centers, see Box App-A-1. SOURCE: Sociometrics Corporation.

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 APPENDIX D VectraMed Andrew Toole Rutgers Uniersity COMPANY AND FOUNDER BACKGROUND VectraMed, Inc., is a biopharmaceutical company located in Plainsboro, NJ. The company was founded by Dr. James Pachence in 1997 to exploit emerg- ing opportunities in the field of drug delivery. VectraMed’s delivery technology promises improvements in both the site specificity and the sustained release ca- pabilities of pharmaceutical agents. Their technology has the potential to improve the efficacy, reduce the toxicity, and reduce the dosage frequency for a variety of existing and novel drug therapies. While the company remains focused on becoming a leading pharmaceutical firm, it has recently faced significant setbacks. During its first five years of opera- tion, VectraMed was growing. This growth was fueled by a variety of successful efforts to obtain research and development (R&D) funds, hire employees, and ad- vance the scientific basis of their proprietary technology. Early R&D funds were secured from the SBIR Program, angel investors, and corporate partners. With these funds in hand, VectraMed grew from a single founder to twelve employees with eight Ph.D. scientists. Moreover, the results from a number of SBIR funded preclinical studies were very positive. In 2000, they negotiated an exclusive li- cense with Rutgers University and the University of Medicine and Dentistry of New Jersey to develop antifibrotic agents. In January 2001, the company began a joint venture with Elan Pharmaceuticals to develop and commercialize anticancer drugs. By the end of 2002, however, R&D funds were drying up and it had become clear that the joint venture with Elan needed to be terminated. After Elan’s recent strategic restructuring, they stopped all R&D related activities in their joint ven- tures. With mounting uncertainty about the financial future of VectraMed, em- ployees left to find more stable environments. Today, VectraMed has completely “scaled down.” Only Dr. Pachence and two other members of his management team are still with the company. Further, the company has sold off all of its physi- cal assets. The intellectual property protecting their drug delivery technology, however, remains with VectraMed. Dr. James Pachence is a “serial entrepreneur” with a background in academic science. He received his Ph.D. in Biophysics from the University of Pennsylvania in 1980 and spent two years as a Research Professor in the Biochemistry Depart- ment at Columbia University. He started his private sector career at Helitrex, Inc., in 1983 to develop novel collagen-based surgical compounds. Catching the entrepreneurial “bug,” Dr. Pachence founded a collagen-focused biomaterials

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0 APPENDIX D firm, called MediMatrix, in July 1986. In 1988, MediMatrix merged with Applied Biomedical Sciences, a public company based in Long Beach, CA. A few years later, Dr. Pachence founded Intregra LifeSciences and spent three years as the Vice President of Scientific Affairs. Following a four-year stint as a consultant, Dr. Pachence founded VectraMed in 1997. VECTRAMED TECHNOLOGY VectaMed, Inc., has developed a proprietary “Tissue-Activated Drug Deliv- ery” or TADD technology. Their technology attaches pharmaceutical agents to a water-soluble polymer. The polymer has a “comb” structure that allows thera- peutic agents to be linked to the “teeth” of the comb using enzyme-cleavable linking groups. This creates a compound with tissue-specific drug release. Figure App-D-14 illustrates the TADD drug and polymer conjugate. VectraMed has filed several patent applications with the U.S. Patent and Trademark Office. The basis for these applications is the way in which the drug is attached to the polymer. While attached, the drug is not active and is called a “pre-drug.” This inactivity is the key to increased efficacy and reduced toxicity. As the polymer drug conjugate approaches the disease site, a disease-specific trigger “attacks” the cleavable link and releases the pharmaceutical agent. Polymer Backbone Enzyme-Cleavable Linking Group Inactive Pro-Drug Inactive Pro - FIGURE App-D-14 TADD drug and polymer conjugate. SOURCE: VectraMed, Inc., nonconfidential business plan. D-14

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 APPENDIX D Both the characteristics and versatility of the polymer-based carrier back- bone are important to the broad-based applicability of VectraMed’s TADD tech- nology. The polymer is water-soluble and consists of well-defined physiological components. Moreover, with information on disease-specific triggers, a variety of polymer cleavable linking groups can be designed with different circulation times and solubility properties. VectraMed was pursuing three lines of product development. One of these areas involved cancer drugs through the joint venture with Elan Pharmaceuticals. Prior to Elan’s restructuring, their cancer applications looked promising with increased efficacy and reduced toxicity in animal models. VectraMed is currently in discussions with Elan to terminate the joint venture. In addition to cancer, VectraMed had active programs in chronic inflammatory diseases and fibrotic diseases including pulmonary hypertension, pulmonary fibrosis, and surgical adhesion prevention. While most of the preclinical results were positive, the lack of financial backing has suspended further research. IMPORTANCE OF SBIR Dr. Pachence was very positive about the role and contribution of the SBIR Program to the success of VectraMed. While there were no commercialization outcomes, he said that the program has “made an impact” in a variety of ways including contributions to multiple patent applications and multiple papers pub- lished in prestigious journals. Four of the most important benefits for VectraMed from participation in the SBIR Program were: (1) Key Source of Early-stage Financing Dr. Pachence used his personal savings to start VectraMed and to license its initial product candidates from Rutgers University and the University of Medi- cine and Dentistry of New Jersey in 1997. In that same year, VectraMed won two Phase I awards to perform proof of principle animal studies, one for postsurgical adhesions and the other for pulmonary hypertension. Each of these feasibility studies succeeded and VectraMed went on to win Phase II awards for each of these lines of research. SBIR Phase I funds were received in 1997 ($200,000) and the Phase II awards extended over two years, 1999 ($776,699) and 2000 ($846,783). (The SBIR investment into these lines of research totals $1,823,482.) Dr. Pachence noted that these SBIR awards were “key to getting the first stages of development done” and that SBIR was “important for early money.” (2) Critical for Follow-on Funding and Business Deals Given the expense and time required to develop new drug therapies, it was incumbent upon VectraMed to obtain additional private financing beyond the

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 APPENDIX D initial personal funds that Dr. Pachence had invested. To a significant degree, SBIR funds allowed VectraMed to obtain additional follow-on private invest- ment. The SBIR Program financed a large part of the preclinical animal studies. These initial SBIR awards used academic labs as subcontractors to complete the research since VectraMed did not have its own laboratory facilities. The posi- tive results from these studies helped convince corporate partners and angels to invest in VectraMed. This new scientific evidence was combined with previously collected information on the market opportunity to facilitate the completion of a formal business plan. Dr. Pachence noted that “SBIR was super critical for getting the angel financing but also for getting the deals done with the corporate community.” (3) Facilitated Hiring of Employees The SBIR Phase II awards for VectraMed’s pulmonary hypertension and sur- gical adhesion technologies facilitated the growth of the company. Dr. Pachence noted that “it was critical that I had that Phase II money, otherwise, I would have never hired employees.” The proceeds from these Phase II awards, how- ever, would not have been sufficient by themselves to create and sustain a team of Ph.D. researchers. But the scientific success in Phase I combined with the Phase II award allowed Dr. Pachence to raise some angel financing to comple- ment the SBIR monies. Taken together, VectraMed was allowed to grow its research team from subcontractors to eight full-time scientists. (4) Simple Mechanism for Early-stage Collaborative Work In addition to the initial SBIR grants in the areas of pulmonary hypertension and surgical adhesions, VectraMed received another Phase I award in 1999. This grant supported a collaborative effort between VectraMed and a drug delivery firm called MicroDose. MicroDose, a company whose physical location is near VectraMed, has developed a proprietary delivery system using deep lung inha- lation. VectraMed needed a delivery system to administer its molecule and the MicroDose technology looked promising. The SBIR award funded a research effort into this possibility. Unfortunately, the combination was not commer- cially viable and the research was abandoned after Phase I. Nevertheless, the SBIR-funded research facilitated the collaborative effort and helped to resolve the uncertainty about the most effective route of administration for VectraMed’s polymer molecule. ISSUES WITH THE CURRENT SBIR PROGRAM Dr. Pachence highlighted a few issues of concern about the SBIR Program at NIH. His perspective is comparative since he is able to draw on past experi-

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 APPENDIX D ence with the SBIR Program at the Department of Defense and the Advanced Technology Program at the National Institute of Standards and Technology. He made the following four points: (1) Obtaining the Award Funds is Difficult at the NIH (Including Phase I & Phase II Delays) Even prior to VectraMed’s grants, Dr. Pachence won SBIR awards from the NIH back in the late 1980s. Since those early days, NIH SBIR administration has improved quite a bit. In those days, in order to collect his award funds, he would need to travel to the NIH campus to track down the money. While no longer re- quiring a dedicated trip to the campus, obtaining funds in the current program is still somewhat difficult because it requires an active pursuit of the funds, typically in the form of a phone call to the Study Section leader. This problem extends to the delays between Phase I and Phase II awards. The dispersal of the award funds was more efficiently done by both DoD and APT, although setting up the payment protocols at DoD often took a long time. (2) Program Coordination is Poor Within the NIH In stark contrast to the SBIR at DoD and the ATP at NIST, the SBIR Pro- gram at NIH is poorly coordinated. Responsibility for the administration of the SBIR Program within the NIH is shared by different groups. As far as the award- ees are concerned, these groups have poor communication and integration. In contrast, ATP at NIST stands out as a highly successful model. There is a “project insider” within the agency that has a sincere interest in the company’s research and actively manages the relationship between the agency and the company. Dr. Pachence says the ATP insider had a real scientific and economic interest, set up quarterly meetings, and produced well thought out reports. SBIR at DoD is also better coordinated than NIH. Perhaps the procurement orientation of the agency’s awards necessitated a deeper agency interest in the firms. (3) NIH Study Section Leaders are Too Busy A critical underlying problem for the administration of the NIH SBIR Pro- gram is that study section leaders are too busy. Dr. Pachence noted that these people are “inundated” with programs and responsibilities. As a consequence, a productive relationship cannot be established.

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 APPENDIX D (4) The NIH Review Process Overemphasizes the Scientific Component of the Proposal The implementation of the SBIR Program at NIH followed the established organization and procedures traditionally used for purely scientific proposals. As a result, the SBIR proposal review panels are populated with a disproportionate number of academic scientists. Perhaps unintentionally, the science orientation of these individuals created a bias against commercial development grants. While a strong scientific knowledge base is important, understanding medical product development is also a critical component. SBIR proposal review panels should be “balanced” to allow projects with a stronger product development component to be reviewed more favorably.