More venture capital-backed biotech firms could become eligible for federal research funding under a compromise being worked out by Senate Republicans.

Sen. Olympia Snowe (R-Maine), the chairwoman of the Small Business and Entrepreneurship Committee, will be working with other Republican lawmakers and the Biotechnology Industry Organization (BIO) to decide how to allow biotech firms with venture capital backing to receive federal funds reserved for small businesses. At issue is R&D funding awarded under the Small Business Administration's Small Business Innovation Research Program (SBIR), which accounts for approximately $2 billion in grants annually.

Companies with more than 49 percent ownership by venture capitalists are currently not eligible for SBIR funds. Biotech companies and lawmakers such as Sen. Kit Bond (R-Mo.) argue that these funds are essential to these companies' competitiveness in the marketplace.

Snowe will work to modify Bond's bill S.1263, which amends the Small Business Act (SBA), to make companies with majority venture capital ownership eligible for the funds. "Hopefully we'll find that middle ground" between allowing more firms with venture capital ownership and making eligibility so broad that the companies that currently do not qualify as small businesses become eligible for the SBIR funds, Snowe said after a July 12 hearing on the bill.

The lawmaker wants to determine how to define an "investor" for the purposes of SBIR and decide whether companies supported by individual or multiple venture capitalists should be allowed to receive these funds. Snowe is hoping to address the issue in her committee by the end of July, with an eye toward reauthorization of the SBA by Oct. 1.

Not receiving these funds would be "a major setback," for the biotech industry, Bond said during the hearing. The biotech industry "is like no other in the world" because of the time and money necessary to get products to market, he added, necessitating supplemental funding.

But critics, including the Small Business Technology Council, argue that these funds are better spent on companies that lack the financial backing of venture capitalists. Modifying the definition of a small business is "a slippery slope" that would push legitimately small businesses out of the running for these funds, Gene Watson, program manager of the Wyoming SBIR/STTR (small business technology transfer) Initiative, said.

However, BIO believes that the program "makes us competitive," Lauren Choi, BIO's director of policy, capital formation and emerging companies, said. It is "critical" that SBIR amendments are included in the SBA reauthorization, she said. (http://www.fdanews.com/did/5_136/)