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Recovering Entrepreneurship: ARRA

Recovering Entrepreneurship: ARRA

May 21, 2010

How the federal government’s recovery package is aiming to stimulate new technology-based entrepreneurship and stabilize our economy.

The American Recovery and Reinvestment Act of 2009 (ARRA) represents an enormous one-off investment in science and technology by the federal government.  The ARRA is primarily meant to stimulate economic activity by replacing private investment lost in the recession, so research is a small part of the total $878 billion spending package.  But even that small part amounts to over $17 billion, including $10 billion to the National Institute of Health (NIH), which is a very large increase on normal funding levels.  With a face value larger than the GDP of Australia, the ARRA itself is a vast topic, so we will focus on how the stimulus affects science and technology; specifically how money has been allocated, the strategies used by federal funding agencies to distribute money, and the long-term consequences on basic research and commercial opportunities.

President Obama signed the ARRA at Denver’s Museum of Nature and Science to emphasize the importance of science technology in establishing new directions for economic growth.  Some policymakers have shown an understanding that research and development are important drivers of the economy, but the way they have written the ARRA reflects a tension between dual goals of immediate stimulus and long-term development.  This is an unusual problem for most federal research agencies because research funding has broad political backing that maintains most allocations at stable or increasing levels.  Stable government support has been a key factor in American technological development since the 1950s.  In contrast, the ARRA operates over a short time window that largely ends in 2011.  There is no doubt that the large bolus of money will support a tremendous amount of research in the short-term, but new academic or commercial research projects funded by the ARRA will struggle to become self-sustaining before funding ends.

Federal research agencies receiving ARRA funding have taken strategies that differ in how they prioritize new and ongoing projects, and how they interact with the private sector.  In each case the goal was to utilize the ARRA funding quickly while not over-committing to unsustainable projects.  A stipulation of stimulus research funding is that it has to be committed during 2010 fiscal year and spent by the end of the 2011 fiscal year1. The majority of funds were committed in 2009 to be spent within this two-year window2.

NIH Investing in Research and Infrastructure

With $10.4 billion, the NIH is the largest commitment of ARRA funds for research.  Most of this is being used to fund extramural research ($8.2 billion).  The largest pieces of NIH ARRA funding are being used to fund previously submitted proposals that had missed the funding cutoff ($1.43 billion as of the end of FY20093) or to administrative supplements that top-off ongoing projects ($1.51 billion).  Both of these represent “shovel-ready science” intended at the policy level to create jobs directly for scientists, and indirectly for support staff and service providers.

New grant programs at the NIH, such as the Challenge Grants for individual investigators and Grand Opportunity Grants for large projects, also received $1.15 billion for 1436 new grants in FY09.  These grants were extremely competitive, with only a 4% success rate, and many are likely to apply for renewal through regular funding channels after their two-year funding period.  We can expect a serious crunch during the 2011 funding cycle, with the fraction of successful grants likely to reach to record lows.  Some projects, especially with medical applications, may reach the point of being able to draw support from private industry, although that will depend on the strength of industrial economic recovery by 2011.  Businesses were encouraged to apply for many of these grants, but only 61 of 1323 (< 5%) of NIH ARRA projects in Massachusetts have been awarded to commercial entities, and the distribution in other states seems to be similar4,5.

With limited direct funding for commercial enterprise from the NIH, academic allocations and infrastructure will serve to indirectly stimulate biotechnology entrepreneurship.  $1 billion has been allocated to improve biomedical infrastructure outside the NIH, and $500 million to create and expand intramural facilities at the NIH6.  Investments in infrastructure are less effective as immediate economic stimulus because of start-up time, but they have the opportunity to become self-sustaining and create new capabilities that will be important for future growth.  One example of an infrastructure project is the Cancer Human Biobank at the National Cancer Institute.  This facility will develop a national system for handling biological specimens, provide clinical samples to private partners, and is intended to operate sustainably as a public/private partnership7.

Investing Small Business and Commercial Innovation

The NSF and DOE are two other federal research agencies receiving ARRA funds.  The NSF approached its $3 billion of stimulus funding differently from the NIH.  It used $2 billion to increase success rates for standard grant programs, prioritizing high-risk projects and young investigators.  Most of the remaining $1 billion is being used on large projects in facilities and instrumentation.  Overall success rates across all NSF grant programs went from 25% in 2008 to 32% in 2009.  Like NIH funding, this is likely to create a difficult funding round in 2011 even if many of these projects secure private or other support.  The NSF also used $5 million to increase the maximum size of Phase I (6-month pilot projects) SBIR grants to small business from $100,000 to $150,000, and to support additional Phase II SBIRs.

One recent beneficiary of the NSF SBIR program is Ginkgo Bioworks .  Founded last year by recent PhDs from MIT’s Department of Biological Engineering, Ginkgo is building on recent developments in synthetic biology to create improved standards and systematic approaches to engineering biological systems.  Their broad aim is to develop technologies and services that make biological systems easier to engineer.  Reshma Shetty, a founder of Ginkgo Bioworks, says that their Phase I SBIR has provided “freedom to invest in foundational technologies” by providing funding without the pressure to produce an immediate product.  Ginkgo’s initial products are based on BioBrick technology, and they have applied for a Phase II SBIR to expand to create products and services for all stages of the bioengineering pipeline.  This sort of investment seems to be a particularly effective use of ARRA funds, leading to both immediate activity and investment in foundational technology.

The DOE received $2 billion for its scientific programs, $58 million of which went to the SBIR program.  The DOE also supports research through major facilities like the National Synchrotron Light Source II at Brookhaven National Laboratory8, and grant programs like $400 million for the Advanced Research Projects Agency – Energy (ARPA-E)9.  ARPA-E is modeled on the Defense Advanced Research Project Agency and has a substantial portfolio of technology projects ranging from material science to in microbial fuel production and biological catalysts.  If federal investment in energy technology continues at such a high level, ARPA-E is likely to become a major source of innovation and commercial opportunities.

Future Prospects

With ARRA funding winding down after 2011 the major challenge will be sustainability.  In the short-term there can be little doubt that ARRA is a major driver for biotechnology research, innovation, and commercialization.  In the medium-term, the pace of science is poorly suited to a two-year funding window.  Granting agencies can expect a wave of renewal applications that will drive funding rates to record lows in 2011. At this stage many promising projects will almost certainly have to be eliminated.  Similarly, competition for early-stage commercial financing will be intense as ARRA projects move out of the lab.  This will be especially pronounced if economic growth has not picked up strongly. The most important long-term impacts of ARRA will be infrastructure and commercial investments that have well-developed models for sustainability independent of government funding.  Other long-term impact will come through programs like ARPA-E, which are intended to represent long-term commitments to key technology sectors.

The first indication of post-ARRA government science funding is the President’s recently published budget request for FY2011.  It includes an increase for the NIH to match inflation, an 8% increase for the NSF to $7.4 billion, a 4% increase to the DOE Office of Science to $5.1 billion, $300 million in the first annual budget request for ARPA-E, and a 38% increase in competitive grants from the Department of Agriculture (to $429 million)10.  With federal spending and government debt drawing an increasing amount of attention, this funding request represents a substantial commitment to science.  The federal government has made science, particularly medicine, biotechnology and energy, a large part of the effort to stimulate the economy and establish long-term growth.  This has created a wide range of innovation opportunities, especially at the intersection of biology with other disciplines.

Our national policy-makers have made a strong commitment to science and technology, although within constraints imposed by political and economic circumstance.  Seeing that these resources are used effectively is a serious challenge for the scientific and technological communities.  In this we are certain to achieve mixed results.  There is good reason, however, to hope that ARRA-funded projects will contribute to broad and sustainable technological development well into the future.


References

  1. National Institutes of Health. http://www.grants.nih.gov/recovery/
  2. Science 27 November 2009: Vol. 326. no. 5957, pp. 1179 – 1180. http://www.sciencemag.org/cgi/content/full/326/5957/1179
  3. Preliminary NIH ARRA FY2009 Funding. http://report.nih.gov/PDF/Preliminary_NIH_ARRA_FY2009_Funding.pdf
  4. Sally Rockey, Deputy Director for Extramural Research, NIH.  Testimony before the Senate Committee on Small Business and Entrepreneurship, June 22 2009. http://www.hhs.gov/asl/testify/2009/06/t20090622a.html
  5. NIH Research Portfolio Online Reporting Tools, as of March 8, 2010. http://report.nih.gov/recovery/arragrants.cfm
  6. NIH Recovery Act Grant Information. http://grants.nih.gov/recovery/
  7. Kimberley Myers, Office of Biorepositories and Biospecimen Research, NCI.
  8. Department of Energy ARRA website. http://www.energy.gov/recovery/
  9. Advanced Research Projects Agency. http://arpa-e.energy.gov/
  10. American Association for the Advancement of Science, Science Insider. http://blogs.sciencemag.org/scienceinsider/2010/02/science-triumph.html
Christopher M. Pirie, PhD

About

Scientist & Co-founder, Manus Biosynthesis";s:15:"profile_teambio";s:432:"Dr. Pirie is a scientist and co-founder at Cambridge, MA based Manus Biosynthesis. Chris earned his PhD in Biological Engineering from MIT in 2011 where his thesis research was focused on therapeutic protein engineering and he was a recipient of the NSF Graduate Research Fellowship. Also while at MIT he served on the Institute Committee on Intellectual Property and served as a writer and editor for the Entrepreneurship Review.";s:11:"profile_bio";s:1019:"He received his Bachelors degree, cum laude with college honors, in Bioengineering from the University of Washington where he studied intracellular drug delivery. In addition to his academic research he has served as a student representative to the Institute Committee on Intellectual Property where he helps guide MIT policy on important IP issues like open source publishing and patent reform. While at Washington he served on the Bioengineering Curriculum Committee pushing for improved course work in molecular transport and mathematical modeling. Born in the San Francisco Bay Area, he grew up in Seattle and now lives in Cambridge. As a life sciences editor and writer for MITER he sources primarily research focused articles with tangential, intellectual excursions into ideas on venture capital and technology translation. Chris enjoys sailing the Charles River, reading classic literature and astrophysics books, traveling to places other people only read about, and BASE jumping off the Green Building.