Mr. Chairman, I look forward to hearing from the panel today on their concerns with the STTR Program. I hope we can leave here today with a better understanding of what Congress needs to do to improve the STTR Program. We can all agree that this program is a valuable tool to assist small business owners who focus on research and development initiatives. However, there is still work to be done.

Thank you.

Chairman THUNE. Thank the gentleman for his statement. Any additional statements members care to make?

Before we begin receiving testimony from the witnesses, I do want to remind everyone that we would like each witness to keep their oral testimony to five minutes. In front of you, you will see a little box there on the table which will cue you with the red light-when five minutes time has expired. You will get a yellow light when there is a minute left, so it should be fairly self-explanatory, and rest assured there is no trap door if you go over that time. Your entire statements, if you have written statements, will be included as part of the hearing record.

So let me just briefly, if I might, introduce the witnesses and we will get underway. Our first witness today is Mr. Maurice Swinton who is the Assistant Administrator for the Office of Technology at the Small Business Administration. Mr. Swinton is responsible for direct oversight of the STTR Program, and then we will move to the next witness.

So, Mr. Swinton, please proceed.

STATEMENT OF MAURICE SWINTON, ASSISTANT ADMINISTRATOR, OFFICE OF TECHNOLOGY, SMALL BUSINESS ADMINISTRATION

Mr. SWINTON. Thank you, Mr. Chairman.

Good afternoon to the Chairman, and distinguished members of the subcommittees. Thank you for inviting me here today. I am pleased to discuss the Small Business Technology Transfer, or STTR, Program. I manage the STTR Program and the Small Business Innovation Research Program, or SBIR, Program, and the newly authorized Federal and State Technology Partnership Program.

In 1992, Congress enacted Public Law 102-564, which authorized STTR as a companion program to SBIR. Despite SBIR's success, Congress felt that more could be done to link small businesses with creative ideas at universities, nonprofit scientific and educational institutions, and federal laboratories. This collaboration would result in a better commercialization rate for federally sponsored research conducted at nonprofit institutions.

Both programs share the same philosophy-use federally funded research and development requirements to promote technological innovation by small businesses and strengthen the American econ

omy.

Like SBIR, the STTR Program is structured in three phases. Phase I in the STTR Program is to evaluate the scientific, technical and commercial merit of an idea and it is funded at $100,000 for a one year period. Phase II funds Phase I projects that have the most potential for further development and it funds them at

$500,000 for two years. Under Phase III, no federal STTR funding is provided. Private sector support is used to bring the innovation to the commercial marketplace.

The ten participating agencies in the SBIR program have research and development budgets greater than $100 million and are required to reserve 2.5 percent for their SBIR programs. Conversely, the five agencies participating in the STTR Program have research and development budgets greater than $1 billion, and must reserve .15 percent for their STTR programs.

The STTR goes beyond the SBIR program. It involves cooperative research and development performed jointly by a small business and a research institution.

Although the project is a joint effort, the small business exercises overall management, control and responsibility for the project.

In its eighth year of operation, the STTR Program continues to meet its objectives and impacts innovation and commercialization of products and services. In FY1999, participating agencies issued 329 awards to small technology firms, totaling over $64 million. For the past four years, the program has provided an average of $65 million annually for small businesses and their research partners to accomplish the research needs of the agencies.

Since the inception of the program, over $198 million has been awarded to 1100 small businesses, and over 250 universities have partners with small, innovative firms to conduct STTR research projects. These firms provide jobs and economic growth in most states.

The SBA plays a major role in the STTR Program. We establish program policy, monitor agencies compliance, and report annual STTR Program activities to Congress. SBA is also the information link to agencies' research topics. We collect solicitation information from them and publish quarterly updates on SBA's web site.

Through the Rural Outreach Grant Program, we have been successful with working with states. This program provides 25 states an opportunity to increase their participation levels in the programs. These states met the criteria established in Public Law 105-135 as states receiving less than $5 million in funding during fiscal year 1995. They also showed a low participation rate in the SBIR and STTR programs. Attached to my written testimony is a list of the 25 states.

The SBA has also been very successful through its innovative initiative to increase the participation levels of small disadvantaged businesses and minority educational institutions in the program. The SBA, along with other federal agencies, has provided a series of SBIR and STTR seminars and workshops for these entities.

Assessments of the program have been favorable. The 1996 GAO review of the program found that the technical quality of the STTR proposals have potential for commercialization.

Authority for the STTR Program expires on September 30 of this year. The Administration supports reauthorization of the program for a three year duration, and no increase to the percentage set aside for the program. The Administration also will support an increase in the Phase II award level to $750,000.

Thank you for the opportunity to appear before you today. I will be happy to answer any questions you may have.

[Mr. Swinton's statement may be found in appendix.]

Chairman THUNE. Thank you, Mr. Swinton. I appreciate your testimony and would also note for the record, Mr. Udall noted the number that New Mexico-I was just looking at the chart here. South Dakota has received one STTR Grant. So we have got a lot of room to grow there. We do not like being last in that category. We do not mind being last in crime and some other categories, but we want to move up.

Our second witness is Mr. Tim Foreman who is the acting director of the Small and Disadvantaged Business Utilization Office at the Department of Defense.

So, Mr. Foreman, please proceed.

STATEMENT OF TIM FOREMAN, ACTING DIRECTOR, SMALL AND DISADVANTAGED BUSINESS UTILIZATION OFFICE, DEPARTMENT OF DEFENSE

Mr. FOREMAN. Thank you, Mr. Chairman. Thank you distinguished members. It is a pleasure to be here this afternoon to talk to you about the Small Business Technology Transfer Program, which we term the STTR Program.

The thrust of the program is designed to bring the research and development and engineers at the institutions, educational institutions, and I should tell you who they are. They are basically universities, federal funded research project centers, as well as nonprofit research institutions together small business concerns.

And you get the entrepreneurial spirit of the small business, and you bring in these new innovative ideas. And we have found in the Department of Defense it is extremely helpful and supporting our military movements in the research and development efforts.

I am not going to read it. I am just going to have my statement, if I would, put into the record, but sum up some of the interesting things that I think we should note.

We do support the extension of the Small Business Technology Program. Hopefully, it is going to be reauthorized. What the administration's position is is to maintain the current level of funding; that is, .15 percent based-basically pending what we are going to be looking at under Secretary Rumsfeld's strategic review. We do not-again contingent upon that strategic review, the information that we have does not support the movement from 1.5 percent to three percent because the data just does not support that there is merit in those dollars at the current funded level.

So with that I will try to get us back on time, and I thank you, and I am very pleased to take any questions.

[Mr. Foreman's statement may be found in appendix.]

Chairman THUNE. Thank you, Mr. Foreman, and I think next up, at least in the order in which you are sitting there, and this is our last government witness, is Jo Anne Goodnight from the National Institute of Health. Ms. Goodnight, who has 16 years of government service, is currently the SBIR and STTR Program Coordinator for the Public Health Service and the National Institutes of Health.

And I will also note that we have been joined by the gentleman from Illinois, Mr. Phelps, and ask Ms. Goodnight to proceed.

STATEMENT OF JO ANNE GOODNIGHT, PROGRAM COORDINATOR, NATIONAL INSTITUTES OF HEALTH, DEPARTMENT OF HEALTH AND HUMAN SERVICES

Ms. GOODNIGHT. Thanks. Can I buy his three minutes he didn't use. Just kidding.

Good afternoon. On behalf of the National Institutes of Health, I am pleased to have the opportunity to testify before you today on the reauthorization of the STTR Program.

Due to the size of our extramural budget, NIH is the only component within the department that participates in the STTR Program, and our budget now constitutes the second largest amount of SBIR and STTR funding available across the federal government.

The STTR Program, like the SBIR Program, is well integrated within the overall scientific programs and goals of the NIH. It has enhanced collaborative efforts between the small business research community and the academic research community. These collaborations may be initiated either by researchers at the small business concern or the research institution.

It is collaborative opportunities such as these that are most likely to result in innovative projects that have the greatest commercial potential and societal benefit.

Though STTR is a much younger program than the SBIR program, a number of NIH STTR projects have already resulted in significant improvements to our nation's health and an increased productivity of other researchers.

I would like to discuss two successes in particular. Vaxin, Incorporated, of Birmingham, Alabama, developed a needle-less vaccine technology. STTR resulted in the development of a novel tetanus vaccine, and Vaxin is currently developing similar vaccines against a wide variety of infections or cancers, all targeted toward painless, needle-less administration using a skin patch.

Idaho Technology, through NIH STTR funding, developed a thermal cycler machine. The LightCycler, which is tied to a process called polymerase chain reaction, can multiply and analyze strands of DNA and RNA ten times faster than the equipment that most research labs are using. In six years, IT has grown from a six-person start-up company to a firm today that employs 65 scientists and engineers, and sells a growing range of instruments and reagents.

The IT company president states, "The STTR program gets much of the credit for this growth. Without the initial Phase I grant, we would not have developed the product that has brought us commercial success. The STTR program benefited us by providing that seed capital to prove principle on a high-risk project, and a structure for collaboration with the University of Utah."

The NIH attributes the success of our STTR and SBIR programs to several factors, the most significant of which is flexibility in our administration of the programs. What has made them so appealing are the opportunities presented multiple times a year for firms to propose innovative R&D projects with truly revolutionary outcomes rather than restrict the ideas to projects that can only be conducted under a prescribed amount of time and money.

Our experience is that the conduct of certain types of biomedical and behavioral research, such as nano technology, clinically-related studies, vaccine development, and drug discovery, does not routinely lend itself to prescribed maximum time and dollar levels. These are exceptions, but such projects can be important steps in integrally involving small businesses in some of the most exciting, cutting-edge research.

Mr. Chairman and committee members, having provided a brief overview of how NIH has utilized the STTR Program and benefited from it, I would now like to address two important areas related to these programs.

Although the programs share common threads, NIH believes that the STTR Program serves a very important function and one different than the SBIR Program. While SBIR is a vehicle for harnessing innovative ideas in the private sector, STTR taps a pool of technological innovations in our nation's research institutions.

STTR stimulates tech transfer by providing an effective mechanism for academicians to partner with a firm to pursue a commercially promising idea that would otherwise languish on the shelf. While academic researchers may play a consultant or collaborative role in an SBIR project, they can't participate in the SBIR program in a significant way as long as their primary employment is with the research institution.

Therefore, STTR makes a significant difference to an academic researcher who desires to be an entrepreneur but finds it unfeasible to leave the research institution to start a small business. STTR is a promising program and NIH supports its continuation. We are taking steps to further enhance the program with a particular focus on narrowing the funding gap between Phase I and II, and improving our outreach activities.

We have established a Phase I, Phase II Fast Track option designed to expedite the decision and award of Phase II funding. We realize that Fast Track is not appropriate for all types of research, therefore we have provided alternative options to bridge the funding gap, such as an extension in time with or without funds and allowing Phase II applicants to submit on any of our three annual receipt dates.

In addition, we encourage our awardees to seek potential state matching resources. We realize that outreach is critical to the success of the STTR and SBIR Program. Each year we host an SBIR/ STTR conference on the NIH campus. In addition, we participate in three national SBIR and STTR conferences, at least one of which is held in a rural state. And we participate in numerous regional and state conferences. We will continue our efforts to raise awareness about STTR and SBIR funding opportunities in state and research institutions within them.

In conclusion, NIH is very pleased with its involvement in the STTR and SBIR Programs, and I would be happy to answer any questions you might have about our participation in them. Thank you.

[Ms. Goodnight's statement may be found in appendix.] Chairman THUNE. Thank you.

Mr. GRUCCI [presiding]. Next we will hear from Dr. Walter Polansky of the Office of Science at the Department of Energy.