Stimulus Program Underwhelms | January 24, 2011 Issue - Vol. 89 Issue 4 | Chemical & Engineering News
Volume 89 Issue 4 | p. 22
Issue Date: January 24, 2011

Stimulus Program Underwhelms

Small pharma firms cite government’s glaring underestimation of the response to a $1 billion program
Department: Business
Keywords: economic stimulus, grants, drug development
Yarger
Credit: Endece
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Yarger
Credit: Endece

The Qualifying Therapeutic Discovery Project (QTDP), a program designed to channel federal economic stimulus funds to the health care sector under the Patient Protection & Affordable Care Act of 2010, was certain to garner interest among the small drug and medical device development entities that qualified to apply, given the dearth of venture capital that traditionally fuels such operations. In fact, the program received nearly four times as many applications as anticipated, and awards were given to nearly 70% of all applicants. As a result, awardees express frustration with a program they claim delivered far less than it promised.

QTDP, administered by the Internal Revenue Service, the Treasury Department, and the Department of Health & Human Services (HHS), distributed $1 billion in grants and tax credits to qualifying applicants with up to 250 employees developing drugs and medical devices. The IRS, in its application instructions, estimated that 1,200 applications would be filed. Instead, the program received some 4,600 applications, according to an HHS press release, and nearly 3,000 firms received more than 4,200 grants or tax credits.

Neither IRS nor HHS would comment on the disparity between estimated and actual volume of applications or on criticism from companies awarded grants. A spokeswoman for the National Institutes of Health says NIH vetted applications to certify that company projects met the basic criteria of focusing on unmet medical needs, combating chronic or acute disease, treating cancer, or reducing health care costs.

Launched in May 2010, the program had a July application deadline. Awards were announced in November.

Endece, a Milwaukee-based cancer drug development firm, received $244,479 for work on a therapy to control tumor growth. Chief Executive Officer James Yarger conveys a sentiment common among awardees interviewed by C&EN. “I was happy to get the grant, but I thought this would be a much more useful program,” he says. “A quarter of a million dollars is peanuts—you can’t do much to cure cancer with that much money. My feeling is that the government was overwhelmed with applications and unprepared for how to review them scientifically.”

According to Jeffrey Evans, the former president of Rondaxe, a drug development consulting firm, client companies Rondaxe assisted in applying for the grant last year now believe the time spent could have been put to better use.

“When companies realized they were going to get $244,000, they scratched their heads. It tended to distract them from the whole fund-raising process,” says Evans, who is now CEO of Onco Holdings, a newly formed drug development firm.

Ving J. Lee, CEO of Adesis and chief science officer of Limerick BioPharma, is also critical of QTDP. Limerick received awards of $244,479 apiece for an immunosuppressant therapy and a lipid chaperone treatment for metabolic disorders.

“The problem is that they didn’t give applicants the time required to come in with more wholesome-type applications,” Lee says. Nor, he says, was there a thorough scientific vetting of the applications.

“In the end, they took the number of applications and divided the money,” he says. Lee estimates that more than 80% of the biotech companies in the San Francisco area received awards through the program. He further speculates that several companies awarded grants are likely to go out of business in the year ahead.

Other grant recipients lament lower than expected awards. Quanterix, a single-molecule-analysis instrumentation company, received grants totaling $733,000 on three applications. David Hanlon, director of strategic marketing and collaborations, says the awards are a sizable amount of money for a start-up company, but he expresses disappointment as well. “We expected something on the order of three- to fourfold what we got,” he says, based on spending figures submitted in Quanterix’ application.

Biodesix, a Boulder, Colo.-based developer of high-throughput molecular diagnostic systems, netted $1.4 million in grants on the six applications it filed. CEO David Brunel is less critical of the government’s handling of the program than some other award recipient executives. “Were we disappointed that over 3,000 applied instead of 1,000? Yes. But I wouldn’t put that on the Obama Administration,” he says. “The point was to get stimulus money out to the biotech sector. And it helped. We spent it on reagents and staffing.”

Brunel says he makes a distinction between an economic stimulus program like QTDP and other kinds of grants, specifically NIH grants that support early-stage discovery, entail rigorous scientific vetting, and generally have higher payouts. “The people I talk to wish QTDP was more merit based and peer reviewed with a thoughtful look at the impact on therapeutic areas,” he says. “But it could never have been executed in six months that way.”

Although views vary on how well the government vetted applicants, there is little disagreement that it grossly miscalculated the response QTDP would receive. Yarger of Endece, which submitted one application, says he is convinced the government was overwhelmed partly because of multiple applications from individual companies. “Some broke their submissions down into three applications and got them all accepted,” he says. “If I had to do it again, I would apply differently.”

 
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