Competitive federal grants help keep Wisconsin tech companies in the game

Stratatech is a Wisconsin company at the forefront of efforts to develop substitute skin. It’s also a prime example of how emerging companies with innovative technology can compete for, and win, federal research grants that speed discoveries into the marketplace.

Madison-based Stratatech announced this week it has won a $4.6 million grant from the National Institutes of Health to begin clinical trials of ExpressGraft, a skin substitute designed to heal foot ulcers linked to diabetes. It works by closing the wounds and protecting them with a protein that fights infection.

Similar federal grants in the past have helped Stratatech move another product, StrataGraft, into clinical trials for treatment of burn wounds.

For most companies, the grants represent only a fraction of the money needed to move such therapies to market – but they’re vital to attracting private dollars from venture and angel capitalists, whose investments often follow federal grants and turn small R&D companies into larger firms.

In Wisconsin, a state that fares poorly in winning most types of federal grants and contracts, companies such as Stratatech represent an important competitive edge: They are finding ways to turn pure research into products and services the world can use.

The ability of Wisconsin tech-based companies to attract federal research dollars, which are awarded sparingly to companies nationwide, will be highlighted during this week’s Wisconsin Early Stage Symposium in Madison. Fifty-three Wisconsin companies will be honored by winning 96 federal Small Business Innovation Research grants worth more than $45.4 million during the year ending March 31, 2011.

That represents the largest dollar total for Wisconsin in the 30-year history of the SBIR program, topping the $42 million in grants awarded in fiscal 2005. Since October 2003, Wisconsin companies have won about $245 million in SBIR grants.

While critics say some R&D companies live on the grants year after year and never really grow, most companies use them as early seed money and attract hundreds of times more in private investment dollars. Those investment dollars, in turn, create well-paying jobs.

“It’s been a life’s blood for this company over the years,” said Russ Smestad, a Stratatech executive. “But you certainly have to compete for every dollar and show progress at every step.” 

Eleven different federal agencies make grants to researchers whose small businesses are helping push innovations closer to the marketplace. In Wisconsin, the federal agencies most active in making SBIR grants are the National Institutes of Health, the Department of Defense and its various branches, the Department of Agriculture, the Department of Energy, and the National Science Foundation.

Like many other research and development programs funded by the federal government, however, the SBIR and related Small Business Technology Transfer grants face an uncertain future. Federal budget deficits and skeptical attitudes about the value of investments in science, from the space program to energy to climate change studies, have put R&D spending under a budget-cutting microscope in Congress.

Even though programs such as SBIR have proven their worth over time in terms of launching private businesses, it’s uncertain when they will be renewed by Congress and at what spending levels.

With the federal budget deficit projected a $1.5 trillion this year, some members of Congress are taking no prisoners when it comes to cuts – especially in “discretionary” spending programs such as scientific research. Washington’s total investment in scientific research isn’t large compared to other parts of the budget, but the feds fund more than one-third of all R&D spending nationwide. That represented $398 billion in public and private spending in 2008, according to NSF. Of that total, about $30 billion is spent on “basic” research, the kind of unfettered inquiry that can lead to game-changing technologies.

Proponents of R&D say the United States will be eating its seed corn if it slashes spending on science. They believe federal investments in R&D have not only sped life-saving inventions to the market, but created millions of jobs, spawned hundreds of thousands of companies, and helped ensure national security through technological innovation.

That’s certainly the case with companies such as Stratatech, which could use ExpressGraft to help many of the 900,000 diabetes victims in the United States who have developed skin lesions. That’s if clinical trials go well, of course, and the treatment ultimately wins federal approval.

Reducing the federal budget deficit is serious business, but so is moving research from the laboratory to the marketplace – where it can save lives and create jobs. With its strong base of competitive R&D companies, Wisconsin is demonstrating that federal investments in science do both.