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NIH SBIR Grant Application Tracks - Phase 1, Phase 2, FastTrack: Which One is right for you?

Updated: Mar 1, 2023

Are you considering NIH SBIR funding for your healthcare innovation? NIH SBIR grants are an excellent way for Founders to get non-dilutive small business funding, but to have the best shot at success, there are some intricacies you should know!


I was recently asked, “Stacy, I’d like to submit an SBIR application to the National Institute of Health. Should I go for a Phase I, Phase II, Direct to Phase II, or a FastTrack SBIR application?” After helping this client work through which was best for their situation, it occurred to me that this is a very common question I get, here at KeepYourEquity.co, all the time from founders developing new biomedical technologies.


So today, let’s break down why you should consider NIH SBIR grants for your start-up, how much funding you can secure, and what you need to know about these different opportunities so that you can pursue the best option for you!

Hurdles of Innovating in Healthcare


First, let’s talk about some important background information on securing federal grant funding for your small business or start-up.

I’m sure it is no surprise to you, developing new innovations in medicine and healthcare is very difficult. And this goes for start-ups creating new medical devices, cancer therapeutics, software platforms, digital health products, and so much more. In fact, it is estimated that over 75% of US-based medical device start-ups will fail.


There are several reasons for this.


Highly Regulated Industry


First, the US healthcare ecosystem is COMPLEX. There are so many rules and FDA regulations start-ups must adhere to get new medical devices, healthcare products, or therapeutics through the pipeline.


Requires Long-Term Dedication


Secondly, the timeline from concept to commercialization is very, very, very long. For example, the Tufts Center for the Study of Drug Development reported it takes an average of 10-15 years for a new drug to make its way from discovery to the marketplace. Unfortunately, that is a lot of time to dedicate significant resources to one idea.


Money, Money, Money


The third reason is that so much capital is required to innovate in this space! Not only do you need a lot of money to develop and test these innovations, but even more capital is required to perform animal testing, pursue clinical trials, secure patents, obtain FDA clearance, and stay in compliance with all the US regulatory requirements.


Each of these steps can easily cost $100k or even more. Unfortunately, these expenses are just the beginning of the bill you’ll rack up…


Traditional Funding for Healthcare Innovations


Because innovating in medicine and healthcare is so risky and requires so much capital, it is nearly impossible to secure outside funding from Angels or Venture Capitalists until you have validated a proof-of-concept, especially as a first-time founder.


Even if you can secure pre-seed or seed funding early in your start-up journey, you usually have to give away a large percentage of your company equity to investors to compensate for the risk they’re taking by investing in you and your start-up. Ultimately, giving away equity means having to share the decision-making and the eventual profit which is not ideal for small businesses.


NIH SBIR Funding: A Non-Dilutive Start-Up Funding Alternative


So if you don’t want to give away equity in your company, but still need money to bring your idea to life, what’s the other option? Federal grant funding!


Despite all of these hurdles, the US government encourages founders to innovate in medicine and healthcare and takes on these risks anyway. They give away free money to start-ups through the SBIR and STTR grant programs!


In fact, the US government budgets about $1.2 billion each year just for the National Institute of Health, or NIH, to support research and development efforts to bring new biomedical technologies towards commercialization.


Benefits of NIH SBIR Funding


And because of that, these NIH SBIR and STTR programs are critical to advance biomedical technologies in the US for 4 primary reasons.


Making Way For Small Businesses


First, funding from these programs allows early-stage start-ups to investigate whether their innovative solutions can actually solve a particular problem in medicine or healthcare better than current options on the market.


Less Risk


Second, start-ups can pursue the necessary R&D efforts to overcome technical challenges to “de-risk” their innovation. With less risk, companies are in a better position later for additional funding should they need it.


Evaluating for Potential


Third, start-ups can use this funding to validate the commercial potential of their innovation. Again, this is important to increase the valuation of the company and also attract outside investors to support the next stages of development.


Non-Dilutive


And fourth, SBIR and STTR programs offer non-dilutive funding to start-ups, which means Founders can keep all the equity in their start-up which is essential, especially in the very early days of development.


NIH SBIR Grant Funding Opportunity Announcements


Before jumping into an NIH SBIR grant opportunity, it is important to know how to find them.


The NIH sends out a Funding Opportunity Announcement, or FOA, three times each year under the Omnibus Solicitations, or Parent Announcements, to encourage entrepreneurs to secure non-dilutive funding from the NIH. These FOA’s are essentially an overview of what the NIH is offering for the current year as it changes from year to year.


You can find the FOA for these funding opportunities under the title, “Omnibus Solicitation of the NIH and CDC for Small Business Innovation Research Grant Applications” or “Omnibus Solicitation of the NIH and CDC for Small Business Technology Transfer Grant Applications.”


The Notice or FOA number for each of these omnibus solicitation opportunities differ depending on whether you are pursuing an SBIR or STTR or whether you are proposing to conduct a clinical trial.


The standard application deadlines are on September 5, January 5, and April 5. Due dates that fall on the weekend or Federal holidays are actually due the next business day.


Phase I, Phase II, Direct to Phase II, & FastTrack NIH SBIR/STTR Applications


Once you figure out when to submit a grant application, whether you want to pursue an SBIR or STTR, and if you are conducting a clinical trial, the next thing is whether you’d like to go after a Phase I, a Phase II, a Direct to Phase II or a FastTrack application. The answer at its core comes down to where you currently are in your developments along with your short- and long-term start-up needs.


Many times, Founders have asked me whether one option is less competitive than the other. Unfortunately, my response is always no. Each NIH SBIR application track is just as competitive as the rest for its own unique reasons. However, it is still important for you to pick the right opportunity so that you can prepare a strong application to increase your chances for an award.


Phase I SBIR/STTR Grant Applications


The first route to get NIH SBIR funding is the Phase I application. The purpose of an NIH Phase I SBIR or STTR application is for a start-up to establish the scientific merit, technical merit, and feasibility of the proposed research. Here your goal is to validate that your innovation has the potential for commercialization.


So if you are a brand new start-up with a ground-breaking idea but you haven’t done any research and development to prove that your idea works, then a Phase I application is a good fit for you. Phase I applications don’t require you to have any preliminary research data although presenting some early findings would greatly strengthen your application since this helps to justify Phase I funding support.


Phase I Grant Goals


At the end of Phase I, your goal is to develop some sort of prototype or MVP (minimal viable product) and to test it against the leading commercial standard so that you can demonstrate its value proposition and that your solution works better than the current state-of-the-art market offerings.


For that reason, a lot of thought has to go into developing a rigorous R&D strategy. If you have read my blog about the top 3 SBIR application tips, you know preparing an SBIR grant application takes longer than most Founders think. I always advise Founders to spend at least 3 months preparing, drafting, and revising an SBIR application, especially if it's your first time preparing a federal grant application to have a strong R&D strategy.


What to Include


In a Phase I application, you want to inform reviewers what experiments you plan to do, a justification as to why these are essential experiments to pursue, how you plan to perform these studies, how are you collecting and analyzing data, what the anticipated deliverables are, and what problems could you encounter along the way with plans to solve them. All of your technical arguments and your hypothesis should be supported by existing peer-reviewed research to justify the need for your proposed research efforts.


NIH Phase I SBIR or STTR applications require a 6-page research strategy which is the main technical document that will undergo the most scrutiny from the reviewers. In addition to the research strategy, there are lots of other supporting documents such as the Abstract, Project Narrative, Budget, Budget Justification, Biosketches, Facilities & Resources, Specific Aims, Reference List, and Letters of Support.


Phase I SBIR Budget


Now, if you go for a Phase I application, you can request a proposed budget of up to $295,000 for a 6-12 month project period. You may find this video that dives deeper into budgeting for SBIR applications and the 3 categories to consider when preparing your budgets helpful in your decision-making process.


Phase II SBIR/STTR Grant Applications


After a Phase I NIH SBIR grant is awarded, a startup can begin a Phase II NIH SBIR grant application.


Phase II Grant Goals


The purpose of Phase II SBIR or STTR funding is to allow the start-up to continue the R&D efforts initiated in Phase I. In Phase II, your goal is to focus on transforming the proposed innovation into a product or service that can be commercialized and eventually generate revenue.


To pursue a Phase II application, your start-up must be awarded a Phase I application. Because of that, the chances of securing an NIH Phase II SBIR or STTR application are higher compared to the other opportunities – although still very competitive.


What to Include


In Phase II, start-ups should still propose a rigorous R&D strategy. However, unlike Phase I, the experiments proposed should be more aligned to overcome the technical hurdles required for commercialization.


Some examples would be optimizing the product or device towards a commercial product, overcoming scalability or manufacturing hurdles, pursuing animal studies, conducting clinical trials, or pursuing studies required for regulatory approval.


For these reasons, it is important that your goal and team are well-suited to pursue these commercialization efforts. That means not only should you have team members and consultants with expertise in science, engineering, and medicine but also business, regulatory, legal, and finance. If you need help on how to structure your team differently between a Phase I vs. Phase II application, I’ve got a detailed video for you here.


Phase II SBIR applications require a 12-page research strategy and a 12-page commercialization plan. You can think of these applications as Phase I proposals on steroids! In addition to these documents, you must include all the other supporting documents I’ve mentioned.


Phase II SBIR Budget


Start-ups pursuing a Phase II application can request up to $1.97M for a 24-month project period. Since Phase II grants come after the innovation has proven to be viable, there is a lot more money budgeted towards Phase II vs. Phase I grant opportunities.


Direct to Phase II SBIR/STTR Grant Applications


Now onto a less traditional NIH SBIR application track… a Direct to Phase II application.


A Direct to Phase II NIH SBIR application is the same as a Phase II application except for one major difference. With a Direct to Phase II application, start-ups aren’t required to have completed a Phase I SBIR award.


Despite this, your start-up must have very strong preliminary data from previous research efforts. The results should demonstrate proof that your innovation already has commercial potential and, thus, your innovation is ready to begin Phase II efforts. Typically, the start-ups that align with a Direct to Phase II application have other grant funding support or outside investments to pursue early R&D investigations.


On the other hand, if you don’t have really strong preliminary data, then a Direct to Phase II application is not the right opportunity for you.


FastTrack SBIR/STTR Grant Applications


Finally, the other alternative NIH SBIR application track is the FastTrack application.


FastTrack SBIR Grant Goals


The purpose of the FastTrack application is to allow start-ups to submit both Phase I and Phase II SBIR grant applications together. This opportunity can be a great way to expedite the award decision.


However, the NIH will only award start-ups with scientifically meritorious projects that have a high potential for commercialization, so these grants are highly competitive. Since you have to thoroughly think through your Phase I and then Phase II R&D efforts, there is a mountain of work and planning that must go into a Fast-Track application. Just to give you an idea, I’ve worked with a client on their FastTrack application for 6 months.


What to Include


If you decide to go for an NIH FastTrack application, ensure you include a statement that explicitly informs the reviewer what key quantitative metrics would demonstrate Phase I success to show you are ready to jump into your Phase II efforts. We call this the “go/no-go” metric. If you don’t have this go/no-go metric, reviewers will call you out on it.


Fast Track applications also require a 12-page research strategy and a 12-page commercialization plan.


FastTrack SBIR Budget


Because it combines Phase I and Phase II, you can also up to the same amount of $295,000 for a 6-12 month Phase I project period and then $1.9M for a 24-month Phase II project period.


Fast Track applications give you the opportunity to secure over $3M of non-dilutive funding for your start-up over 3 years. Though the potential of getting “free money” faster is exciting, it sounds easier than it is. If you decide to go for it, make sure you are ready to roll up your sleeves and get to work.


Getting Help With NIH SBIR Funding


Ultimately, NIH SBIR/STTR grants are an excellent option to bring healthcare innovations to the market without giving away precious equity in your company. Now that you know the difference between the various NIH SBIR funding opportunities, use this information to decide the best course of action for your situation.


Want some personalized guidance? Here at KeepYourEquity.co, we partner with Founders like you to help navigate the complexities of securing federal grant funding.


Reach out today to see how we can help you increase your chances of securing NIH grant funding or visit our website and YouTube channel for more free resources, templates, and advice.

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