Hall of Fame Induction speech
by Drs. Judith and Arthur Obermayer
at the White House
in the Indian Treaty Room
from the Small Business Administration
for the Small Business Innovation Research Program
June 15, 2015

(Judy) Thank you for honoring us with this award.  It is particularly gratifying to be recognized for our contributions 30 to 40 years ago.  At that time we did what we believed would be in the best interests of the small business community and our nation.  The impact of the Small Business Innovation Research Program (SBIR) has demonstrated that our judgment then was sound.

Many others had significant roles in preserving and promoting the program, but unfortunately only a few of them are still active.  We would particularly like to recognize Ann Eskesen and Jere Glover who continue to support SBIR and stood with Senator Kennedy and us at the Rose Garden signing in 1982.

(Arthur) We have backgrounds significantly different from most of the other people here.   I have actively worked at the interface among science, small business and politics.  The combination had a lot to do with the origin of the SBIR program. 
I received my Ph.D. in Chemistry at MIT in 1956, and five years later started my own company, Moleculon Research Corp.  The company still exists, but is only a shell residing in my home.  In 1984, we had an Initial Public Offering, and in 1988 the operations of the company were sold to an Australian pharmaceutical company, but the shell remained. 

During the 1960s, I not only ran my own company, but also focused on the broader issue of opportunities and impediments related to the growth and survival of research-oriented small businesses.  During the 1970s, I testified frequently at Congressional hearings on the various problems small science-based companies have in dealing with the government, ranging from patent ownership to overhead rates to prejudice against young, unfamiliar companies.

Although I was a National Science Foundation Fellow in graduate school, I had no further connection with the National Science Foundation until I was asked in March, 1970 to testify before Sen. Ted Kennedy’s NSF subcommittee of the Senate Labor and Public Welfare Committee.  This was the beginning of a continuing professional and personal relationship with Sen. Kennedy, which ultimately led to the funding of the SBIR program at NSF.

The gist of my testimony was that regulations and procedures were in place that made it almost impossible for science-based small businesses to obtain funds from NSF for high quality research.   A number of circumstances converged to encourage him to respond constructively to my concerns.  The legislative council of the full committee was my cousin, Bob Harris; Kennedy’s science advisor and former Assistant Director of NSF was a college classmate and a good friend of mine, Ellis Mottur; and my testimony was the basis of a reporter’s article in the Boston Globe which Kennedy in turn entered into the Congressional Record.  Furthermore, during the same time period I initiated and was treasurer of Father Drinan’s successful Congressional campaign, a candidate Kennedy actively supported.   Two years later we had another political connection when I was on Senator George McGovern’s Presidential Speech Writing staff focusing on job opportunities for high tech entrepreneurs.

In order to force NSF to open its doors to qualified small business Kennedy wrote into the next year’s legislation the requirement that 7½ %  (later 12½ %) of the funds under the NSF Research Applied to National Needs (RANN) program be set aside for small business.   NSF’s response to this mandate was to discontinue the RANN program and replace it with the Applied Science Research and Applications program, which had the same purpose but was not subject to Kennedy’s mandate.  Kennedy knew how to play these games too, so the next year he required a small percentage of the entire NSF budget be directed to small business.  When NSF recognized that they were stuck with the small business set aside, they asked Roland Tibbetts to manage it and generate a specific program, which became the Small Business Innovation Research Program. For the first few years I worked closely with Roland to protect the program from those who wanted to make it fail.  In January 1978, I was the first person to testify at any Congressional committee in support of SBIR stating it could “potentially be the most significant government program of this century in the field of science and technology.”
The first project where my company, Moleculon Research Corporation received funding from NSF was under the RANN program.   Then when SBIR was first initiated, we received two phase one awards which were extended to phase two.  In those days the phase one awards were for a maximum of $25,000 and phase two for $200,000.  How times have changed!  During the next ten years as SBIR was broadened to be government wide, we received eight awards from NSF, DoD, Interior, HHS and Energy.   They all involved different potential applications for a unique polymer membrane we had developed.  In 1984 my company had an IPO where our polymer membrane technology was applied to controlled release drug delivery products, and then in 1988 a large Australian pharmaceutical company acquired all of the operations of the company.

(Judy)  Arthur and I have frequently worked together as a team.   I have a Ph.D. in math from Harvard, and taught at Wellesley College for several years.  While raising three children, I worked part time at Moleculon serving in a number of management roles. I also became very involved in small business activities as a consultant, as a board member, and as an officer of various business organizations. I chaired the Massachusetts delegation to the 1996 White House Conference on Small Business.

Arthur has spoken about the early history and development of the SBIR program at NSF.  But getting it spread through out all the government agencies that did significant research and development required a political strategy.  In 1967 the government set up a task force of prestigious industry leaders to examine the sources of major innovations. The conclusions were put out in what is known as the Charpie Report, which demonstrated conclusively that most major innovations had arisen from small businesses or individual inventors.  Large companies have too much invested in current manufacturing and marketing so that they are only looking for incremental improvements and fear major innovations that will replace their existing business success.

The person who deserves the most credit for changing the public perception of small business was Milton Stewart, Chief Counsel for Advocacy at the SBA.  I met him in early 1979, when I was invited to join a task force of small, high technology business executives and venture capitalists to discuss what was needed for these companies to grow and what role the government could play. 

The outcome was a set of recommendations presented as part of a report entitled Small Business and Innovation, published in May 1979. There were four major recommendations relating to patent ownership, regulatory flexibility, capital formation and extending SBIR system wide. The most important for this discussion related to patent ownership and SBIR.

Recommendations are fine, but unless they are enacted by Congress, they don’t mean anything.   A groundbreaking event initiated by Milton Stewart was the 1980 White House Conference on Small Business.   His foresight and strategic perspective were extremely important.  His goal was to make all small business people feel a commonality of interest and create connections to politicians for advocacy purposes.  Milt set up meetings in almost every state to discuss a whole range of small business issues and choose delegates to the White House Conference on Small Business.  In addition to the delegates elected at the regional meetings each Senator, Congressman and Governor had the opportunity to appoint their own delegate, thus they were both honoring a constituent and feeling part of the process. Over 1,000 delegates took part in the White House Conference of 1980 and discussed common issues both in specific breakout groups and plenary sessions.  Then they voted on the top 100 priorities and met with their own Senators and Representatives to explain those issues that were important to them and that have broad support in the small business community.  Prior to this conference, much of the public and the politicians looked at small business as businesses that just had not been successful enough to get large, but after this conference, small business was recognized as a potent political force and the engine that makes the economy work.

Arthur and I actively supported this effort, and Arthur became the delegate representing Tip O’Neill, the Speaker of the House.  I attended as a resource person in the breakout sessions related to technology and innovation.  Our interest and that of many others, was related to a number of pieces of specific high-tech legislation.  A concern was that we didn’t want the high-tech people to split their vote among a number of different pieces of legislation.  Therefore, at the suggestion of Jere Glover, one omnibus bill, S.1860, became our rallying cry.  It contained the Small Business Innovation Research Act (SBIR), the Bayh-Dole Patent Act, the Regulatory Flexibility Act for Small Companies, and an act related to capital formation.  We could vote for S.1860 and promote all of these important pieces of legislation.   Our next goal was to convince other delegates to include support of S.1860 as one of their top priorities when they cast their final votes.  We used the standard technique for lobbying at a national convention.  The morning of the voting we created flyers making the case for S.1860, putting one on every chair in the room, and we gave out S.1860 stickers for supporters to wear.  In the end the first five recommendations related to capital formation; and S.1860 came out #6 overall, which was extremely positive, considering that high-tech people represented a relatively small fraction of the voters at the conference. The final report focused on the first 12 recommendations as the top priorities for the small business community. Following the conference, delegates were encouraged to meet with their congressional representatives and press for support of the top small business recommendations.

The high ranking of S.1860 allowed us to demonstrate broad support for these various pieces of legislation, and eventually we were successful in securing their passage.  The Bayh-Dole Patent Act was easily passed later in 1980, and Arthur attended the White House signing ceremony for the Regulatory Flexibility Act.  The SBIR Act, on the other hand, took two more years to secure its passage into law, because it was vigorously opposed by the academic community.   They felt that quality research could only be done at universities, and that we wanted to cut out a piece of their pie.  Initially, the SBIR champion was Senator Kennedy.  However, when the Congress became Republican, Senator Kennedy knew his support would not help politically, so he stepped back and encouraged Republican Senator Rudman from New Hampshire to carry the load until it passed.  The signing was in the Rose Garden on a very hot July day.  President Reagan signed the bill with a group of members of Congress behind him, but Senator Kennedy was not invited.  At the last minute, Kennedy arrived to stand with the public to see the signing.  Those of us present who knew the full story were embarrassed by this lack of courtesy but immediately congratulated Kennedy at the conclusion of the ceremony. 

(Arthur) A parallel concern for both of us was ownership of patent rights resulting from government funded research.  Government owned patents were usually a dead end, because the government normally had no interest in their commercialization; and the private sector without patent protection had little incentive to step in to develop and market the technology.   At the White House Conference on Small Business we also supported legislation to change this, and I testified before the Senate Judiciary Committee in support of the Bayh-Dole Patent Act.   It became law at the end of 1980, and was much less controversial than SBIR since it gave patent title to government-sponsored work not only to small business, but also to universities and hospitals.  The following year Judy prepared a report for the SBA on the importance of the Act for small businesses.

Bayh-Dole and SBIR in combination have had a major influence on our country’s economic growth in the past 35 years.  At the time of passage the potential economic consequences of these two acts was hardly noticed by the news media or the public, and I have seen no recent studies that have focused broadly on this dynamic engine of economic growth.

As a specific example, when I was finishing graduate school in chemistry, if I wanted to do pharmaceutical or biomedical research, almost all of the opportunities were in the laboratories of big pharma located in the region between New York and Philadelphia.  Today the center of pharmaceutical and biomedical research is in and around Cambridge, Massachusetts.  Why? 

This area where I live is known for its outstanding universities and hospitals, much of whose research is government funded.  They now actively seek patents because of Bayh-Dole and then license them to start-up companies where the universities and research hospitals as well as the inventor have an equity or royalty interest. These start-up companies then need the seed capital to demonstrate that their technology has commercial potential.   The SBIR program provides this early funding without diluting the company’s equity.  The SBIR support can bring the company to the stage where venture capital or angel investment groups are confident enough in its commercial potential to make further and larger investments. At the same time big pharma identifies small business research of interest to them and acquires either the patent or the company, and then has the financial resources to provide the follow-on expensive clinical testing and marketing.  This can potentially provide substantial income to the researcher/inventor and the research institution with which they are associated.  Today this new sequence motivates academics to produce patentable inventions, and all research universities and hospitals have technology transfer or licensing groups.

Today there are many, many more small high tech companies in the Boston area and throughout the country than when I got started in 1961.  The availability of SBIR funding has accelerated this growth and enhanced the opportunity to seek additional private sector investment.  Furthermore, an entire financial and marketing infrastructure has grown up to service these innovative small companies.   Finally, large multinational companies have located facilities to take advantage of the research environment that attracts creative people.  For example, during the past year Pfizer has been building a new 280,000 square-foot research and development hub in Cambridge which bring together 1,000 researchers from three other locations.  Not to be outdone, Novartis is also constructing two new buildings in Cambridge with 550,000 square feet of laboratory, office, and retail space and the renovating a large existing structure.

I have focused on the chemical and pharmaceutical industries because this is my field.  However, during the past few years new facilities have been located in Cambridge by digital technology companies such as Google, Amazon, Apple, Microsoft, Oracle and Samsung.  Their rationale relates to acquisition, licensing, strategic alliances and other connections with the innovative research organizations that have evolved in recent years.    Other parts of the country have also benefited from SBIR funding, and there are many other factors that have contributed to this private sector expansion, but SBIR funding has been a key component of this economic growth.