Is it bird flu? Biotech company helps deliver a quick answer.

For the past few years, a small Wisconsin company has been developing detection systems for such increasing medical threats as SARS and avian influenza.

With the help of grant money from the competitive Small Business Innovation Research program, EraGen Biosciences Inc. is taking cutting-edge science and creating genetic-based products for the diagnostics and drug discovery markets.

Among the company's successes is a Food and Drug Administration-approved HIV test using EraGen technology and a test for severe acute respiratory syndrome that has been validated in Canada, China and the United States.

EraGen also helped develop a test for cystic fibrosis in newborns, cutting to three hours results that used to take three days. And it has worked on developing tests for anthrax, smallpox and other bioterrorism agents.

"The whole idea of emerging infectious diseases scares a lot of people;' says Irene Hrusovsky, EraGen president and chief executive. "The fact that we can very quickly develop tests in this area is extremely important."

EraGen, established in 1999, grew out of Sulfonics Inc. Sulfonics was founded in 1994 in Florida by Dr. Steve Benner, who had conducted groundbreaking genetics research.

EraGen chief scientist James Prudent's plan was to license some of Benner's patents and develop genomics-based diagnostic tests and drags that worked faster and more efficiently.

The problem was money.

Enter the National Institutes of Health, which offers grants through the SBIR program, which is administered by the Small Business Administration.

The NIH is one of 11 agencies that grants SBIR money. In the first phase of a three-phase process, companies can obtain up to $100,000 for costs involved in obtaining proof of the technical merit of an idea or technology. Phase 11 awards are up to $750,000 and fund research and development. Phase III is when the innovation moves from the laboratory into the marketplace. This last phase is funded by private or other federal sources.

EraGen won $850,000 in Phase I and Phase II money for work on creating diagnostic tests.

Prudent located EraGen's molecular diagnostic business in Madison to be near the University of Wisconsin.

"There's a good atmosphere to grow business in Madison as far as scientists are concerned;' Prudent says. "You can hire some really talented people, and the university has some great resources."

In 2002, the company's software group also moved to Madison.

Prudent has obtained $6 million from investors, including $3 million from the drug company Novartis.

EraGen has received $4 million in SBIR grants, $3 million in molecular diagnostics and the rest in proteomics. Grants were awarded in the areas of bioterrorism, genetic disorders and infectious disease. Much of the money has gone to buy instruments for research and manufacturing.

"We have raised independent private money for the company as well, but the research grants have been a crucial impetus to the advancement of our technologies," says Hrusovsky. "It has been a critical generator for us."

SBIR officials acknowledge EraGen is an exception in its ability to obtain such a large number of grants and not be in California or Massachusetts, two states that dominate biotechnology research.

James Morrison, senior adviser to the Small Business Technology Coalition, believes many companies are not aware of the funding opportunities and states need to better promote them.

"When you start moving from Phase I to Phase II and Phase III, you're talking about a company that is really growing, and there's no doubt it will bring a lot of jobs and scientific innovation and a lot of exports" Morrison says.

Dr. Philip Farrell, dean of the University of Wisconsin Medical School, says federal grant money is critical to small businesses. "The government is investing in a combination of academic and medical enterprise which ultimately benefits the country," he says. "You also have your feet held to the fire because you have to send in regular progress reports and achieve time-framed objectives."

Farrell collaborated with EraGen in developing its test for cystic fibrosis. Using a method patented by EraGen, the test uses DNA from blood samples.

"The fact that a small company like EraGen can take advantage of an incredibly good opportunity for federal funding through the NIH is remarkable," Farrell says. "It's not just for universities and professors like myself that seek these grants, small business can do this now."

EraGen is now working on a product that will diagnose more than 20 upper respiratory viruses in a single test.

Hrusovsky says the work being done at EraGen will ultimately play a role in the treatment and management of many new and emerging diseases.

"In the example of avian flu, we want to identify the source or the patient early and manage them and prevent further spread;' she says.

Privately held EraGen is poised to double sales each of the next two years, Hrusovsky says. The company projects $8.1 million in revenue this year.

EraGen Biosciences Inc. * www.eragen.com * 918 Deming Way, Madison, WI 53717-1944 * [phone] Founded: 1999 * Employees: 30 * Revenue: $4.6 million (2004) * Irene Hrusovsky, President, CEO