[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6801 Introduced in House (IH)]

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115th CONGRESS
  2d Session
                                H. R. 6801

 To establish a Rare Disease Therapeutics Corporation to encourage the 
development of high-risk, high-return therapies for rare diseases, and 
                          for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 13, 2018

   Mr. Vargas (for himself, Mr. Thomas J. Rooney of Florida, and Mr. 
   Peters) introduced the following bill; which was referred to the 
                    Committee on Energy and Commerce

_______________________________________________________________________

                                 A BILL


 
 To establish a Rare Disease Therapeutics Corporation to encourage the 
development of high-risk, high-return therapies for rare diseases, and 
                          for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Rare Disease Fund Act of 2018'' or 
the ``RaD Fund Act of 2018''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) That biomedicine is far more advanced today than even a 
        decade ago is indisputable, but breakthroughs require years of 
        translational research at a cost of hundreds of millions of 
        dollars per trial and have a substantial likelihood of failure.
            (2) The drug development pipeline is laden with unfavorable 
        probabilities. On average, for every 5,000-10,000 compounds 
        that enter the drug discovery pipeline, just 250 progress to 
        preclinical development--and only one will become an approved 
        drug.
            (3) Biotech and life sciences traditional financing 
        vehicles of private and public equity are becoming less 
        effective funding sources because the needs and expectations of 
        limited partners and shareholders are not consistent with the 
        increasing complexity, risk, and duration of biomedical 
        innovation.
            (4) Industry professionals frequently refer to the ``Valley 
        of Death''--a steadily widening funding and resource gap that 
        currently exists between basic research and clinical 
        development, effectively limiting the field of potential novel 
        therapies, technologies, and treatments for patients.
            (5) The life sciences industry needs novel approaches to 
        early-stage drug development that better manage risk, lower 
        capital cost, improve research effectiveness, create diverse 
        portfolios, leverage risk-tolerant capital, and access new 
        capital sources.
            (6) One solution is to implement a financial structure in 
        which a large number of biomedical programs are funded by a 
        single entity to substantially diversify the portfolio and 
        thereby reduce risk. The entity can use securitization to 
        finance its activities by issuing debt, which opens up a much 
        larger pool of capital for investment.
            (7) This approach involves two components:
                    (A) Creating large diversified portfolios, called 
                ``megafunds'', consisting of biomedical products at 
                various stages of development.
                    (B) Structuring the financing for these portfolios 
                as combinations of equity and securitized debt.
            (8) This innovation makes the investment opportunity much 
        more attractive to a large pool of institutional investors that 
        have historically not participated in financing for early-stage 
        therapeutic development.
            (9) Diversification reduces risk, so that an entity can 
        issue debt and equity, rather than the equity-only investments 
        typically made by venture capital.
            (10) A series of peer-reviewed simulations conducted by 
        researchers at MIT suggested that a modest megafund model could 
        be successfully implemented for rare diseases (e.g., rare 
        genetic disorders, pediatric cancers, and orphan diseases) with 
        as few as ten to twenty compounds and only $400 million in 
        capital.
            (11) A rare disease therapeutics fund could serve as a 
        viable pilot project, while minimizing governmental exposure.
            (12) In addition to appealing to traditional biotech VC 
        investors, megafund investments may be attractive to pension 
        funds, insurance companies, and other large institutional 
        investors, while also potentially lowering drug prices for 
        patients and the healthcare system.
            (13) The Food and Drug Administration (FDA) may grant the 
        orphan designation for therapies being studied for a rare 
        disease or condition affecting fewer than 200,000 people in the 
        United States, which reduces costs and provides financial 
        incentives to encourage development of such therapies for 
        underserved patient populations.

SEC. 3. RARE DISEASE THERAPEUTICS CORPORATION.

    (a) Establishment.--
            (1) In general.--The Secretary of the Treasury shall 
        organize under the laws of a State a corporation to be known as 
        the ``Rare Disease Therapeutics Corporation'' (hereinafter in 
        this Act referred to as the ``Corporation'').
            (2) Qualified portfolio manager.--As soon as practicable 
        after organization, the Corporation shall hire a qualified 
        portfolio manager whose mandate will be to acquire and manage a 
        portfolio of biomedical research assets on behalf of the 
        Corporation.
    (b) Purpose.--The purpose of the Corporation shall be to purchase 
rights to, fund the development of, and, once developed, sell ownership 
interests in rare disease therapeutics.
    (c) Privatization of the Corporation.--
            (1) In general.--As soon as practicable after the 
        establishment of the Corporation, but in no case later than 2 
        years after the date of enactment of this Act, the Secretary 
        shall issue equity stock in the Corporation to private 
        investors.
            (2) Termination of government ownership.--Upon the issuance 
        of the equity stock described under paragraph (1), the 
        Government shall no longer hold any ownership interest in the 
        Corporation.
            (3) Prohibition on dividends.--The Corporation may not pay 
        dividends on the equity stock of the Corporation while there 
        are any outstanding guaranteed bonds of the Corporation issued 
        pursuant to subsection (e)(1)(A).
    (d) Sale of Ownership Interests.--
            (1) In general.--The Corporation--
                    (A) may sell a rare disease therapy owned by the 
                Corporation at any time; and
                    (B) shall sell any rare disease therapy owned by 
                the Corporation prior to the commencement of a phase 3 
                study (as such term is defined in section 312.21(b) of 
                title 21, Code of Federal Regulations (or any successor 
                regulations)).
            (2) Sale requirements.--In any sale of a rare disease 
        therapy, the Corporation shall make such sale through an open 
        and transparent arms-length process and on commercially 
        reasonable terms, which may include lump sum, upfront payments, 
        milestone payments, royalty payments, or any combination 
        thereof.
    (e) Funding Through Bond Issuances.--
            (1) In general.--The Corporation shall issue one or more 
        classes of bonds, with a maturity of no more than 12 years and 
        carrying such interest as the Corporation determines 
        appropriate:
                    (A) Guaranteed bonds.--The Corporation shall issue 
                a class of bonds, in an aggregate amount of not more 
                than $350,000,000, that is guaranteed by the United 
                States.
                    (B) Unguaranteed bonds.--The Corporation may issue 
                one or more classes of bonds that are backed by the 
                Corporation, but are not guaranteed by the United 
                States.
            (2) Debt-to-equity ratio of guaranteed bonds.--The 
        Corporation may not issue any guaranteed bond pursuant to 
        paragraph (1)(A) if the issuance of such bond would cause the 
        Corporation to exceed a debt-to-equity ratio of 1 to 1.
            (3) Guarantee fee.--The Corporation shall pay the Secretary 
        a guarantee fee, which shall be set by the Secretary in an 
        amount equal to the expected cost of guaranteeing bonds of the 
        Corporation under paragraph (1)(A).
    (f) Treatment Under the Securities Laws.--
            (1) In general.--For purposes only of the securities laws--
                    (A) securities of the Corporation shall be deemed 
                to be securities that are not issued or guaranteed by 
                the Government; and
                    (B) the Secretary shall be deemed to not be an 
                instrumentality of the Government.
            (2) Accredited investor requirement.--Securities issued 
        under this Act may only be purchased by accredited investors.
    (g) Corporation Not Guaranteed by the United States.--Except as 
provided under subsection (e)(1)(A), the full faith and credit of the 
United States shall not be pledged to the Corporation or any security 
of the Corporation.
    (h) Diversification Requirement.--The Corporation shall, during the 
3-year period beginning on the date that the Corporation first 
purchases rights to a rare disease therapeutic, purchase the rights to 
at least 15 rare disease therapeutics.
    (i) Authorization of Appropriations.--
            (1) In general.--There is authorized to be appropriated to 
        the Secretary $3,000,000 to establish the Corporation and 
        complete the privatization of the Corporation.
            (2) Repayment of appropriations.--Not later than the end of 
        the 36-month period beginning on the date the Corporation is 
        privatized pursuant to subsection (c), the Corporation shall 
        reimburse the Government for the amount of any appropriation 
        made pursuant to paragraph (1), plus interest on such amount.
    (j) Sunset.--The Corporation shall terminate after the end of the 
18-month period following the later of--
            (1) the date on which the last bond issued under subsection 
        (e) matures; and
            (2) the date on which the Corporation receives the final 
        payment for the sale of all rare disease therapeutics owned by 
        the Corporation.

SEC. 4. DEFINITIONS.

    For purposes of this Act:
            (1) Accredited investor.--The term ``accredited investor'' 
        has the meaning given such term under section 2(a) of the 
        Securities Act of 1933 (15 U.S.C. 77b(a)).
            (2) Corporation.--The term ``Corporation'' means the Rare 
        Disease Therapeutics Corporation established under section 
        3(a).
            (3) Rare disease therapeutics.--The term ``rare disease 
        therapeutics'' means a compound, biologic, medical device, or 
        companion diagnostic that has been designated as a therapy for 
        a rare disease or condition pursuant to section 526 of the 
        Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360bb).
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (5) Securities laws.--The term ``securities laws'' has the 
        meaning given that term under section 3(a) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)).
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