[Congressional Record Volume 151, Number 133 (Wednesday, October 19, 2005)]
[Senate]
[Pages S11567-S11568]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SANTORUM:
  S. 1893. A bill to permit biomedical research corporations to engage 
in certain financings and other transactions without incurring 
limitations on net operating loss carryforwards and certain built-in 
losses, and for other purposes; to the Committee on Finance.
  Mr. SANTORUM. Mr. President, today I rise to introduce the 
Biotechnology Future Investment Expansion Act of 2005.
  Biotechnology has resulted in some of the most important innovations 
of our time. Substantive research in agriculture, bioengineering, and 
medicine have given Americans a better life. From the discovery of DNA 
to the creation of synthetic insulin, biotechnology has improved the 
standard of living and has saved many lives. It is important that we 
encourage continued research to further advances in the biotech field.
  The biotech industry is one of the most research-intensive industries 
in the world. The industry spent $17.9 billion on research and 
development in 2003 alone. The overwhelming majority of biotech 
companies engaged in this research are not profitable in the early 
years of development. Such companies may accumulate net operating 
losses NOLs, without earning income, for a decade or more. 
Unfortunately, a provision of the tax code, (Section 382), operates to 
severely limit the utilization of NOLs by many such biotech companies. 
Often, these limitations cause NOLs to expire before they can be used 
by these companies.
  This legislation will modify the application of Section 382 to the 
biotech industry, with the goal of increasing that important sector's 
ability to leverage capital into high-tech, high-risk cutting-edge 
research. Specifically, the legislation will ensure that neither new 
investment into biotech companies nor a business-driven merger of two 
biotech loss companies will trigger the section 382 NOL limitation. 
Neither of these changes runs counter to the long-standing tax policy 
behind Section 382 of preventing corporations, from NOL trafficking.
  My home State of Pennsylvania is a national leader in biotechnology 
innovation, and the biosciences are a significant economic driver in 
Pennsylvania's economy. Pennsylvania's support of the industry has made 
it a policy leader for the biosciences. More than 125 biopharmaceutical 
companies and 2,000 bioscience-related companies make Pennsylvania 
their home. For example, Philadelphia's BioAdvance focuses on 
bioinformatics, bio-pharmaceuticals and medical devices, and clinical 
trials. The Pittsburgh Life Sciences Greenhouse focuses on drug 
discovery tools, tissue and organ research, medical devices, and 
therapeutic strategies for neuropsychiatric disorders. The Central 
Pennsylvania Life Sciences Greenhouse is pursuing drug design and 
delivery systems, biomedical devices, and bio-nanotechnology. These and 
many other companies in Pennsylvania are developing ground-breaking 
therapies, devices, diagnostics and vaccines for once untreatable 
diseases and debilitating conditions, providing hope for millions of 
patients.
  Additionally, top-of-the-line bioscience research takes place in 
Pennsylvania's academic institutions. Pennsylvania researchers garnered 
$1.3 billion in funding through the I.-- National Institutes of Health 
in 2003, making the Commonwealth fourth in the Nation. And the 
University of Pennsylvania and the University of Pittsburgh are in the 
top 10 nationally for NIH funding.
  We must encourage continued research and the funding that supports 
it. Biotech companies are pursuing high-risk research projects to find 
cures for many deadly and debilitating diseases that afflict humanity. 
From cancer to AIDS, and from Alzheimer's Disease to Parkinson' 
Disease, the biotechnology industry will be in the center of finding 
cures to these life-ending illnesses. My legislation offers a little 
more support to an industry we depend upon. I encourage my colleagues 
to join me in supporting this legislation and ask unanimous consent 
that the text of the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1893

       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 ``Biotechnology Future 
     Investment Expansion Act of 2005''.

     SEC. 2. RESTORING THE BENEFIT OF TAX INCENTIVES FOR 
                   BIOMEDICAL RESEARCH AND CLINICAL TRIALS.

       (a) In General.--Subsection (l) of section 382 of the 
     Internal Revenue Code of 1986 is amended by adding at the end 
     the following new paragraph:
       ``(9) Certain financing transactions of biomedical research 
     corporations.--
       ``(A) General rule.--In the case of a biomedical research 
     corporation, any owner shift involving a 5-percent 
     shareholder which occurs as the result of a qualified 
     investment or qualified transaction during the testing period 
     shall be treated for purposes of this section (other than 
     this paragraph) as occurring before the testing period.
       ``(B) Biomedical research corporation.--For purposes of 
     this paragraph, the term `biomedical research corporation' 
     means, with respect to any qualified investment, any domestic 
     corporation subject to tax under this subchapter which is not 
     in bankruptcy and which, as of the time of the closing on 
     such investment--
       ``(i) holds the rights to a drug or biologic for which an 
     investigational new drug application is in effect under 
     section 505 of the Federal Food, Drug, and Cosmetic Act, and
       ``(ii) certifies that, as of the time of such closing, the 
     drug or biologic is, or in the 3 month period before and 
     after such closing has been, under study pursuant to an 
     investigational use exemption under section 505(i) of the 
     Federal Food, Drug, and Cosmetic Act.
       ``(C) Qualified investment.--For purposes of this 
     paragraph, the term `qualified investment' means any 
     acquisition of stock by a shareholder (who after such 
     acquisition is a less than 50 percent shareholder) in a 
     biomedical research corporation if such stock is acquired at 
     its original issue (directly or through an underwriter) 
     solely in exchange for cash.
       ``(D) Qualified transaction.--For purposes of this 
     paragraph, the term `qualified transaction' means any 
     acquisition of stock in a biomedical research corporation if 
     such stock is acquired as part of a merger or acquisition by 
     another biomedical research corporation that is a loss 
     corporation. If the

[[Page S11568]]

     acquiring loss corporation is a member of a controlled group 
     of corporations under section 1563(a), the group must be a 
     loss group.
       ``(E) Stock issued in exchange for convertible debt.--For 
     purposes of this paragraph, stock issued by a biomedical 
     research corporation in exchange for its convertible debt (or 
     stock deemed under this section to be so issued) shall be 
     treated as stock acquired by the debt holder at its original 
     issue and solely in exchange for cash if the debt holder 
     previously acquired the convertible debt at its original 
     issue and solely in exchange for cash. In the case of an 
     acquisition of stock in exchange for convertible debt, the 
     requirements of this paragraph shall be applied separately as 
     of the time of closing on the investment in convertible debt, 
     and as of the time of actual conversion (or deemed conversion 
     under this section) of the convertible debt for stock.
       ``(F) Biomedical research corporation must meet 3-year 
     expenditure and continuity of business tests with respect to 
     any qualified investment.--
       ``(i) In general.--This paragraph shall not apply to a 
     qualified investment or transaction in a biomedical research 
     corporation unless such corporation meets the expenditure 
     test for each year of the measuring period and the continuity 
     of business test.
       ``(ii) Measuring period.--For purposes of this 
     subparagraph, the term `measuring period' means, with respect 
     to any qualified investment or transaction, the taxable year 
     of the biomedical research corporation in which the closing 
     on the investment occurs, and the 2 preceding taxable years.
       ``(iii) Expenditure test.--A biomedical research 
     corporation meets the expenditure test of this subparagraph 
     for a taxable year if at least 35 percent of its expenditures 
     for the taxable year (including, for purposes of this clause, 
     payments in redemption of its stock) are expenditures 
     described in section 41(b) or clinical and preclinical 
     expenditures.
       ``(iv) Continuity of business test.--A biomedical research 
     corporation meets the continuity of business test if, at all 
     times during the 2-year period following a qualified 
     investment or transaction, such corporation continues the 
     business enterprise of such corporation.
       ``(G) Effect of corporate redemptions on qualified 
     investments.--Rules similar to the rules of section 
     1202(c)(3) shall apply to qualified investments under this 
     paragraph except that `stock acquired in a qualified 
     investment' shall be substituted for `qualified small 
     business stock' each place it appears therein.
       ``(H) Effect of other transactions between biomedical 
     research corporations and investors making qualified 
     investments.--
       ``(i) In general.--If, during the 2-year period beginning 1 
     year before any qualified investment, the biomedical research 
     corporation engages in another transaction with a member of 
     its qualified investment group and such biomedical research 
     corporation receives any consideration other than cash in 
     such transaction, there shall be a presumption that stock 
     received in the otherwise qualified investment transaction 
     was not received solely in exchange for cash.
       ``(ii) Qualified investment group.--For purposes of this 
     subparagraph, the term `qualified investment group' means, 
     with respect to any qualified investment, one or more persons 
     who receive stock issued in exchange for the qualified 
     investment, and any person related to such persons within the 
     meaning of section 267(b) or section 707(b).
       ``(iii) Regulations.--The Secretary shall promulgate 
     regulations exempting from this subparagraph transactions 
     which are customary in the bioscience research industry and 
     are of minor value relative to the amount of the qualified 
     investment.
       ``(I) Regulations.--The Secretary may issue such 
     regulations as may be appropriate to achieve the purposes of 
     this paragraph, to prevent abuse, and to provide for 
     treatment of biomedical research corporations under sections 
     383 and 384 that is consistent with the purposes of this 
     paragraph.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of 
     enactment of this Act.
                                 ______