,i #aaeth ,,congress #b;d ,session ,h4 ,r4 #fhja ,,in ,,the ,,house ,,of ,,representatives ,september #ac1 #bjah,mr4 ,vargas 7for himself1 ,mr4 ,thomas ,j4 ,rooney of ,florida1 and ,mr4 ,peters7 introduced the following bill2 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-risk1 high-return therapies for rare diseases1 and for other purposes4 #a4 ,short title ,this ,act may be cited as the ,rare ,disease ,fund ,act of #bjah or the ,ra,d ,fund ,act of #bjah 4 #b4 ,findings ,the ,congress finds the following3 7#a7 ,that biomedicine is far more advanced today than even a decade ago is indisputable1 but breakthroughs require years of translational research at a cost of hundreds of millions of dollars per trial and have a substantial likelihood of failure4 7#b7 ,the drug development pipeline is laden with unfavorable probabilities4 ,on average1 for every #e1jjj-aj1jjj compounds that enter the drug discovery pipeline1 just #bej progress to preclinical development--and only one will become an approved drug4 7#c7 ,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 complexity1 risk1 and duration of biomedical innovation4 7#d7 ,industry professionals frequently refer to the ,valley of ,death--a steadily widening funding and resource gap that currently exists between basic research and clinical development1 effectively limiting the field of potential novel therapies1 technologies1 and treatments for patients4 7#e7 ,the life sciences industry needs novel approaches to early-stage drug development that better manage risk1 lower capital cost1 improve research effectiveness1 create diverse portfolios1 leverage risk-tolerant capital1 and access new capital sources4 7#f7 ,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 risk4 ,the entity can use securitization to finance its activities by issuing debt1 which opens up a much larger pool of capital for investment4 7#g7 ,this approach involves two components3 7,a7 ,creating large diversified portfolios1 called megafunds1 consisting of biomedical products at various stages of development4 7,b7 ,structuring the financing for these portfolios as combinations of equity and securitized debt4 7#h7 ,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 development4 7#i7 ,diversification reduces risk1 so that an entity can issue debt and equity1 rather than the equity-only investments typically made by venture capital4 7#aj7 ,a series of peer-reviewed simulations conducted by researchers at ,,mit suggested that a modest megafund model could be successfully implemented for rare diseases 7e4g41 rare genetic disorders1 pediatric cancers1 and orphan diseases7 with as few as ten to twenty compounds and only #djj million in capital4 7#aa7 ,a rare disease therapeutics fund could serve as a viable pilot project1 while minimizing governmental exposure4 7#ab7 ,in addition to appealing to traditional biotech ,,vc investors1 megafund investments may be attractive to pension funds1 insurance companies1 and other large institutional investors1 while also potentially lowering drug prices for patients and the healthcare system4 7#ac7 ,the ,food and ,drug ,administration 7,,fda7 may grant the orphan designation for therapies being studied for a rare disease or condition affecting fewer than #bjj1jjj people in the ,united ,states1 which reduces costs and provides financial incentives to encourage development of such therapies for underserved patient populations4 #c4 ,rare ,disease ,therapeutics ,corporation 7a7 ,establishment 7#a7 ,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 7hereinafter in this ,act referred to as the ,corporation74 7#b7 ,qualified portfolio manager ,as soon as practicable after organization1 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 ,corporation4 7b7 ,purpose ,the purpose of the ,corporation shall be to purchase rights to1 fund the development of1 and1 once developed1 sell ownership interests in rare disease therapeutics4 7c7 ,privatization of the ,corporation 7#a7 ,in general ,as soon as practicable after the establishment of the ,corporation1 but in no case later than #b years after the date of enactment of this ,act1 the ,secretary shall issue equity stock in the ,corporation to private investors4 7#b7 ,termination of ,government ownership ,upon the issuance of the equity stock described under paragraph 7#a71 the ,government shall no longer hold any ownership interest in the ,corporation4 7#c7 ,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 7e77#a77;,a74 7d7 ,sale of ownership interests 7#a7 ,in general ,the ,corporation-- 7,a7 may sell a rare disease therapy owned by the ,corporation at any time2 and 7,b7 shall sell any rare disease therapy owned by the ,corporation prior to the commencement of a phase #c study 7as such term is defined in section #cab4ba7;b7 of title #ba1 ,code of ,federal ,regulations 7or any successor regulations774 7#b7 ,sale requirements ,in any sale of a rare disease therapy1 the ,corporation shall make such sale through an open and transparent arms-length process and on commercially reasonable terms1 which may include lump sum1 upfront payments1 milestone payments1 royalty payments1 or any combination thereof4 7e7 ,funding through bond issuances 7#a7 ,in general ,the ,corporation shall issue one or more classes of bonds1 with a maturity of no more than #ab years and carrying such interest as the ,corporation determines appropriate3 7,a7 ,guaranteed bonds ,the ,corporation shall issue a class of bonds1 in an aggregate amount of not more than #cej1jjj1jjj1 that is guaranteed by the ,united ,states4 7,b7 ,unguaranteed bonds ,the ,corporation may issue one or more classes of bonds that are backed by the ,corporation1 but are not guaranteed by the ,united ,states4 7#b7 ,debt-to-equity ratio of guaranteed bonds ,the ,corporation may not issue any guaranteed bond pursuant to paragraph 7#a77;,a7 if the issuance of such bond would cause the ,corporation to exceed a debt-to-equity ratio of #a to #a4 7#c7 ,guarantee fee ,the ,corporation shall pay the ,secretary a guarantee fee1 which shall be set by the ,secretary in an amount equal to the expected cost of guaranteeing bonds of the ,corporation under paragraph 7#a77;,a74 7f7 ,treatment under the securities laws 7#a7 ,in general ,for purposes only of the securities laws-- 7,a7 securities of the ,corporation shall be deemed to be securities that are not issued or guaranteed by the ,government2 and 7,b7 the ,secretary shall be deemed to not be an instrumentality of the ,government4 7#b7 ,accredited investor requirement ,securities issued under this ,act may only be purchased by accredited investors4 7g7 ,corporation not guaranteed by the ,united ,states ,except as provided under subsection 7e77#a77;,a71 the full faith and credit of the ,united ,states shall not be pledged to the ,corporation or any security of the ,corporation4 7h7 ,diversification requirement ,the ,corporation shall1 during the #c-year period beginning on the date that the ,corporation first purchases rights to a rare disease therapeutic1 purchase the rights to at least #ae rare disease therapeutics4 7i7 ,authorization of appropriations 7#a7 ,in general ,there is authorized to be appropriated to the ,secretary #c1jjj1jjj to establish the ,corporation and complete the privatization of the ,corporation4 7#b7 ,repayment of appropriations ,not later than the end of the #cf-month period beginning on the date the ,corporation is privatized pursuant to subsection 7c71 the ,corporation shall reimburse the ,government for the amount of any appropriation made pursuant to paragraph 7#a71 plus interest on such amount4 7j7 ,sunset ,the ,corporation shall terminate after the end of the #ah-month period following the later of-- 7#a7 the date on which the last bond issued under subsection 7e7 matures2 and 7#b7 the date on which the ,corporation receives the final payment for the sale of all rare disease therapeutics owned by the ,corporation4 #d4 ,definitions ,for purposes of this ,act3 7#a7 ,accredited investor ,the term accredited investor has the meaning given such term under section #b7;a7 of the ,securities ,act of #aicc 7#ae ,u4,s4,c4 #gg;b7a774 7#b7 ,corporation ,the term ,corporation means the ,rare ,disease ,therapeutics ,corporation established under section #c7;a74 7#c7 ,rare disease therapeutics ,the term rare disease therapeutics means a compound1 biologic1 medical device1 or companion diagnostic that has been designated as a therapy for a rare disease or condition pursuant to section #ebf of the ,federal ,food1 ,drug1 and ,cosmetic ,act 7#ba ,u4,s4,c4 #cfj;bb74 7#d7 ,secretary ,the term ,secretary means the ,secretary of the ,treasury4 7#e7 ,securities laws ,the term securities laws has the meaning given that term under section #c7;a7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;c7a774