RaD Fund Act

Summary: Rare Disease Fund Act or the RaD Fund Act This bill requires the National Institutes of Health (NIH) to organize the Rare Disease Therapeutics Corporation to purchase rights to, fund the development of, and sell ownership interests in drugs, biological products, and medical devices for rare diseases. The NIH must sell stock in the corporation to investors as soon as practicable. The corporation and the NIH may enter into an agreement under which the NIH maintains an ownership interest in the corporation in exchange for providing the corporation with intellectual property or other assistance. The corporation is prohibited from paying dividends on its stock. The corporation must sell its interest in a rare disease therapy prior to the therapy entering large-scale clinical trials. The corporation must issue bonds guaranteed by the United States and may issue bonds backed by the corporation. For purposes of securities laws, the securities of the corporation are not issued or guaranteed by the federal government. The bill establishes within the NIH the Rare Disease Therapeutics Corporation Science Advisory Council to advise the corporation on the purchase, sale, and development of rare disease therapies.

SECTION 1. SHORT TITLE.

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

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 all 
                stages of development; and
                    (B) Structuring the financing for these portfolios 
                as combinations of equity and securitized debt.
        Diversification reduces risk, so that an entity can issue debt 
        and equity, rather than the equity-only investments typically 
        made by venture capital.
            (8) A simulation 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 compounds and 
        only $400 million in capital.
            (9) A rare disease therapeutics fund could serve as a 
        viable pilot project, while minimizing governmental exposure.
            (10) In addition to appealing to traditional biotech VC 
        investors, megafund investments may be attractive to pension 
        funds, insurance companies, and other large institutional 
        investors.
            (11) 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.

SEC. 3. RARE DISEASE THERAPEUTICS CORPORATION.

    (a) Establishment.--The Director of the National Institutes of 
Health shall organize under the laws of a State a corporation to be 
know as the ``Rare Disease Therapeutics Corporation'' (hereinafter in 
this Act referred to as 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, the Director shall sell 
        equity stock in the Corporation to investors.
            (2) Government stake.--
                    (A) In general.--Notwithstanding paragraph (1), the 
                board of directors of the Corporation and the Director 
                may enter into an agreement under which the National 
                Institutes of Health maintains an ownership interest in 
                the Corporation in exchange for the National Institutes 
                of Health providing the Corporation with intellectual 
                property or other assistance, such as medicinal 
                chemistry, toxicology, and high throughput screening 
                services.
                    (B) Limit on government stake.--The amount of any 
                ownership interest maintained by the National 
                Institutes of Health pursuant to subparagraph (A) may 
                not exceed 25 percent of the equity stock of the 
                Corporation.
            (3) Prohibition on dividends.--The Corporation may not pay 
        dividends on the equity stock of the Corporation.
            (4) Board of directors.--At all times, two of the members 
        of the board of directors of the Corporation shall be chosen as 
        follows:
                    (A) One member chosen by the Director.
                    (B) One member chosen by the Secretary of the 
                Treasury.
    (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 process and on commercially reasonable terms.
    (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 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 Treasury 
        a guarantee fee, which shall be set by the Secretary of the 
        Treasury in an amount equal to the anticipated cost to the 
        Treasury in guaranteeing bonds of the Corporation under 
        paragraph (1)(A).
    (f) Treatment Under the Securities Laws.--For purposes only of the 
securities laws--
            (1) securities of the Corporation shall be deemed to be 
        securities that are not issued or guaranteed by the Government; 
        and
            (2) the National Institutes of Health shall be deemed to 
        not be an instrumentality of the Government.
    (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) Authorization of Appropriations.--There are authorized to be 
appropriated to the Director such sums as may be necessary to establish 
the Corporation and complete the privatization of the Corporation.
    (i) 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 the rare disease therapeutics owned by 
        the Corporation.

SEC. 4. RARE DISEASE THERAPEUTICS CORPORATION SCIENCE ADVISORY COUNCIL.

    (a) Establishment.--There is established within the National 
Institutes of Health an advisory council to be known as the ``Rare 
Disease Therapeutics Corporation Science Advisory Council''.
    (b) Members.--The members of the Advisory Council shall be selected 
by the Director.
    (c) Purpose.--The purpose of the Advisory Council shall be to 
advise the Corporation on the purchase, sale, and development of rare 
disease therapeutics.
    (d) Disclosure of Certain Employment.--Each member of the Advisory 
Council shall disclose each company, partnership, or other entity with 
respect to which the member is an officer or director.
    (e) Sunset.--The Advisory Council shall terminate on the date that 
the Corporation terminates.

SEC. 5. DEFINITIONS.

    For purposes of this Act:
            (1) 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).
            (2) Advisory council.--The term ``Advisory Council'' means 
        the Rare Disease Therapeutics Corporation Advisory Council 
        established under section 4(a).
            (3) Corporation.--The term ``Corporation'' means the Rare 
        Disease Therapeutics Corporation established under section 
        3(a).
            (4) Director.--The term ``Director'' means the Director the 
        National Institutes of Health.
            (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)).