I 

114TH CONGRESS 

1ST SESSION H. R. 3731 

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 

OCTOBER 9, 2015 

Mr. VARGAS (for himself and Mr. ROONEY of Florida) 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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Rare Disease Fund 

5 Act’’ or the ‘‘RaD Fund Act’’. 

6 SEC. 2. FINDINGS. 

7 The Congress finds the following: 

8 (1) That biomedicine is far more advanced 

9 today than even a decade ago is indisputable, but 


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1 breakthroughs require years of translational re2 search at a cost of hundreds of millions of dollars 

3 per trial and have a substantial likelihood of failure. 

4 (2) The drug development pipeline is laden with 

5 unfavorable probabilities. On average, for every 

6 5,000–10,000 compounds that enter the drug dis7 covery pipeline, just 250 progress to preclinical de8 velopment—and only one will become an approved 

9 drug. 

10 (3) Biotech and life sciences traditional financ11 ing vehicles of private and public equity are becom12 ing less effective funding sources because the needs 

13 and expectations of limited partners and share14 holders are not consistent with the increasing com15 plexity, risk, and duration of biomedical innovation. 

16 (4) Industry professionals frequently refer to 

17 the ‘‘Valley of Death’’—a steadily widening funding 

18 and resource gap that currently exists between basic 

19 research and clinical development, effectively limiting 

20 the field of potential novel therapies, technologies, 

21 and treatments for patients. 

22 (5) The life sciences industry needs novel ap23 proaches to early-stage drug development that better 

24 manage risk, lower capital cost, improve research efVerDate Sep 11 2014 01:59 Oct 15, 2015 Jkt 059200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3731.IH H3731

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1 fectiveness, create diverse portfolios, leverage risk2 tolerant capital, and access new capital sources. 

3 (6) One solution is to implement a financial 

4 structure in which a large number of biomedical pro5 grams are funded by a single entity to substantially 

6 diversify the portfolio and thereby reduce risk. The 

7 entity can use securitization to finance its activities 

8 by issuing debt, which opens up a much larger pool 

9 of capital for investment. 

10 (7) This approach involves two components: 

11 (A) Creating large diversified portfolios, 

12 called ‘‘megafunds’’, consisting of biomedical 

13 products at all stages of development; and 

14 (B) Structuring the financing for these 

15 portfolios as combinations of equity and 

16 securitized debt. 

17 Diversification reduces risk, so that an entity can 

18 issue debt and equity, rather than the equity-only in19 vestments typically made by venture capital. 

20 (8) A simulation conducted by researchers at 

21 MIT suggested that a modest megafund model could 

22 be successfully implemented for rare diseases (e.g., 

23 rare genetic disorders, pediatric cancers, and orphan 

24 diseases) with as few as ten compounds and only 

25 $400 million in capital. 


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1 (9) A rare disease therapeutics fund could serve 

2 as a viable pilot project, while minimizing govern3 mental exposure. 

4 (10) In addition to appealing to traditional 

5 biotech VC investors, megafund investments may be 

6 attractive to pension funds, insurance companies, 

7 and other large institutional investors. 

8 (11) The Food and Drug Administration 

9 (FDA) may grant the orphan designation for thera10 pies being studied for a rare disease or condition af11 fecting fewer than 200,000 people in the United 

12 States, which reduces costs and provides financial 

13 incentives to encourage development of such thera14 pies. 

15 SEC. 3. RARE DISEASE THERAPEUTICS CORPORATION. 

16 (a) ESTABLISHMENT.—The Director of the National 

17 Institutes of Health shall organize under the laws of a 

18 State a corporation to be know as the ‘‘Rare Disease 

19 Therapeutics Corporation’’ (hereinafter in this Act re20 ferred to as the ‘‘Corporation’’). 

21 (b) PURPOSE.—The purpose of the Corporation shall 

22 be to purchase rights to, fund the development of, and, 

23 once developed, sell ownership interests in rare disease 

24 therapeutics. 

25 (c) PRIVATIZATION OF THE CORPORATION.— 


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1 (1) IN GENERAL.—As soon as practicable after 

2 the establishment of the Corporation, the Director 

3 shall sell equity stock in the Corporation to inves4 tors. 

5 (2) GOVERNMENT STAKE.— 

6 (A) IN GENERAL.—Notwithstanding para7 graph (1), the board of directors of the Cor8 poration and the Director may enter into an 

9 agreement under which the National Institutes 

10 of Health maintains an ownership interest in 

11 the Corporation in exchange for the National 

12 Institutes of Health providing the Corporation 

13 with intellectual property or other assistance, 

14 such as medicinal chemistry, toxicology, and 

15 high throughput screening services. 

16 (B) LIMIT ON GOVERNMENT STAKE.—The 

17 amount of any ownership interest maintained 

18 by the National Institutes of Health pursuant 

19 to subparagraph (A) may not exceed 25 percent 

20 of the equity stock of the Corporation. 

21 (3) PROHIBITION ON DIVIDENDS.—The Cor22 poration may not pay dividends on the equity stock 

23 of the Corporation. 


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1 (4) BOARD OF DIRECTORS.—At all times, two 

2 of the members of the board of directors of the Cor3 poration shall be chosen as follows: 

4 (A) One member chosen by the Director. 

5 (B) One member chosen by the Secretary 

6 of the Treasury. 

7 (d) SALE OF OWNERSHIP INTERESTS.— 

8 (1) IN GENERAL.—The Corporation— 

9 (A) may sell a rare disease therapy owned 

10 by the Corporation at any time; and 

11 (B) shall sell any rare disease therapy 

12 owned by the Corporation prior to the com13 mencement of a phase 3 study (as such term is 

14 defined in section 312.21(b) of title 21, Code of 

15 Federal Regulations (or any successor regula16 tions)). 

17 (2) SALE REQUIREMENTS.—In any sale of a 

18 rare disease therapy, the Corporation shall make 

19 such sale through an open and transparent process 

20 and on commercially reasonable terms. 

21 (e) FUNDING THROUGH BOND ISSUANCES.— 

22 (1) IN GENERAL.—The Corporation shall issue 

23 one or more classes of bonds, with a maturity of no 

24 more than 12 years and carrying such interest as 

25 the Corporation determines appropriate: 


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1 (A) GUARANTEED BONDS.—The Corpora2 tion shall issue a class of bonds that is guaran3 teed by the United States. 

4 (B) UNGUARANTEED BONDS.—The Cor5 poration may issue one or more classes of bonds 

6 that are backed by the Corporation, but are not 

7 guaranteed by the United States. 

8 (2) DEBT-TO-EQUITY RATIO OF GUARANTEED

9 BONDS.—The Corporation may not issue any guar10 anteed bond pursuant to paragraph (1)(A) if the 

11 issuance of such bond would cause the Corporation 

12 to exceed a debt-to-equity ratio of 1 to 1. 

13 (3) GUARANTEE FEE.—The Corporation shall 

14 pay the Treasury a guarantee fee, which shall be set 

15 by the Secretary of the Treasury in an amount equal 

16 to the anticipated cost to the Treasury in guaran17 teeing bonds of the Corporation under paragraph 

18 (1)(A). 

19 (f) TREATMENT UNDER THE SECURITIES LAWS.— 

20 For purposes only of the securities laws— 

21 (1) securities of the Corporation shall be 

22 deemed to be securities that are not issued or guar23 anteed by the Government; and 


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1 (2) the National Institutes of Health shall be 

2 deemed to not be an instrumentality of the Govern3 ment. 

4 (g) CORPORATION NOT GUARANTEED BY THE

5 UNITED STATES.—Except as provided under subsection 

6 (e)(1)(A), the full faith and credit of the United States 

7 shall not be pledged to the Corporation or any security 

8 of the Corporation. 

9 (h) AUTHORIZATION OF APPROPRIATIONS.—There 

10 are authorized to be appropriated to the Director such 

11 sums as may be necessary to establish the Corporation 

12 and complete the privatization of the Corporation. 

13 (i) SUNSET.—The Corporation shall terminate after 

14 the end of the 18-month period following the later of— 

15 (1) the date on which the last bond issued 

16 under subsection (e) matures; and 

17 (2) the date on which the Corporation receives 

18 the final payment for the sale of the rare disease 

19 therapeutics owned by the Corporation. 

20 SEC. 4. RARE DISEASE THERAPEUTICS CORPORATION 

21 SCIENCE ADVISORY COUNCIL. 

22 (a) ESTABLISHMENT.—There is established within 

23 the National Institutes of Health an advisory council to 

24 be known as the ‘‘Rare Disease Therapeutics Corporation 

25 Science Advisory Council’’. 


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1 (b) MEMBERS.—The members of the Advisory Coun2 cil shall be selected by the Director. 

3 (c) PURPOSE.—The purpose of the Advisory Council 

4 shall be to advise the Corporation on the purchase, sale, 

5 and development of rare disease therapeutics. 

6 (d) DISCLOSURE OF CERTAIN EMPLOYMENT.—Each 

7 member of the Advisory Council shall disclose each com8 pany, partnership, or other entity with respect to which 

9 the member is an officer or director. 

10 (e) SUNSET.—The Advisory Council shall terminate 

11 on the date that the Corporation terminates. 

12 SEC. 5. DEFINITIONS. 

13 For purposes of this Act: 

14 (1) RARE DISEASE THERAPEUTICS.—The term 

15 ‘‘rare disease therapeutics’’ means a compound, bio16 logic, medical device, or companion diagnostic that 

17 has been designated as a therapy for a rare disease 

18 or condition pursuant to section 526 of the Federal 

19 Food, Drug, and Cosmetic Act (21 U.S.C. 360bb). 

20 (2) ADVISORY COUNCIL.—The term ‘‘Advisory 

21 Council’’ means the Rare Disease Therapeutics Cor22 poration Advisory Council established under section 

23 4(a). 


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1 (3) CORPORATION.—The term ‘‘Corporation’’ 

2 means the Rare Disease Therapeutics Corporation 

3 established under section 3(a). 

4 (4) DIRECTOR.—The term ‘‘Director’’ means 

5 the Director the National Institutes of Health. 

6 (5) SECURITIES LAWS.—The term ‘‘securities 

7 laws’’ has the meaning given that term under section 

8 3(a) of the Securities Exchange Act of 1934 (15 

9 U.S.C. 78c(a)). 

Æ 


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