II 

109TH CONGRESS 

1ST SESSION S. 1893 

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. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 19, 2005 

Mr. SANTORUM introduced the following bill; which was read twice and 

referred to the Committee on Finance 

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. 

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 ‘‘Biotechnology Future 

5 Investment Expansion Act of 2005’’. 
2 

•S 1893 IS

1 SEC. 2. RESTORING THE BENEFIT OF TAX INCENTIVES FOR 

2 BIOMEDICAL RESEARCH AND CLINICAL 

3 TRIALS. 

4 (a) IN GENERAL.—Subsection (l) of section 382 of 

5 the Internal Revenue Code of 1986 is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(9) CERTAIN FINANCING TRANSACTIONS OF

8 BIOMEDICAL RESEARCH CORPORATIONS.— 

9 ‘‘(A) GENERAL RULE.—In the case of a 

10 biomedical research corporation, any owner 

11 shift involving a 5-percent shareholder which 

12 occurs as the result of a qualified investment or 

13 qualified transaction during the testing period 

14 shall be treated for purposes of this section 

15 (other than this paragraph) as occurring before 

16 the testing period. 

17 ‘‘(B) BIOMEDICAL RESEARCH CORPORA18 TION.—For purposes of this paragraph, the 

19 term ‘biomedical research corporation’ means, 

20 with respect to any qualified investment, any 

21 domestic corporation subject to tax under this 

22 subchapter which is not in bankruptcy and 

23 which, as of the time of the closing on such in24 vestment— 

25 ‘‘(i) holds the rights to a drug or bio26 logic for which an investigational new drug 
3 

•S 1893 IS

1 application is in effect under section 505 

2 of the Federal Food, Drug, and Cosmetic 

3 Act, and 

4 ‘‘(ii) certifies that, as of the time of 

5 such closing, the drug or biologic is, or in 

6 the 3 month period before and after such 

7 closing has been, under study pursuant to 

8 an investigational use exemption under sec9 tion 505(i) of the Federal Food, Drug, and 

10 Cosmetic Act. 

11 ‘‘(C) QUALIFIED INVESTMENT.—For pur12 poses of this paragraph, the term ‘qualified in13 vestment’ means any acquisition of stock by a 

14 shareholder (who after such acquisition is a less 

15 than 50 percent shareholder) in a biomedical 

16 research corporation if such stock is acquired at 

17 its original issue (directly or through an under18 writer) solely in exchange for cash. 

19 ‘‘(D) QUALIFIED TRANSACTION.—For pur20 poses of this paragraph, the term ‘qualified 

21 transaction’ means any acquisition of stock in a 

22 biomedical research corporation if such stock is 

23 acquired as part of a merger or acquisition by 

24 another biomedical research corporation that is 

25 a loss corporation. If the acquiring loss corpora-
4 

•S 1893 IS

1 tion is a member of a controlled group of cor2 porations under section 1563(a), the group 

3 must be a loss group. 

4 ‘‘(E) STOCK ISSUED IN EXCHANGE FOR

5 CONVERTIBLE DEBT.—For purposes of this 

6 paragraph, stock issued by a biomedical re7 search corporation in exchange for its convert8 ible debt (or stock deemed under this section to 

9 be so issued) shall be treated as stock acquired 

10 by the debt holder at its original issue and sole11 ly in exchange for cash if the debt holder pre12 viously acquired the convertible debt at its 

13 original issue and solely in exchange for cash. 

14 In the case of an acquisition of stock in ex15 change for convertible debt, the requirements of 

16 this paragraph shall be applied separately as of 

17 the time of closing on the investment in con18 vertible debt, and as of the time of actual con19 version (or deemed conversion under this sec20 tion) of the convertible debt for stock. 

21 ‘‘(F) BIOMEDICAL RESEARCH CORPORA22 TION MUST MEET 3-YEAR EXPENDITURE AND

23 CONTINUITY OF BUSINESS TESTS WITH RE24 SPECT TO ANY QUALIFIED INVESTMENT.— 
5 

•S 1893 IS

1 ‘‘(i) IN GENERAL.—This paragraph 

2 shall not apply to a qualified investment or 

3 transaction in a biomedical research cor4 poration unless such corporation meets the 

5 expenditure test for each year of the meas6 uring period and the continuity of business 

7 test. 

8 ‘‘(ii) MEASURING PERIOD.—For pur9 poses of this subparagraph, the term 

10 ‘measuring period’ means, with respect to 

11 any qualified investment or transaction, 

12 the taxable year of the biomedical research 

13 corporation in which the closing on the in14 vestment occurs, and the 2 preceding tax15 able years. 

16 ‘‘(iii) EXPENDITURE TEST.—A bio17 medical research corporation meets the ex18 penditure test of this subparagraph for a 

19 taxable year if at least 35 percent of its ex20 penditures for the taxable year (including, 

21 for purposes of this clause, payments in re22 demption of its stock) are expenditures de23 scribed in section 41(b) or clinical and pre24 clinical expenditures. 
6 

•S 1893 IS

1 ‘‘(iv) CONTINUITY OF BUSINESS

2 TEST.—A biomedical research corporation 

3 meets the continuity of business test if, at 

4 all times during the 2-year period following 

5 a qualified investment or transaction, such 

6 corporation continues the business enter7 prise of such corporation. 

8 ‘‘(G) EFFECT OF CORPORATE REDEMP9 TIONS ON QUALIFIED INVESTMENTS.—Rules 

10 similar to the rules of section 1202(c)(3) shall 

11 apply to qualified investments under this para12 graph except that ‘stock acquired in a qualified 

13 investment’ shall be substituted for ‘qualified 

14 small business stock’ each place it appears 

15 therein. 

16 ‘‘(H) EFFECT OF OTHER TRANSACTIONS

17 BETWEEN BIOMEDICAL RESEARCH CORPORA18 TIONS AND INVESTORS MAKING QUALIFIED IN19 VESTMENTS.— 

20 ‘‘(i) IN GENERAL.—If, during the 2- 

21 year period beginning 1 year before any 

22 qualified investment, the biomedical re23 search corporation engages in another 

24 transaction with a member of its qualified 

25 investment group and such biomedical re-
7 

•S 1893 IS

1 search corporation receives any consider2 ation other than cash in such transaction, 

3 there shall be a presumption that stock re4 ceived in the otherwise qualified investment 

5 transaction was not received solely in ex6 change for cash. 

7 ‘‘(ii) QUALIFIED INVESTMENT

8 GROUP.—For purposes of this subpara9 graph, the term ‘qualified investment 

10 group’ means, with respect to any qualified 

11 investment, one or more persons who re12 ceive stock issued in exchange for the 

13 qualified investment, and any person re14 lated to such persons within the meaning 

15 of section 267(b) or section 707(b). 

16 ‘‘(iii) REGULATIONS.—The Secretary 

17 shall promulgate regulations exempting 

18 from this subparagraph transactions which 

19 are customary in the bioscience research 

20 industry and are of minor value relative to 

21 the amount of the qualified investment. 

22 ‘‘(I) REGULATIONS.—The Secretary may 

23 issue such regulations as may be appropriate to 

24 achieve the purposes of this paragraph, to pre25 vent abuse, and to provide for treatment of bio-
8 

•S 1893 IS

1 medical research corporations under sections 

2 383 and 384 that is consistent with the pur3 poses of this paragraph.’’. 

4 (b) EFFECTIVE DATE.—The amendment made by 

5 this section shall apply to taxable years beginning after 

6 the date of enactment of this Act. 

Æ