I 
108TH CONGRESS 
1ST SESSION H. R. 2968
To permit biomedical research corporations to engage in certain equity 
financings 
without 
incurring 
limitations 
on 
net 
operating 
loss 
carryforwards and certain built-in losses, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 25, 2003
Mr. REYNOLDS (for himself, Mr. CANTOR, Mr. MATSUI, Mr. CARDIN, and Mr. 
HOLT) introduced the following bill; which was referred to the Committee 
on Ways and Means 
A BILL 
To permit biomedical research corporations to engage in 
certain equity financings without incurring limitations 
on net operating loss carryforwards and certain built-
in losses, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives 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 2003’’. 
SEC. 2. FINDINGS AND PURPOSE. 
(a) FINDINGS.—Congress finds the following:
(1) American bioscience research corporations 
conduct long-term research and development on 
breakthrough medical technologies. This commercial 
bioscience research industry forms an irreplaceable 
link between pure scientific discovery and the devel-
opment of powerful biomedical products and tech-
nologies. It is critical to the maintenance of Amer-
ican competitiveness internationally that these long-
term research and development projects be encour-
aged. 
(2) Such long-term research projects have the 
greatest potential to revolutionize whole fields of 
science and industry for the benefit of the standard 
of living of Americans; and to yield solutions for 
critical social needs, even though these solutions 
might not result in large sales and profits (such as 
‘‘orphan’’ drugs and other treatments alleviating 
great suffering in their recipients). 
(3) Long-term biomedical research companies 
are among the most research-intensive and capital-
intensive companies in the world. 
(4) In addition to the scientific and technical 
risks attending their long-term research programs, 
many biomedical research companies must subject 
their technologies to lengthy and expensive regu-
latory reviews before they are permitted access to 
the marketplace. 
(5) Biomedical research companies typically op-
erate in financially challenging circumstances. These 
companies must engage in intensive research activity 
for many years in order to develop their products 
and earn profits. Many are small businesses lacking 
the internal cash flow, stability and borrowing ca-
pacity of large corporations. 
(6) The long-term commercial bioscience re-
search industry is heavily dependent on outside 
sources of equity capital to fund lengthy and inten-
sive research prior to earning any revenues. The in-
dustry’s long lead times and high levels of scientific 
and regulatory risk often impede access to capital. 
(7) The longstanding national policy of Govern-
ment support and tax incentives for breakthrough 
commercial research reflects a recognition that the 
capital marketplace tends to allocate insufficient re-
sources to sustain the Nation’s need for such 
foundational scientific research and development. 
(8) American long-term bioscience research 
companies constitute one of the core commercial sec-
tors which Congress intended to benefit from exist-
ing tax incentives for commercial research.
(9) However, the current Federal income tax 
incentives are simply not working in the case of 
many bioscience companies focused on breakthrough 
medical technologies. 
(10) Current Federal income tax incentives do 
not work as intended for most high technology bio-
science companies because they typically incur net 
operating losses for a decade or more during their 
lengthy research and development phases and there-
fore receive no contemporaneous benefit from these 
tax incentives. 
(11) Further, Federal tax rules aimed chiefly at 
preventing corporate loss trafficking and tax-moti-
vated mergers and acquisitions penalize these com-
panies. The very process of raising successive incre-
ments of private capital through routine equity 
financings triggers these rules and subjects bio-
medical research companies to severe limitations on 
net operating loss and tax credit carryforwards. 
These limitations practically eliminate for the com-
mercial bioscience industry any economic benefit 
from these tax incentives. 
(12) These tax incentives instead tend to favor 
investment by large, profitable companies, often en-
gaged in secondary or tertiary research activities,
and thus to discriminate against and to cause under-
investment 
in 
longer-term 
breakthrough 
tech-
nologies, a bias which is harmful to American com-
petitiveness. 
(13) The inability to benefit from existing Fed-
eral income tax incentives for commercial research 
places long-term bioscience research companies at a 
substantial disadvantage in the capital marketplace 
where they must compete with other companies able 
to use these tax incentives currently. 
(14) A tax system that does not discriminate 
would ensure that existing tax incentives in favor of 
research and experimentation have the same cost-re-
ducing impact on companies conducting both short-
term and long-term research and thus render this 
tax incentive program neutral with regard to short-
term and long-term research objectives, minimizing 
capital marketplace distortions caused by differences 
in tax and income status. 
(b) PURPOSE.—The purpose of this Act is to provide 
that long-term biomedical research corporations will not 
incur limitations on research-related tax incentive 
carryforwards simply because they engage in the routine 
equity financings that are the financial lifeblood of the in-
dustry.
SEC. 3. 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 
during the testing period shall be treated for 
purposes of this section (other than this para-
graph) as occurring before the testing period. 
‘‘(B) BIOMEDICAL
RESEARCH
CORPORA-
TION.—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 in-
vestment—
‘‘(i) holds the rights to a drug or bio-
logic 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 under 
study in phase II or phase III of a clinical 
investigation carried out under such sec-
tion. 
‘‘(C) QUALIFIED INVESTMENT.—For pur-
poses of this paragraph, the term ‘qualified in-
vestment’ means any acquisition of stock in a 
biomedical research corporation if such stock is 
acquired at its original issue (directly or 
through an underwriter), solely in exchange for 
cash, and the closing thereon occurs after the 
date of the enactment of this paragraph. 
‘‘(D) STOCK
ISSUED
IN
EXCHANGE
FOR 
CONVERTIBLE
DEBT.—For purposes of this 
paragraph, stock issued by a biomedical re-
search corporation in exchange for its convert-
ible 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 sole-
ly in exchange for cash if the debt holder pre-
viously acquired the convertible debt at its 
original issue and solely in exchange for cash.
In the case of an acquisition of stock in ex-
change for convertible debt, the requirements of 
this paragraph shall be applied separately as of 
the time of closing on the investment in con-
vertible debt, and as of the time of actual con-
version (or deemed conversion under this sec-
tion) of the convertible debt for stock, except 
that the requirements of subparagraph (H) 
shall be applied only as of the time of closing 
on the issuance of the convertible debt. 
‘‘(E) BIOMEDICAL
RESEARCH
CORPORA-
TION MUST MEET 5-YEAR EXPENDITURE TEST 
WITH
RESPECT
TO
ANY
QUALIFIED
INVEST-
MENT.—
‘‘(i) IN
GENERAL.—This paragraph 
shall not apply to a qualified investment in 
a biomedical research corporation unless 
such corporation meets the expenditure 
test for each year of the measuring period. 
‘‘(ii) MEASURING PERIOD.—For pur-
poses of this subparagraph, the term 
‘measuring period’ means, with respect to 
any qualified investment, the taxable year 
of the biomedical research corporation in 
which the closing on the investment occurs,
the 2 preceding taxable years, and the 2 
subsequent taxable years. 
‘‘(iii) EXPENDITURE
TEST.—A bio-
medical research corporation meets the ex-
penditure test of this subparagraph for a 
taxable year if at least 25 percent of its ex-
penditures for the taxable year (including, 
for purposes of this clause, payments in re-
demption of its stock) are expenditures de-
scribed in section 41(b) which are paid or 
incurred for clinical testing or preclinical 
biomedical research. 
‘‘(iv) CLINICAL
TESTING.—For pur-
poses of this subparagraph, the term ‘clin-
ical testing’ means any human clinical test-
ing which is carried out under any inves-
tigational new drug application in effect 
under section 505 of the Federal Food, 
Drug, and Cosmetic Act. 
‘‘(F) EFFECT
OF
CORPORATE
REDEMP-
TIONS
ON
QUALIFIED
INVESTMENTS.—Rules 
similar to the rules of section 1202(c)(3) shall 
apply to qualified investments under this para-
graph except that ‘stock acquired in a qualified 
investment’ shall be substituted for ‘qualified
small business stock’ each place it appears 
therein. 
‘‘(G) EFFECT
OF
OTHER
TRANSACTIONS 
BETWEEN
BIOMEDICAL
RESEARCH
CORPORA-
TIONS AND INVESTORS MAKING QUALIFIED IN-
VESTMENTS.—
‘‘(i) IN GENERAL.—If, during the 2-
year period beginning 1 year before any 
qualified investment, the biomedical re-
search corporation engages in another 
transaction with a member of its qualified 
investment group and such biomedical re-
search corporation receives any consider-
ation other than cash in such transaction, 
there shall be a presumption that stock re-
ceived in the otherwise qualified investment 
transaction was not received solely in ex-
change for cash. 
‘‘(ii) 
QUALIFIED
INVESTMENT 
GROUP.—For purposes of this subpara-
graph, the term ‘qualified investment 
group’ means, with respect to any qualified 
investment, one or more persons who re-
ceive stock issued in exchange for the 
qualified investment, and any person re-
lents immediately before the closing 
on the qualified investment. 
‘‘(ii) QUALIFYING CLINICAL EXPENDI-
TURES.—For purposes of this subpara-
graph, the term ‘qualifying clinical expend-
itures’ means amounts described in section 
41(b) which are paid or incurred by a bio-
medical research corporation for clinical 
testing in connection with a drug or bio-
logic for which an investigational new drug 
application is in effect under section 505 
of the Federal Food, Drug, and Cosmetic 
Act and which is (at the time of the clos-
ing on the qualified investment) under 
study in phase II or phase III of a clinical 
investigation carried out under such sec-
tion. 
‘‘(I) REGULATIONS.—The Secretary may 
issue such regulations as may be appropriate to 
achieve the purposes of this paragraph, to pre-
vent abuse, and to provide for treatment of bio-
medical research corporations under sections 
383 and 384 that is consistent with the pur-
poses of this paragraph.’’.
(b) PROCEEDS
OF EQUITY INVESTMENTS
TO BE 
TREATED AS WORKING CAPITAL.—Subparagraph (C) of 
section 382(l)(4) of such Code is amended by adding at 
the end the following: ‘‘Such term shall not include any 
assets reasonably expected to be used within 3 years to 
fund qualifying clinical expenditures (as defined in para-
graph (9)(H)(ii) without regard to the parenthetical there-
in).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2002.
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