text: 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 makes the following findings:
              (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 development of powerful biomedical products and 
          technologies. It is critical to the maintenance of American 
          competitiveness internationally that these long-term research 
          and development projects be encouraged.
              (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 regulatory reviews before they are permitted 
          access to the marketplace.
              (5) Biomedical research companies typically operate 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 capacity of large corporations.
              (6) The long-term commercial bioscience research industry 
          is heavily dependent on outside sources of equity capital to 
          fund lengthy and intensive research prior to earning any 
          revenues. The industry's long lead times and high levels of 
          scientific and regulatory risk often impede access to capital.
              (7) The longstanding national policy of Government support 
          and tax incentives for breakthrough commercial research 
          reflects a recognition that the capital marketplace tends to 
          allocate insufficient resources 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 sectors which Congress 
          intended to benefit from existing 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 bioscience companies because 
          they typically incur net operating losses for a decade or more 
          during their lengthy research and development phases and 
          therefore receive no contemporaneous benefit from these tax 
          incentives.
              (11) Further, Federal tax rules aimed chiefly at preventing 
          corporate loss trafficking and tax-motivated mergers and 
          acquisitions penalize these companies. The very process of 
          raising successive increments of private capital through 
          routine equity financings triggers these rules and subjects 
          biomedical research companies to severe limitations on net 
          operating loss and tax credit carryforwards. These limitations 
          practically eliminate for the commercial bioscience industry 
          any economic benefit from these tax incentives.
              (12) These tax incentives instead tend to favor investment 
          by large, profitable companies, often engaged in secondary or 
          tertiary research activities, and thus to discriminate against 
  and to cause under-investment in longer-term breakthrough technologies, 
  a bias which is harmful to American competitiveness.
              (13) The inability to benefit from existing Federal 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-reducing 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 industry.
  
  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 
                  paragraph) as occurring before the testing period.
                      ``(B) Biomedical research corporation.--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 
                  investment--
                              ``(i) holds the rights to a drug or 
                          biologic 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 section.
                      ``(C) Qualified investment.--For purposes of this 
                  paragraph, the term `qualified investment' 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 research corporation in exchange for its 
                  convertible 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 solely in 
                  exchange for cash if the debt holder previously 
                  acquired the convertible debt at its original issue and 
                  solely in exchange for cash. In the case of an 
                  acquisition of stock in exchange for convertible debt, 
                  the requirements of this paragraph shall be applied 
                  separately as of the time of closing on the investment 
                  in convertible debt, and as of the time of actual 
                  conversion (or deemed conversion under this section) 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 corporation must meet 5-
                  year expenditure test with respect to any qualified 
                  investment.--
                              ``(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 purposes 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) Clinical testing.--For purposes of 
                          this subparagraph, the term `clinical testing' 
                          means any human clinical testing which is 
                          carried out under any investigational new drug 
                          application in effect under section 505 of the 
                          Federal Food, Drug, and Cosmetic Act.
                      ``(F) Effect of corporate redemptions on qualified 
                  investments.--Rules similar to the rules of section 
                  1202(c)(3) shall apply to qualified investments under 
                  this paragraph 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 corporations and investors making 
                  qualified investments.--
                              ``(i) In general.--If, during the 2-year 
                          period beginning 1 year before any qualified 
                          investment, the biomedical research corporation 
                          engages in another transaction with a member of 
                          its qualified investment group and such 
                          biomedical research corporation receives any 
                          consideration other than cash in such 
                          transaction, there shall be a presumption that 
                          stock received in the otherwise qualified 
                          investment transaction was not received solely 
                          in exchange for cash.
                              ``(ii) Qualified investment group.--For 
                          purposes of this subparagraph, the term 
                          `qualified investment group' means, with 
                          respect to any qualified investment, one or 
                          more persons who receive stock issued in 
                          exchange for the qualified investment, and any 
                          person related to such persons within the 
                          meaning of section 267(b) or section 707(b).
                              ``(iii) Regulations.--The Secretary shall 
                          promulgate regulations exempting from this 
                          subparagraph transactions which are customary 
                          in the bioscience research industry and are of 
                          minor value relative to the amount of the 
                          qualified investment.
                      ``(H) Proceeds of qualified investments shall be 
                  devoted to research on preexisting technology.--
                              ``(i) In general.--This paragraph shall not 
                          apply to any qualified investment unless the 
                          net proceeds of such qualified investment do 
                          not exceed the excess of--
                                      ``(I) the sum of the biomedical 
                                  research corporation's aggregate 
                                  qualifying clinical expenditures for 
                                  the 3 years following the qualified 
                                  investment, over
                                      ``(II) three times the 
                                  corporation's qualifying clinical 
                                  expenditures for the year preceding the 
                                  qualified investment, plus the amount 
                                  of the corporation's cash and cash 
                                  equivalents immediately before the 
                                  closing on the qualified investment.
                              ``(ii) Qualifying clinical expenditures.--
                          For purposes of this subparagraph, the term 
                          `qualifying clinical expenditures' means 
                          amounts described in section 41(b) which are 
                          paid or incurred by a biomedical research 
                          corporation for clinical testing in connection 
                          with a drug or biologic 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 closing on the qualified 
                          investment) under study in phase II or phase 
                          III of a clinical investigation carried out 
                          under such section.
                      ``(I) Regulations.--The Secretary may issue such 
                  regulations as may be appropriate to achieve the 
                  purposes of this paragraph, to prevent abuse, and to 
                  provide for treatment of biomedical research 
                  corporations under sections 383 and 384 that is 
                  consistent with the purposes 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 paragraph (9)(H)(ii) without 
  regard to the parenthetical therein).''.
      (c) Effective Date.--The amendments made by this section shall 
  apply to taxable years beginning after December 31, 2002.
target: Biotechnology Future Investment Expansion Act of 2003 - Amends the Internal Revenue Code to provide that in the case of a biomedical research corporation, any owner shift involving a five-percent shareholder which occurs as the result of a qualified investment during the testing period shall be treated as occurring before the testing period. (Thus not counting toward net operating loss and tax credit carryover limitations.)
  
  Defines: (1) "biomedical research corporation" as a domestic corporation not in bankruptcy which has a drug or biologic in certain clinical trials; and (2) "qualified investment" as a stock acquisition in a biomedical research corporation acquired in cash at its original issue.
  
  Requires a biomedical research corporation to meet a five-year expenditure test with respect to any qualified investment.
feat_title: 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.