A new way to invest in medical research is moving through Congress

A new way to fund medical research is getting traction in Congress. A bipartisan bill called the LOANS for Biomedical Research Act would create a new financial tool to help fund the development of new medical treatments that have largely been stalled since the onset of the pandemic. The new legislation would create a new type of investment called BioBonds.

Jason Menzo, CEO of the Foundation Fighting Blindness, spoke with “Marketplace Morning Report” host David Brancaccio about how these proposed government-backed loans would work. Below is an edited transcript of their conversation.

David Brancaccio: Tell me, what is the problem these bonds are trying to solve?

Jason Menzo: We’re living in this amazing time where there’s revolutionary treatments being developed for blindness — where we work — or neurological conditions like Alzheimer’s, other rare diseases and of course cancers. And yet every day in our industry, we’re reading headline after headline of company after company that are either going bankrupt or stalling, their operations are pausing, because the funding just isn’t there. And so these are companies that don’t necessarily have the interest, at a moment in time like we’re in right now, of the venture capital market. That’s the traditional funding mechanism for these types of companies.

Brancaccio: So enter the possibility of public policy. Legislation that you’re involved with is a push for this. LOANS — L-O-A-N-S — for Biomedical Research Act, also known as BioBonds. How would those work?

Menzo: The concept is to authorize the federal government to guarantee $30 billion in loans. And the way that this would work is that researchers or companies that are at this stage that I described a little bit ago, would be eligible to secure a loan, if they have a program that has passed what we call the IND stage, which stands for investigational new drug stage of development, and the loan would be underwritten by this federal guarantee. This is why it has to go through the process of the federal government. But ultimately, that guarantee acts as a backstop. And you’d go to a bank just like you would for getting a loan for your home, but then the loans would be packaged into bonds to diversify the risk. And then pension funds or insurance companies, folks that are looking for long horizon modest returns over time, would be the investors that ultimately would own these loans.

Brancaccio: So this is a divided Congress. How do you game prospects for getting this into law?

Menzo: Well, this is actually where the magic is happening right now. We’re thrilled we have this bill introduced in the House right now with a Republican and a Democrat — Brian Fitzpatrick from Pennsylvania and Sanford Bishop from Georgia are co-sponsoring this bill. And we really do view this as a win-win and this is something that could potentially bring both sides the aisle together. Everyone has some issue within their family or personally, that would be a benefit to having a healthy and thriving U.S. biotech market. And so there’s a lot of energy in the House. We’re optimistic of a companion bill in the Senate. And our hope is that by the end of the year that we’re in a position to have this enacted.