We hold three biotech stocks in our growth portfolio — Biogen (BIIB), Bioverativ (BIVV), and R...
New ETF Targets Immunotherapy Treatments
11/06/2015 10:00 am EST
Biotech expert Brad Loncar, CEO of Loncar Investments, has launched the market's only exchange-traded fund focused solely on stocks involved in the niche market of cancer immunotherapy. Here’s a look at the new fund.
Steven Halpern: Joining us today is Brad Loncar, CEO of Loncar Investments, which recently launched the market’s only cancer immunotherapy ETF. How are you doing today, Brad.
Brad Loncar: I’m doing great. Thank you for having me. It’s a pleasure.
Steven Halpern: Your new ETF is called the Loncar Cancer Immunotherapy ETF (CNCR). Could you tell our listeners a little about the fund and the reasoning behind your decision to launch a fund in this specialty area?
Brad Loncar: Sure, thank you. So, I’m a biotech investor and one of the things that I’ve noticed over the years is I think we need better indices and investment products in biotech. Twenty years ago, if you wanted exposure to technology, you would by the QQQs, but you don’t think of that way anymore.
As technology as matured, you think of it as its individual components, cyber-security, and telecom equipment, and semiconductors, and those are all very different businesses and the reality of biotech is the same.
A company that develops innovative cancer drugs has a completely different business model from something like Bayer who is a drug distributor. And so I wanted to create an index that focuses on a specific high growth area of biotech; and to me, that’s cancer immunotherapy. I think it’s the most interesting science that’s going on right now.
Steven Halpern: So, in laymen’s terms, could you explain what differentiates immunotherapy from other cancer treatments and why you expect this to be such an important area over the coming decade.
Brad Loncar: Sure, so, I think most people are very familiar with chemotherapy, which in most cases affects whole body—and are very toxic—and the interesting thing about the immune system is that it’s natural and it can learn and adapt, and so, the theory is if you can harness it to treat cancer, you might see responses that are higher in efficacy and longer in duration.
Another thing is that the history of cancer research has been very incremental. You would have a drug that might extend somebody’s life a few months and then the next drug would come out and it would extend somebody’s life a few months more and that’s not what we’re seeing with these immunotherapies and the trials that are happening now.
They are not incremental. They are—in many cases—breakthrough, so I think it’s going to be a foundational treatment for cancer that’s going to change how we think about treating cancer over the next five or ten years.
Steven Halpern: Now, within this market there are already some drugs approved including ones from companies like Bristol-Myers Squibb (BMY) and Merck (MRK). Could you share your thoughts on these two drug firms?
Brad Loncar: That’s exactly right. So, Bristol’s drug is called Opdivo and Merck’s is called Keytruda and they’ve already been approved in melanoma and most recently lung cancer and they’ve really revolutionized the treatment of late stage melanoma. These drugs are going to be used in combination with many different types of cancers.
Merck had their earnings released last week and they mentioned that they’re testing their drug in 25 registration trials, which are the trials you do before you ask for approval and 160 trials overall, which is just amazing.
And it goes to show you that it’s going to be used in combination with almost everything. This is going to be a foundational treatment of many different types of cancers and you’ll see that develop over the coming years.
Steven Halpern: Now Bristol-Myers and Merck are both very large companies who have been involved in lots of areas. Is immunotherapy a large enough market that success for them can make a difference for a company that big?
Brad Loncar: Absolutely. So, for both Bristol and Merck, those two drugs that I just mentioned and the combinations of drugs that will follow on after them will be their biggest asset over the coming years, by far. These are the things that are moving their stocks.
If you look at Bristol’s multiple, it’s significantly higher than its entirety peer group, and the reason is because so much mature interest has been priced into the stocks based on this one drug so these are really the crown jewels of their pipeline that are moving the stocks.
Steven Halpern: Now, you also point to growing excitement over what’s called second and third generation technologies and you point to developments at Juno Therapeutics (JUNO) and Kite Pharma (KITE). Could you explain that?
Brad Loncar: Yeah, so the index is broken up into two categories. We have seven big companies like the Bristols and Mercks that you just mentioned and then we have 23 of what you more classically think of growth biotech companies and those are two that the market is really focused on.
They have a technology called CAR-T, which is where you take the T cells out of cancer patients and you kind of reprogram them to look for cancer and then infuse them back into the body. For certain types of blood cancers, one called ALL and another called CLL and another called non-Hodgkin’s lymphoma.
The initial studies of those drugs have just been amazing and so it’s something that Wall Street—but also the research community and the patient community—are very focused on. That CAR-T technology is something to watch over the next year or two.
Steven Halpern: Now, turning back to the Loncar Cancer Immunotherapy ETF, could you explain why individual investors might be better off buying the shares of the ETF as opposed to individual stocks?
Brad Loncar: Sure, well, I can’t give investment advice because everyone’s situation is different, but as a biotech investor myself, I can say that it’s very hard to pick individual stocks in biotech. I’m sure people see them every day going up 50% or down 50% and it can be scary and so you need to be very diversified.
But also if you look at the ETFs that are out there now like the most popular one is iShares NASDAQ Biotechnology (IBB), it’s very broad and it gives you exposure to so many different things.
There are people out there who, for example, know about immunotherapy and want to invest in immunotherapy, but there are no diversified products that allow them to do that, so something like this is designed specifically for that, to give them exposure to the thing they’re interested in but still be diversified and not putting all of their eggs in one or two stocks.
Steven Halpern: Now, finally, from a time perspective, is this ETF something that should be considered as a short-term vehicle or is it best suited for long-term investors perhaps looking out over several years.
Brad Loncar: Yeah, so, definitely the long-term. This is going to be—in my opinion—a long-term trend that’s going to change cancer over ten years and you have to look at it that way.
Biotech is a very volatile sector and—over a short time period—it can go up and down quite a bit, but if you catch a long-term trend that’s both delivering value to the patients and the system and you do it in a diversified way, that, in my opinion, is the best way to invest in the sector and in something like this topic specifically.
Steven Halpern: Again, our guest is Brad Loncar of Loncar Investments. Thank you for your time, today.
Brad Loncar: Thank you very much.
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