ETF Expert Corner

Brad Loncar Spotlights Cancer Immunotherapy Index

March 8th, 2016 by ETF Store Staff

Brad Loncar, Head of Loncar Investments, joins us in studio to spotlight the index behind the Loncar Cancer Immunotherapy ETF (CNCR) and discuss the innovation occurring in cancer treatment.



Transcript

You can listen to our interview with Brad Loncar by using the above media player or enjoy a full transcription of the interview below.

Nate Geraci: The ETF we're spotlighting this week is the Loncar Cancer Immunotherapy ETF, ticker CNCR. Joining us in studio is the man behind this ETF, Brad Loncar, head of Loncar Investments. Brad, we're just thrilled to have you here in studio today. Welcome to the ETF Store Show.

Brad Loncar: Well, thanks a lot to you both for having me. I live in Lenexa. I was born and raised here, so I'd like to say a special hello to all of the listeners who are tuning in over the air here in Kansas City.

Nate Geraci: Well, I was going to mention that, that we should probably first point out that you are actually based here locally in Kansas City, so you didn't have to travel too far today. Your firm, Loncar Investments, manages a biotech focused family portfolio. Tell us a little bit about your background to begin today. Your firm, your experience as an investor, and how you got involved in the biotech space.

Brad Loncar: Sure. I'm a biotech investor. I've been doing that full time for about eight to ten years and part time for most of my life. As you guys were talking about earlier, I think it's the most rewarding sector to invest in because this is important stuff. These are companies that are trying to develop medicines that will improve people's health and improve society. I've always been interested in it. About ten years ago I wanted to do it full time, so I started to go to medical meetings and talking with doctors and opinion leaders, and starting to educate myself on it. You know, here I am today. It's been a fun journey and it's a great sector to invest in.

Nate Geraci: Now, you previously worked in the financial services industry at Franklin Templeton, is that correct?

Brad Loncar: That’s right. I worked at the Templeton headquarters, which is in Fort Lauderdale, Florida. I'm a big fan of Sir John Templeton. He is one of my investing heroes. He was a very long term investor. That's something that I've tried to really learn from, from watching his career and what a legend he is, so it was great to work there.

Nate Geraci: Then, you were also appointed to serve in a senior advisor role at the US Department of Treasury, is that correct?

Brad Loncar: That's right. I worked at the Treasury Department right there at its headquarters in Washington. I was working in a division there called International Affairs. We were watching over the global economy. That was good because it introduced me to global economics. It was a great learning experience. It was nice to be able to work in the government and kind of serve the country in a way.

Nate Geraci: Well Brad, we're obviously going to get into the details of the Loncar Cancer Immunotherapy Index here shortly, but how did you end up zeroing in on this specific segment of the biotech space?

Brad Loncar: Cancer immunotherapy is very special. This is something as a biotech investor we've known about for years. This immunotherapy, as I'll describe, is a breakthrough and it's changing the way that cancer is treated. One thing I noticed is that, the biotech sector has been the best sector in the stock market over the last four or five years. Ever since the financial crisis, and especially since 2011, it has been the best sector. A lot of people see that and they're not sure what's going on and what the fundamental reasons are behind it. The reality is, there's a lot of game changing science going on that's creating this value. Cancer immunotherapy I think is the most interesting game changing thing that will have the biggest impact on its slice of the sector and on health care in general, so it's the area that I wanted to focus on first.

Nate Geraci: Again, we're visiting with Brad Loncar, head of Loncar Investments. Brad is joining us in studio today. Well Brad, let's talk specifically about the Loncar Cancer Immunotherapy ETF. Again, the ticker on that is CNCR. You developed the index this ETF tracks. Tell us how this index is constructed. How are the companies selected? How are the holdings weighted? What's the end goal here?

Brad Loncar: First of all, I think everyone out there is familiar with chemotherapy, which in many cases is toxic and affects the entire body. Well, the immune system is different. It's natural and it can adapt and learn. The theory is, if you can harness it to treat a disease like this, you might see longer lasting and more efficacious results. There's a handful of drugs that are on the market now, like Opdivo from Bristol-Myers and Keytruda from Merck. There's a ground swell of second and third generation things that hopefully you'll see come to the market over the following years. I created this index of the thirty companies that are leaders in this. We've broken that thirty down into kind of two categories. We have seven of those larger companies like I mentioned Bristol and Merck who are bringing these drugs to the market today. Then, we have twenty-three of what you more classically thing of as biotech companies, like Kite and Juno, and Cellectis, that are working on those second and third generation things that will be coming to the market over the following years. I think there's a good mix of a small group of larger companies and a big group of growth biotechs.

Nate Geraci: How are the holdings weighted within the index?

Brad Loncar: It's equal weighting. That's done semiannually, so every six months. That takes place the third Tuesday of December and June.

Nate Geraci: Well you know, this is an interesting area because as you mentioned, I think many people are familiar with chemotherapy. Just to be clear, is immunotherapy in addition to chemo or does it replace chemo?

Brad Loncar: It depends on the type of cancer. One thing that companies are doing a lot of now is combinations. Not only with chemotherapy, but with radiation and other types of cancer therapies, and also trying to do combinations of immunotherapies. The answer is, they're trying everything out, but the important thing is, these immunotherapies are going to be the foundation. Just to give you an idea, so they've been approved in melanoma, lung cancer, and kidney cancer. Just to give you an idea of how big these are, so Merck had an earnings call a few weeks ago and they mentioned that they're studying their drug in two hundred different trials. As a biotech investor, you follow these companies and usually everything hinges on one trial. The fact that Merck is testing theirs in two hundred different trials in thirty or so different cancers illustrates just how foundational these are going to be. They're going to be the backbone of everything and used in combination with chemo-therapies and other treatments.

Nate Geraci: It's interesting because it's certainly cutting edge, but I saw some headlines yesterday that former president, Jimmy Carter, no longer needs treatment for his cancer and he used a new immunotherapy drug to treat melanoma. This seems to be getting a lot more attention now, doesn't it?

Brad Loncar: I think his case illustrates the value and how special and unique these drugs are. He's taking a drug from Merck called Keytruda. He had late stage melanoma that unfortunately had traveled to both his brain and his liver. When cancer travels to other parts of your body like that, sadly, that's when the prognosis is most serious. He was on that drug for a few months and the cancer seems to have cleared. His doctors have said that cancer in the brain and the liver is no longer showing up on his scans, which is terrific, but another important side of that story that's important to talk about is, he's ninety-one years old. At that age, you may not even give someone chemotherapy because it's so debilitating. In this case, not only was he taking the immunotherapy, but he was still teaching Sunday school and keeping an active lifestyle. It just goes to show that the quality of life is so much better with these as well.

Nate Geraci: Brad, if you don't mind sticking with us through the break here, what I'd like to do is take a quick break. Then, when we come back I'd like to ask you about where companies involved in cancer immunotherapy might fit in a broader investment portfolio. I'd also love to get your thoughts on ETFs. How does that sound?

Brad Loncar: That'd be terrific. Thank you.

Nate Geraci: Well great. Let's take a quick break and when we come back we'll continue our conversation with Brad Loncar, head of Loncar Investments. You're listening to the ETF Store Show.

Welcome back to the ETF Store Show. Nate Geraci and Connor Kelly in studio. We're also pleased to be joined in studio today by Brad Loncar, head of Loncar Investments. Brad built the index that powers the Loncar Cancer Immunotherapy ETF. Again, the ticker symbol on that is CNCR. Before break, we walked through the nuts and bolts of this ETF and we talked about cancer immunotherapy and the innovation occurring in cancer research. Brad, on your website at loncarindex.com, which by the way that's spelled L-O-N-C-A-R index dot com, you say that you hope highlighting immunotherapy in this fashion, so through an index will lead to more awareness within the investment community. More investment in the field and more progress for patients who battle cancer disease. I'm just curious, how much of that sentiment played into your interest in this space? Besides just the potential investment opportunity?

Brad Loncar: Oh, for sure it's huge. I mean, this is important stuff. Especially these smaller biotech companies who are working on this. These are companies that need capital. I believe this immunotherapy is such a breakthrough that I want people to know about it. I thought that creating an index and highlighting it in this way would bring some exposure. I think it's very important to support the public companies. I also think it's important to support the private research. I have a partnership with a charity that's based in New York, called the Cancer Research Institute. Believe it or not, they've been working specifically on this immunotherapy since the nineteen fifties, which is amazing because we see these breakthroughs today. What you don't realize, is that they're based off of fundamental research that's been going on for decades. I'm giving a portion of my index royalties to that charity because I think it's important to not only support the public companies that are bringing these treatments to patients today, but also supporting that important early private research that will help foster the breakthroughs of tomorrow as well.

Connor Kelly: Brad, you mentioned in the last segment a little bit about how different immunotherapy is than chemotherapy. Anybody who's gone through it themselves or seen a loved one fight cancer and have to deal with chemotherapy, I mean, it is such a brutal process. I mean, there have obviously been advancements, but it's poison and it kills a lot of your healthy cells as opposed to the cancer cells. What is such a potential change in immunotherapy is, not only the prognosis that patients have that are recovering, but how much easier it is on their body during the fight.

Brad Loncar: That's right. It's much more tolerable and something that I'm really trying to tell people, the history of cancer research for many types of cancers, if not most has been very incremental. One drug will come along and it'll extend people's lives for a few months. Then, the next one will maybe be another month or two. Over time that's added up to a lot, but as it happened it felt very incremental. These immunotherapies are not incremental. They're big breakthroughs and as we discussed with that example of President Carter, they're just so much more tolerable many of them and it's just a real game changer of a way of treating this disease. I just think it's very special and something that's worth highlighting.

Nate Geraci: Again, we're visiting with Brand Loncar, head of Loncar Investments. Brad is here in studio with us today. Brad, going back, from an investment standpoint, where do companies involved in cancer immunotherapy fit in a portfolio. Obviously, there are other broader biotech ETFs on the market. We're actually going to talk about a couple of them later in the show. There are broad based biotech mutual funds, but cancer immunotherapy is a more specific area. How should investors think about this space in the context of their portfolio and what's the potential investment opportunity here?

Brad Loncar: Well, one very important thing that I'm trying to go for here, as I mentioned earlier, biotech has been a great sector for many years. Most people, many people don't understand why. I think part of the reason is, it's like what's biotech? That word alone is kind of confusing and it's made up of many different things. I remember twenty years ago thinking that technology was one thing and you don't think of it that way anymore. When you think of technology you think of its individual components, like cyber security and telecom equipment and semiconductors. These are all very different businesses. Some of which are high innovation and high growth, and some of which are slow growth. The reality of biotech is the same. Biotech is not one thing, so I wanted to take what I think is the most interesting high growth potential, game changing slice of biotech and allow investors to focus on that. Essentially, what I'm trying to do is take that thing biotech that a lot of people don't understand and repackage it in ways that they do. I think even if you haven't heard of immunotherapy specifically, everyone knows cancer, as you mentioned. Everyone can relate to cancer and people might want to support that. That's why I wanted to highlight it in this way.

Connor Kelly: Brad, along those lines of technology becoming ultimately many different industries and sectors. Do you have anything in the works in terms of maybe further segmenting or slicing up the biotech space like you've done with the cancer ETF?

Brad Loncar: Oh, for sure. Just like there are dozens of things that make up technology, there are dozens of things that make up biotechnology. For competitive reasons, I can't mention those specifically, but there are a lot of things that you could do that way, that would take biotech and repackage it, and highlight its areas that are its own unique business models because biotech has a lot of that. Another thing that's important, you've seen some negative headlines in the news lately about biotech. You see companies like Valent, which by the way is not a biotech company, but it kind of gets grouped in there. That's another reason why I think it's important to kind of highlight the good because there's a lot of companies in biotech that are doing the right thing and trying to produce big results for patients. I think it's worth separating the wheat from the chaff, so to speak and there are a lot of different ways you can do that.

Nate Geraci: Well brad, that being said, if we were just to look broadly speaking at the biotech space, you are a very well-known biotech investor nationally. I'm just curious, can you give us your assessment, just very thirty thousand feet of biotech right now?

Brad Loncar: Sure. I think biotech is at a very unique inflection point. I think biotech is the new tech. You actually see companies like Google and Qualcomm and what you historically think of technology companies getting into biotech. Part of the reason is, just like diagnostics and how you can measure health these days, it's just so much different. I think it's going to have a huge impact on our society over the coming decades. There's no more interesting place to be as an investor right now than biotech, I think. I love it and I think it's really in store for some great things.

Nate Geraci: All right. We have just a few minutes left here. While we have you in studio, I'd love just to hear your thoughts on ETFs in general. Obviously, if you were so inclined, you could have offered your index through a mutual fund instead of an ETF, but you chose an ETF. Why go the ETF route?

Brad Loncar: Look, as you mentioned, I used to work at a mutual fund company. ETFs are what customers demand. People want to invest in ETFs. They want to be able to buy them at a moment's notice, like on the exchange. I think mutual funds are confusing. People are confused by the different share classes, by the fees, by the long ticker symbols. Everything about mutual funds is confusing. The great thing about ETFs is, it's very straight forward. They're very easy to find and be able to research further. When you're ready to buy one, it's easy to buy one as well. I think especially for younger generations, a lot of young people wouldn't even fathom investing in a mutual fund. I just think that ETFs are not only here, I think it's really what people want to invest in going forward.

Nate Geraci: Well Brad, with that, we'll have to leave it there. Boy, a fantastic discussion today. We're certainly glad you were able to join us here in studio. Perhaps you can come back and give us an update down the road. Thank you.

Brad Loncar: Terrific. Thanks for having me.

Nate Geraci: That was Brad Loncar, head of Loncar Investments. You can learn more about the Loncar Cancer Immunotherapy Index by visiting loncarindex.com. Again, that's L-O-N-C-A-R index dot com. You can learn more about the ETF itself, ticker CNCR, by visiting loncarfunds.com. I should also mention, Brad is a great follow on Twitter. Check him out @bradloncar.