Much is changing in cancer research and scientific progress in diagnosis and treatment, which has led to a better outlook for cancer patients. Pharmaceutical companies with exposure to oncology have offered better earnings growth and high returns on capital and smaller biotech companies with no prior history have also entered the fray. Brad Loncar, portfolio manager for Loncar Investments, recently participated in a NYSSA presentation entitled Investment Opportunities from Innovations in Cancer Research. SmartBrief chatted with Loncar to learn more about what investors are doing to navigate the complex landscape of cancer research investing.
What is the goal of events like the NYSSA session and what kind of information were you hoping to convey to investors?
Those of us who focus on the biotechnology space have known about immunotherapy and its potential for years. Yet, most of the general public is only now hearing about it for the first time as immunotherapy drugs are finally making it to market. Therefore, the goal is simply to raise awareness.
Biotechnology has been one of the stock market’s best sectors ever since the financial crisis, yet many investors are not aware of the fundamental reasons why. I think the outperformance is due in large part to the groundbreaking science that is happening right now, and I’d put cancer immunotherapy at the top. This is a story people might want to know about because it could have a big impact on our society over the coming years.
What are some of the latest advancement in cancer research? Where are things headed in the next 2-5 years?
There is a class of very important new immunotherapy drugs called checkpoint inhibitors that have recently made it to the market.. Examples are Bristol Myers-Squibb’s Opdivo and Merck’s Keytruda. They have already revolutionized the treatment of late-stage melanoma and have more recently been approved in non-small cell lung cancer and kidney cancer. Over the coming years, look for those drugs to be approved for more types of cancers and to be used in combination with many other drugs.
In addition, there is a groundswell of second- and third-generation immunotherapy technologies in development right now that will hopefully reach the market in the coming years. These are things like cell-based therapies and therapeutic cancer vaccines, and they are being developed by smaller biotechnology companies. Examples include Juno Therapeutics, Cellectis, and NewLink Genetics. I am personally especially excited about a cell therapy approach called CAR-T that has shown remarkable early results in certain types of blood cancers. If all goes well, that can be on the market as soon as 2017.
What makes immunotherapy so different?
I think everyone is familiar with chemotherapy, which in many cases is toxic and can affect the whole body. Since the immune system is natural and can adapt and learn, the theory is that in harnessing it to fight a disease like cancer, you might see stronger and longer lasting results.
A good example is what you have seen in the news recently with former President Jimmy Carter who has melanoma and has been treated with one of these immunotherapy drugs (Merck’s Keytruda). Keeping in mind that President Carter is 91 years old, he appears to not only have responded well to the treatment, but also has been able to keep an active lifestyle; this illustrates the unique value these drugs bring to patients.
You launched the Loncar Cancer Immunotherapy Index last Spring. What are some of the basics about the index?
The goal of the index is to track the performance of the top 30 companies in the immunotherapy space. We have broken it up into two categories. First, we take seven of the larger pharmaceutical companies, like Merck and Bristol Myers-Squibb, which are bringing these drugs to the market today. Next, we choose 23 of the more pure-play biotechnologies companies that are working on the second and third generation immunotherapies.
The index is equal-weighted, and it is rebalanced and reconstituted semi-annually on the third Tuesday of December and June. I prefer this equal-weighted approach because both large and small companies will make contributions to advancing immunotherapy, and we don’t want the small companies to be drowned out like they are in other biotechnology indices that are market cap weighted.
Why focus on cancer immunotherapy specifically?
A misconception I think that people have about the biotechnology industry is that it is just one thing. I remember thinking the same about the technology sector 20 years ago. Back then, you could follow the Nasdaq-100 Index and feel like you had exposure to technology. However, now you don’t think of it that way. You think of technology as its individual components like cyber security, telecom equipment, and semiconductors. These are very different businesses that are valued quite differently by investors.
The reality of biotechnology is the same. There are many different things that make up biotech. Some of them bring to the table high innovation and growth prospects, while others represent low innovation and growth. I wanted to focus on cancer immunotherapy because, to me, it is the most interesting science, and I think it has the most potential to disrupt its space and have a positive impact on society. Therefore, I think there is value in tracking it specifically because some investors might want to only focus on this special slice of the sector.