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COVID-19: It is Science that Will Get Us Out of This

Mar. 9, 2020

Brad Loncar, CEO of Loncar Investments and creator of the indexes that power the Loncar Funds ETFs, offers his thoughts on biopharma’s response to COVID-19.

With #COVID19 having gone global, panic is starting to set in worldwide and people are wondering how, and if, we are ever going to get out of this tragic and difficult mess. First of all, I subscribe to the idea (taught by a mentor, David Sable) that we should all aim to be the calmest person in the room. This mentality is especially important for investors, as we need to always put data, critical thinking, and a long-term perspective ahead of emotions.

The spread of the virus is serious and all of us should be prepared and smart about it, but we will get through this. These things seem terrifying and inextricable as they are happening, but that’s due to 1) the numerous present uncertainties of it (that will become clearer over time) and 2) our proclivity to magnify the here and now. Remember that we have been through past pandemics, natural disasters, wars, and other events that were also scary and disruptive, and we have always bounced back.

Second, as a life sciences investor, I think it is important to point out what is going to be the thing that likely gets us out of this: Science.

Biotech and pharma companies are rising to the occasion.

I am very proud of the way that biotech and pharma companies, and other researchers, are putting their best foot forward during this outbreak. For example, Moderna, a Massachusetts-based company led by CEO Stéphane Bancel, has worked with the National Institute of Allergy and Infectious Diseases to get the first vaccine candidate ready for clinical trials in mere months — something that traditionally might have taken nearly a year. (Read our interview with Stéphane Bancel from last year.)


Moderna’s “plug-and-play” platform, which harnesses the power of a biological tool called messenger RNA (mRNA), is illustrative of why we should feel up to the challenge for defeating a virus like this one. To be clear, Moderna is a young and untested company, and some have well-placed skepticism that its technology will work. However, this is just one of many examples suggesting that #COVID19 has shown up on the cusp of an exciting new era of medicine. Today’s tools are powerful, and I like our chances with them.

It has been heartening to see that most companies seem to be getting into this for the right reason. I wish I could say the same about traders who are bidding up “virus stocks.” Having been through similar events (Ebola stocks, anyone?), I have seen how the story ends for these shooting stars and, in the past at least, it has not been pretty. The reality is that the development risks that come with this are high and the cost is extensive, while the payout is much less than the uninitiated would believe. Credit to the companies that are jumping in because it is the right thing to do.

Containment can do the blocking, but only science can do the tackling.

At this early stage of the global outbreak, you have heard a lot of talk about containment. Containment happened on an unprecedented level in China and is now taking place to various degrees in other places around the world where the virus has begun to arise. As we have seen, containment is both very important but also imperfect. Containment can do the blocking to slow this down, but I think only science can do the real tackling required to get us out of it fully. This is due to reasons that are both tangible and mental.

The tangible part is just the scientific reality. You might have heard predictions (including from the President of the United States) that #COVID19 will slow down or even die out when warmer weather arrives. Let’s hope so, but I wouldn’t bet on it. Experts are already warning that based on its characteristics, it is unlikely to fully burn out and/or might come back in future seasons. This means that we now need to rush, but also rigorously test, multiple vaccine candidates, other prophylactics, and therapeutic medicines, so that one or two solutions are ready meet the virus in the future.

Second, from a confidence standpoint, consider that we might have already crossed the Rubicon where a natural burnout will not be enough to get society fully past this mentally. The global scare and economic disruption are already on such a scale that the public needs to have faith in the idea that #COVID19 and others like it can be fully extinguished no matter where or when they arise in the future. Only science, through a vaccine or cure, can deliver this kind of confidence and certainty that society (and the stock market) will be looking for going forward.

This challenge presents an opportunity for the industry.

If there is a silver lining to the #COVID19 emergency, let’s hope it might be a renewal of society’s currently fragile faith in science and medicine. This is a serious challenge, but also an opportunity for the biopharmaceutical industry. While 99% of the industry is made up of smart, good people who work hard every day to fight disease, biopharma’s overall image has been plagued in recent years by drug pricing scandals, the opioid epidemic, and other nonsense that has rightfully angered the general public. Today the reputation of drug developers is down there with tobacco companies, gun makers, and… gasp… politicians. It’s about time for some redemption.

That humanity is turning to biopharmaceutical companies during this time of emergency is proof that the industry’s important mission has not yet been totally forgotten. This is a big opportunity that can be turned into a lasting win if one of our companies succeeds for the world. As a biotech investor, it has me optimistic that our sector can be a leader coming out of this both in the United States and in China. China, in particular, is likely to be investing in its healthcare and biotech capabilities rigorously over the coming years. This tragedy should accelerate the country’s already existing plans to be at the forefront of medicine.

Industry consortiums would be wise to make sure there is strong collective effort by members to get this job done. There should be no sitting on the sidelines by any major company for any reason. Containment can do the blocking, but it will take science to do the tackling. I am proud to see companies rising to the occasion!

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Opinions expressed are those of the author, interviewee, or Funds and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Fund holdings and allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Current and future holdings are subject to risk.

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The Loncar China BioPharma Index is an index of 50 securities that have a strategic focus on advancing China’s biopharma industry. Quotes for the index can be found under the symbol “LCHINA” on the Bloomberg Professional service and other financial data providers. One may not directly invest in an index.

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Investing involves risk. Principal loss is possible. The fund may trade at a premium or discount to NAV. CNCR will invest in immunotherapy companies which are highly dependent on the development, procurement and marketing of drugs and the protection and exploitation of intellectual property rights. A company’s valuation can also be greatly affected if one of its products is proven or alleged to be unsafe, ineffective or unprofitable. The costs associated with developing new drugs can be significant, and the results are unpredictable. The process for obtaining regulatory approval by the U.S. Food and Drug Administration or other governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals with be obtained and maintained. The Fund may invest in foreign securities, which involve political, economic, currency risk, greater volatility, and differences in accounting methods. The Fund is non-diversified meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The Fund invests in smaller companies, which may have more limited liquidity and greater volatility compared to larger companies. The Fund is not actively managed and may be affected by a general decline in market segments related to the index. The fund invests in securities included in, or representative of securities included in, the index, regardless of their investment merits. The performance of the fund may diverge from that of the Index and may experience tracking error to a greater extent than a fund that seeks to replicate an index. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

RISK FOR THE CHNA ETF: The biopharmaceutical industry in China is strictly regulated and changes in such regulations, including banning or limiting certain products, may have a material adverse effect on the operations, revenues, and profitability of Biopharma Companies. The laws and regulations applicable to the process of administrative approval of medicine and its production in China require entities producing biopharma products to comply strictly with certain standards and specifications promulgated by the government. Changes in currency exchange rates and the relative value of non-U.S. currencies will affect the value of the investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Investments in non-U.S. securities involve certain risks that may not be present with investments in U.S. securities. For example, investments in non-U.S. securities may be subject to risk of loss due to foreign currency fluctuations or to political or economic instability. Investments in non-U.S. securities also may be subject to withholding or other taxes and may be subject to additional trading, settlement, custodial, and operational risks. These and other factors can make investments in the Fund more volatile and potentially less liquid than other types of investments. To the extent the Fund invests a significant portion of its assets in the securities of companies of a single country or region, such as China, it is more likely to be impacted by events or conditions affecting that country or region. The Fund is a recently organized, non-diversified management investment company with no operating history. As a result, prospective investors have no track record or history on which to base their investment decision. The Fund is considered to be non-diversified, which means that it may invest more of its assets in the securities of a single issuer or a smaller number of issuers than if it were a diversified fund. The Fund is not actively managed and the Fund's sub-adviser would not sell shares of an equity security due to current or projected underperformance of a security, industry or sector, unless that security is removed from the Index or the selling of shares of that security is otherwise required upon a reconstitution of the Index in accordance with the Index methodology. To the extent the Fund invests more heavily in particular sectors of the economy, its performance will be especially sensitive to developments that significantly affect those sectors."

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