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June 2018 ETF Rebalance

Jun. 20, 2018

June 19th marked the semi-annual reconstitution and rebalance of the Cancer Immunotherapy ETF’s (Nasdaq: CNCR) underlying index. This happens in two steps. First, a committee of advisors that oversees the index gets together and determines the reconstitution, which means they decide if any new companies should be added. Second, once the index’s holdings have been finalized, a rebalance occurs and each company is given equal weight. CNCR ETF then places trades to replicate those changes as closely as possible. 

For the June meeting, the committee has added six new immunotherapy companies to the index. They are Arcus Biosciences (NYSE: RCUS), Fate Therapeutics (Nasdaq: FATE), Mirati Therapeutics (Nasdaq: MRTX), MorphoSys (Nasdaq: MOR), Sorrento Therapeutics (Nasdaq: SRNE), and Zymeworks (NYSE: ZYME). These companies all bring compelling approaches to cancer research and have clinical trials underway that we hope will lead to important advances for patients. 

In addition, the Committee has chosen during this meeting to decrease the target number of index components to 25 from 30. This was done with the goal of 1) strengthening the liquidity profile by boosting the market cap of the smallest component and 2) lowering the exposure to smaller companies that have not yet demonstrated proof of concept in early clinical trials.

To help the fund’s investors and followers learn more about these additions, we have provided a brief background on their work and what sets them apart. The CNCR ETF is thrilled to welcome each of these companies to the fund.

 

Arcus Biosciences (NYSE: RCUS) 

Arcus Biosciences is based in Hayward, California and was founded in 2015. It went public in March of 2018 on the New York Stock Exchange. The stated goal of the company is to develop innovative cancer immunotherapies based on known but under-exploited biology. The lead program (AB928) is a dual inhibitor of the adenosine pathway, which is believed to play a role in driving immune-suppression in the tumor micro-environment. A phase 1 trial testing AB928 as monotherapy is fully enrolled and FDA recently cleared trials to begin testing the drug in combination with a PD-1 inhibitor (which is fully-owned by Arcus) or other medicines like chemotherapy. Arcus also plans to submit regulatory filings in the middle of this year to start trials for an anti-TIGIT antibody and a CD73 inhibitor.

 

Fate Therapeutics (Nasdaq: FATE)

Fate Therapeutics had its initial public offering on Nasdaq in 2013. Since then the company has been focused on the development of next generation cellular immunotherapies. Most cellular immunotherapies today like CAR-T treatments are autologous, which means the cells used in treatment are harvested from the patient’s own body. Fate instead is trying to use cells from healthy donors, which they aim to modify and improve the function of. They are also leaders in researching the use of induced pluripotent stem cells to create cell therapy products. Fate currently has clinical trials using natural killer cell (NK) therapies against cancers such as ovarian cancer and acute myeloid leukemia.  The company has a partnership with Memorial Sloan Kettering Cancer Center (MSKCC) in New York and recently expended their license with MSKCC to include gene-edited T-cell immunotherapies.

 

Mirati Therapeutics (Nasdaq: MRTX)

Mirati Therapeutics began trading on Nasdaq in 2013. The company has two main cancer medicines under development in clinical trials. The first, Sitravatinib, is a multi-kinase inhibitor that is being tested in non-small cell lung cancer and other solid tumors. Kinases are regulators of signaling, growth, division, and other survival pathways in cells. The company says they believe this drug overcomes resistance to immunotherapies like checkpoint inhibitors by reversing an immunosuppressive tumor microenvironment, enhancing antigen-specific T cell response, and expanding dendritic cell-dependent antigen presentation. Mirati’s second medicine, Mocetinostat, is an HDAC inhibitor that is being tested in non-small cell lung cancer. HDAC is found in immuno-suppressive cells such as myeloid-derived suppressor cells and regulatory T cells. By inhibiting HDAC, this class of drugs might reduce the ability of those cells to hold the breaks on the immune system.

 

MorphoSys (Nasdaq: MOR)

MorphoSys only began trading as an American depository receipt (ADR) on Nasdaq for the first time in April of 2018, but this German company has been publicly traded in Europe since 1999. Since the underlying index of the CNCR Immunotherapy ETF only allows U.S. listed securities as components, we are pleased to now be able to offer exposure to MorphoSys through its ADR. MorphoSys is a leader in antibody development and says it has over 100 distinct drugs in research and development. Some its cancer immunotherapy assets in clinical trials today include a monoclonal antibody that binds to 4-1BB called Utomilumab that is being developed in partnership with Pfizer, a monoclonal antibody against CD19 for the treatment of B cell malignancies called MOR208, and a human monoclonal antibody directed against CD38 for the treatment of multiple myeloma. 

 

Sorrento Therapeutics (Nasdaq: SRNE)

Sorrento is listed on Nasdaq and has been publicly traded since 2010. It has been a component of the CNCR Immunotherapy ETF in the past and we welcome it back to the fund. A major focus of the company is to develop CAR-T cellular immunotherapies. In March of 2018, the company announced initial results of a phase 1b trial of it anti-CEA CAR-T for the treatment of pancreatic and colorectal cancers. It also recently started screening patients for a first in human study of its CD38 CAR-T for the treatment of multiple myeloma and has said that it also plans to develop a BCMA CAR-T for multiple myeloma as well. In addition, Sorrento has a joint venture in Asia with a Korean company called Yuhan that has recently begun studies of an anti PD-L1 checkpoint inhibitor in the region. Sorrento also recently participated in the formation of a new private immunotherapy company in February called Celularity and has given Celularity access to a library of more than 50 fully human antibody-CAR constructs.

 

Zymeworks (NYSE: ZYME)

Zymeworks is based in Vancouver, British Columbia, Canada. It had an initial public offering on both the Toronto Stock Exchange and the New York Stock Exchange in May of 2017. The company seeks to be a leader in developing bi-specific antibodies and bi-specific antibody-drug conjugates. In addition to developing its own assets, it has licensed its technologies to large pharmaceutical companies like Merck, Eli Lilly and Company, Celgene, GSK, Daichi-Sankyo, and Johnson & Johnson. Daiichi Sankyo, for example, just announced in May that it was expanding its cancer immunotherapy collaboration with Zymeworks to add two more bi-specific antibodies to its pipeline in addition to one it has already been developing since 2016. In terms of its wholly-owned assets, Zymeworks recently presented data from its ZW25 bi-specific antibody that targets HER2-expressing cancers like certain breast and gastric cancers at the American Society for Clinical Oncology annual meeting in Chicago.

 

Thanks, as always, for your interest in the field of immunotherapy and support of the Cancer Immunotherapy ETF. We are pleased to welcome these new companies in the fund and wish them the best as they work to make a difference for patients.

View all holdings in the Loncar Cancer Immunotherapy ETF.

Opinions expressed are those of the author 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. Pfizer, Yuhan, Celularity, Eli Lilly and Company, Celgene, GSK, Daichi-Sankyo, and Johnson & Johnson are not a holding of the Fund or affiliated with the Fund.


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A basis point is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

The Loncar Cancer Immunotherapy Index is an index of 25 securities that have a strategic focus on the area of cancer immunotherapy, or harnessing the immune system to fight cancer. Quotes for the index can be found under the symbol “LCINDX” on the Bloomberg Professional service and other financial data providers. One may not directly invest in an index.

The Loncar China BioPharma Index is an index of 29 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.

Holdings are subject to change.

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Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained at www.loncarfunds.com. Read the prospectus carefully before investing.

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."

Diversification may not protect against market risk.

Exchange Traded Concepts, LLC serves as the investment advisor, and Vident Investment Advisory, LLC serves as a sub advisor to the fund. The Funds are distributed by Quasar Distributors, LLC, which is not affiliated with Exchange Traded Concepts, LLC or any of its affiliates.