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June 2017 ETF Rebalance

Jun. 23, 2017

June 20th marked the semi-annual reconstitution and rebalance of the Cancer Immunotherapy ETF’s (Nasdaq: CNCR) underlying index. To help educate investors about the ETF’s investment process, we thought it would be helpful to describe this process in more detail and to also introduce you to the three new innovative companies that have been added to the fund.

In CNCR’s case, this process happens twice a year: on the third Tuesday of June and December. During this time, two things happen. First, an index committee decides whether any new immunotherapy companies qualify to be added to the index and if any should be subtracted. That part is called the reconstitution. Second, once 30 leaders in immunotherapy are chosen, the index is rebalanced and each holding is given equal weight. CNCR ETF then places trades to replicate these changes as closely as possible.

For the June 2017 reconstitution, the committee has added three new immunotherapy companies: Dynavax Technologies (Nasdaq: DVAX), Jounce Therapeutics (Nasdaq: JNCE) and Syndax Pharmaceuticals (Nasdaq: SNDX). As we describe below, these companies are trying to build on what has been learned from already approved immunotherapy treatments and use it to develop the next wave of immunotherapy innovation. The goal is to provide even better outcomes for more patients. The CNCR ETF is thrilled to welcome each of these companies to the fund.



Dynavax’s cancer immunotherapy program centers around a cellular component called toll-like receptors that they believe can be stimulated to set off an immune response and kill tumors. The company’s lead drug, SD-101, stimulates the TLR9 toll-like receptor that is inside a type of immune cell called plasmacytoid dendritic cells (PDCs). These PDCs often are found in tumors, and the idea is that by stimulating their TLR9, the cells will then create Interferon-α to attract a host of other immune cells to the area such as cytotoxic T-cells and kill the tumor.

Dynavax recently presented data from a clinical trial of SD-101 at the big ASCO cancer conference in June. In this trial, advanced melanoma patients were given a combination of SD-101 and Merck’s checkpoint inhibitor Keytruda. For patients who had never received a checkpoint inhibitor as previous treatment before, 100% (7/7) had some response to the combo. There were two complete responses (a total absence of measureable cancer after treatment) and five partial responses. While this is only a small handful of patients, these numbers are higher than what has traditionally been seen from Keytruda alone so it was cause for optimism among researchers.

Of the patients who were previously treated with a checkpoint inhibitor but stopped responding to therapy, 17% (2/12) had a partial response to the combination and 42% (5/12) experienced stable disease. We are eager to follow this program and wish the company well as they treat more patients and additional types of cancer.



Drug development takes a long time and for maximum success it is important to thoroughly research and understand the basic science behind any therapies that go into the clinic. It is clear that Jounce Therapeutics was created with this idea in mind when you hear them talk about their translational science platform. Focusing on translational science means they spend a lot of time researching the immune system and tumors in the lab, and understanding the intricacies of the tumor microenvironment before moving drugs into the clinic. Jounce is also a big believer in biomarkers and developing companion diagnostics to their therapies, which might help improve the odds that drugs are being given to patients who are most likely to benefit from them.

The first cancer immunotherapy target for Jounce, called ICOS, is a protein found on T-cells that can be stimulated to cause an immune response against cancer. Two famous researchers from the University of Texas MD Anderson Cancer Center, Dr. James Allison and Dr. Padmanee Sharma, originally recognized the importance of this pathway. They saw that ICOS expression positively correlated to better outcomes for patients who were treated for various cancers. Therefore, the idea behind the company’s lead asset (JTX-2011) is to “step on the gas” of this natural mechanism by stimulating ICOS with an antibody. Drs. Allison and Sharma are also founders of the company.

Before Jounce was even public, the company made a splash in the news by landing a partnership with the biotech giant Celgene in July of 2016. Celgene received options to jointly develop and commercialize JTX-2011 and up to four other early stage programs. In return, Celgene paid Jounce $225 cash up front, made a $36 million equity investment in the company, and agreed to potential future milestone payments of up to $2.3 billion. We will soon learn if some of the excitement from the deal was warranted. After presenting early data from the first JTX-2001 study at ASCO in June, the company now believes they know which dose to use in an expanded phase of the trial and initial efficacy data is expected late this year.



Syndax’s lead drug entinostat is an inhibitor of histone deacetylase, or HDAC. Entinostat was granted Breakthrough Therapy designation by FDA for the treatment of locally recurrent or metastatic estrogen receptor-positive (ER+) breast cancer when added to exemestane in postmenopausal women whose disease has progressed following non-steroidal aromatase inhibitor therapy. FDA generally gives breakthrough designation when it appears a therapy could potentially have meaningful advantages over current drugs on the market.

Syndax believes that entinostat inhibits HDAC in immuno-suppressive cells called myeloid-derived suppressor cells and regulatory T cells. By inhibiting the HDAC, the company believes they are reducing the ability of these cells to hold the breaks on the immune system. In addition to being studied in a phase 3 trial for a type of breast cancer, the drug is being tested in combination with various immune checkpoint inhibitors in a variety of tumors such as melanoma, lung, ovarian cancer, and colorectal cancer. Syndax believes that their own unique impact on the immune system through HDAC inhibition might produce synergistic benefits when added to other immune treatments.

The most recent clinical data we have seen from the drug came at ASCO in June where they announced data from a cohort of advanced melanoma patients who were previously treated with a checkpoint inhibitor but stopped responding to therapy. 31% (4/13) of these patients had an objective response to a combination of entinostat and Merck’s immunotherapy drug Keytruda. This is a small cohort but is potentially important because these patients who previously stopped responding to checkpoint inhibitors are running out of options. If the entinostat on top of Keytruda is enough to help some respond again, that could be meaningful finding.

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CNCR Prospectus CHNA Prospectus

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 30 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 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.

Holdings are subject to change.

The Hong Kong Stock Exchange (HKEX) is the primary stock exchange in the Hong Kong Special Administrative Region of China. Nasdaq is one of the primary stock exchanges in the United States.

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 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.