From the company that rolled out a cancer therapy exchange-traded fund three years ago comes another targeted biotech ETF—this time focused on China’s emerging biopharmaceutical industry.
The Loncar China BioPharma ETF (CHNA) that debuted on Wednesday invests in pharmaceutical companies, biotech companies, drug manufacturers, diagnostics companies, wholesalers, distributors, and service providers that have a strategic focus in growing China's drug industry. The fund tracks the modified equal-weighted Loncar China BioPharma Index.
“We chose this theme because China’s biopharmaceutical sector is going through an important transition,” says Brad Loncar, CEO of Loncar Investments LLC, a Lenexa, Kansas-based company that develops what it calls precision biotech indexes aimed at cutting-edge growth areas in biotech. He notes that Chinese companies in the past mainly focused on manufacturing existing or generic drugs for the domestic market, but a new generation of companies want to be at the forefront of developing leading-edge drugs.
“The Chinese government has a program called ‘Made in China 2025’ that is meant to transition their economy to higher-value sectors, and pharmaceuticals have been singled out as one industry they want to be globally competitive in by that time,” Loncar explains.
The portfolio’s 28 companies include 22 that are listed on the Hong Kong Stock Exchange and six listed on the Nasdaq.
Loncar says another important factor that’s transforming the sector is a recent change implemented at the Hong Kong Stock Exchange that should benefit biotech companies. Previously, non-revenue generating companies weren’t allowed to list in Hong Kong. Since most biotech companies are in a pre-revenue development stage, that meant there really wasn’t a public market for this industry in the past. But the exchange created a landmark new rule on April 30th that makes an exception for biotech companies.
“This is likely to lead to dozens of new biotech IPOs over the coming years and the growth of a biotech culture around it,” Loncar says. “We believe these factors suggest this could be the start of an important new era of innovative drug development in the region and that is why we are focused on it.”
The CHNA fund was launched in partnership with Exchange Traded Concepts, a private-label ETF advisor that serves as the investment advisor and handles the general management and administration of the fund.
Immunotherapy
Brad Loncar has been a full-time biotech investor for more than a decade. He says he works with a committee of experts for each theme, and the first theme came to light as the Loncar Cancer Immunotherapy Index which anchors the Loncar Cancer Immunotherapy ETF (CNCR) that launched in October 2015.