TRANSCRIPT: Immunotherapy Expert, Brad Loncar, Reveals Biotech Forecast for 2017

Announcer: It’s time for Marc Lichtenfeld’s Oxford Club Radio, the hardest-hitting half-hour about you and your money. And now, here’s Marc Lichtenfeld.

Marc Lichtenfeld: Welcome to Marc Lichtenfeld’s Oxford Club Radio. Happy New Year, everyone. If you’re listening here in South Florida on WJNO on New Year’s Day, thanks for getting up. It’s not that early, but it might’ve been a late night, so thank you. If you’re listening on www.OxfordClubRadio.com, I hope your new year is off to a great start.

I’m very excited about this show. Next week, the J.P. Morgan Healthcare Conference gets underway. I’ll be there in San Francisco. It’s the biggest week in healthcare investing. It’s the biggest week for biotech stocks. It’s – I can’t overemphasize enough how big this is for healthcare stocks. Everybody who’s anybody in healthcare investing shows up to this conference – fund managers, analysts, traders, investment bankers and hundreds of CEOs, CFOs and COOs – all looking to get their story out to make deals with each other and get investors interested. It’s a very, very big deal. There are well over 15,000 people who show up in San Francisco. You can’t get a hotel room in Union Square for less than $900. You can’t get into the Starbucks; you can’t get a restaurant reservation. It is nuts. Absolutely nuts. This will be my 10th year going, and it’s just the biggest thing. It fuels a lot of my ideas for the rest of the year. I usually have well over a dozen meetings with company CEOs, as well as others with fund managers and other investors. So for me, personally, and for what I do, it’s very big.

So today on the show, we’re going to focus on healthcare investing, and I have a fantastic guest coming up. His name is Brad Loncar of Loncar Investments. He’s also the creator of the Loncar Cancer Immunotherapy ETF (Nasdaq: CNCR). If you don’t want to try to figure out which company is going to have the best immunotherapy drug – you don’t want to play that lottery – you can invest in all of them by buying this ETF. So we’re going to talk with Brad about what he’s expecting out of this conference, because there could be some big announcements and big themes emerging.

In the meantime, a little housekeeping. If you’re new to the show, welcome. If you want to get in touch with me, go to www.OxfordClubRadio.com if you’re not there already. You can click on “Contact” in the upper right-hand corner, and shoot me an email with any questions, thoughts, feedback. Or tweet at me @stocksnboxing.

So let’s get right into it. I’ve talked before about the 21st Century Cures Act, which is going to be very instrumental for healthcare companies and stocks this year. So to wrap it up quickly, this act basically makes it easier for companies to get drugs approved. It lowers the standards, essentially, for the FDA to approve drugs. Now, this was approved overwhelmingly in Congress and signed by President Obama into law. On this show, I stated how I think this is a horrific law. I think it’s terrible, and I’m going to ask Brad about it because I’m in the minority. A lot of people are very excited about it.

Now, the drug and biotech companies, to a lesser degree, were basically the ones lobbying for this. So that should tell you a little something. They lobbied hard and spent a lot of money to get this law approved. Like I’ve said before, I’m not against drug, biotech and healthcare companies making money. I think they should. I think there should be an incentive to make a profit, and I have absolutely no problem with that model. But when they’re lobbying and spending money in a big way to get a law approved, that makes my BS antenna vibrate a little bit.

So looking into this law, it lowers the standards for drugs to get approved. The good thing is that good medicines will get to market quickly. The bad news is that bad medicines will get to market quickly. So there are going to be drugs out there that don’t work, quite frankly, and they kind of don’t have to prove that they work. It’s a little complicated, and I don’t have time to get into it today, but they basically don’t have to prove that they work in some cases, yet they’ll still have all the side effects that drugs have. So you could be on a cancer drug that just doesn’t work, but you still have the nausea and tiredness and horrible side effects. So that’s my take. I’ll ask Brad about it when he comes on in just a few minutes.

That being said, from a financial standpoint, this is going to bring all kinds of drugs to market sooner. It’s going to cut the cost and expense for research for some of these companies. So it’s going to be a big boon to the drug, medical device and biotech companies. Now, I don’t want to give you the impression that it’s going to be the Wild West out there and that anything in a test tube is going to find its way to market. They still have to conduct research and prove that it’s safe and whatnot, but the standards have been taken down a little bit so that drugs will get to market faster, both good and bad.

But for healthcare companies, it could be very significant, and you could see some significant profits for the right companies. That’s one thing I’m going to be talking about quite a bit throughout the year. I actually have a webinar coming out on January 19, the day before the inauguration, for my healthcare service, Lightning Trend Trader, where we’ll talk about different themes for the Trump presidency and some areas I think are going to basically be lightning strikes in certain sectors: certain stocks and healthcare. Some very specific names and specific sectors within healthcare are going to be affected in a very big way by, I think, the Trump presidency and this 21st Century Cures Act – which actually has nothing to do with Trump, but it will be going into effect during his presidency in 2017. So a lot of exciting stuff happening in healthcare.

Okay. I’m thrilled to have on my next guest, Brad Loncar of Loncar Investments. He’s also the creator of the Loncar Cancer Immunotherapy ETF and just one of the smartest guys out there when it comes to biotech. So I love checking in with him before the J.P. Morgan Conference.

Brad, thanks so much for joining us. I want to start off by asking you about the 21st Century Cures Act. In the first segment, I was talking about it, saying I think it’s going to be very good for the companies. The drug companies lobbied pretty hard for this. On the other hand, I don’t think it’s a great act or great law for patients. I think a lot of bad drugs are going to end up on the market. What’s your take?

Brad Loncar: First of all, thanks a lot for having me. It’s always a pleasure to be with you, and I am in the camp that thinks it’s a good thing. I think it’s a good sign that medical innovation is a bipartisan issue. Especially coming after such a brutal campaign season we’ve had where this industry really took a beating, I think that that was a very positive piece of legislation. It earmarked a couple billion of dollars toward cancer research, which is the area I follow closely. What you’re talking about is that there’s some things in there that may speed up approvals of certain types of technologies like regenerative medicine. I think the FDA is really good about having high standards and working within the rules, and I think they’ll be able to do that in this case. So I think there’s some positive things in there that will speed up the regulatory process. But I have faith in the FDA that they won’t loosen their standards. So I don’t think there’s really anything to fear on that front.

Marc Lichtenfeld: Well, that’s interesting ’cause my impression was that it actually does lower the standards to some degree in certain areas for FDA approval, so you’re saying that basically, even if that’s the case, they won’t lower their own standards internally.

Brad Loncar: Well, what they’re trying to do now is to approve things based off of biomarkers, and that shortens the approval process – especially in cases where, to have a definitive answer about something may take many years, if you can base what’s called an accelerated approval off of an early signal. That may not be the full answer you’re looking for, but it at least points you in the direction. Then you can go ahead and do that, and that’s happening a lot now recently. Like there was a big case for Duchenne muscular dystrophy where we didn’t know if the drug worked, but it seemed to be increasing the production of dystrophin, which is the thing you’d want to see to think that it was working. And so I think it’s a good thing that type of thought is being put into approvals now, and I haven’t seen anything that actually, like you’re saying, puts patients in danger or lowers the standards so much that it would be concerning. The FDA has to work within the law, but I don’t think it will lower their standards in a negative way.

 Marc Lichtenfeld: Alright, well, thanks for your take on that. We could debate that all day, but we definitely want to move on. So I want to ask you about, going into the conference next week, what you think sentiment is like. I mean, 2016 was a rough year for biotech. This 21st Century Cures Act is very positive for the sector. On the other hand, Donald Trump has tweeted or told Time magazine that drug prices are too high. Where do you see sentiment right now for biotech investors?

Brad Loncar: Yeah, for sure, I think everybody’s in a wait-and-see approach right now. The election outcome itself was certainly very positive for this sector. We were heading in the election wondering if maybe Secretary Clinton, who’d been very vocal about drug prices, would win, and possibly even the House and Senate going Democratic. Yet the opposite happened, and biotech had a huge rally the week after the election. I think the general mood is that it’s a little better than the worst-case scenario, but you’re right. Nobody knows who the new administration is, who’s going to head up the FDA, what’s going to happen with drug pricing and Medicare negotiations and all of this stuff.

So think we’re in a wait-and-see approach. This is one of those years where that – those government and regulatory issues is what everyone’s going to be talking about the conference. Normally, we go in wondering what companies are going to have what data and what are the scientific themes going to be. But for sure, what everybody’s going to be talking about and trying to sort out is what the regulatory picture looks like going forward. So I think the 21st Century Cures Act was a sign to be optimistic. I think that campaign rhetoric is always a little harsh, and when things actually get put into reality, it’s usually a lot different. That’s what we’ve seen so far. So I think there’s reasons to be guardedly optimistic, but until we know how this all plays out, it’s still somewhat of a guessing game.

 Marc Lichtenfeld: Do you think any answers will come out of the conference as far as the regulatory environment? I mean, I can picture every CEO meeting that I have – when I ask them about that, them saying, “We’ll have to wait and see.” What are you expecting as far as answers?

Brad Loncar: I don’t think companies will have answers on regulations, but the thing that I’m looking for the most is what their business sentiment is. For example, there really hasn’t been any significant merger and acquisition activity over the last year, and we’d like to see that start to pick up again. One of the things that’s been talked about a lot is this cash repatriation issue. But even if that happens or doesn’t, we like to see managers confident enough to start putting money to work. That’s one of the biggest downsides to the whole election uncertainty is people have been afraid to really make big investments lately. So I want to see presentations from big companies like Amgen and Celgene and Regeneron, and learn what their M&A strategy is going forward. Because one thing’s for sure: Companies in this industry have been making money over the last few years doing things that I think are artificial and unsustainable, like raising the prices on drugs like we’ve seen in the news and doing inversions and financial engineering. Companies have to get back to basic. And for those big companies, that means replenishing their pipelines because they don’t really have a lot of the innovation in-house right now. So I want to hear if the people who run those companies are going to start putting their cash to work and buy some of these smaller biotechs.

 Marc Lichtenfeld: I agree. Biogen is one of those companies I’d really like to hear from.  So what are the big data announcements you’re looking forward to? Or are there any data announcements you’re looking forward to?

Brad Loncar: Yeah, there’s one in this cancer immunotherapy space that I follow. The company hasn’t said 100% that they’ll announce it at this conference, but we  think so based on the timelines. It’s Kite Pharma (Nasdaq: KITE), and they’re one of the leaders of a technology called CAR-T, which involves reprogramming a patient’s own immune cells and using that to treat the disease. This is something that’s been theoretical and developmental for the last few years, and it’s finally coming to the finish line. Kite and their competitor, Novartis, might file for approval next year. And this may be a new commercial product. They have some six-months of data for a type of lymphoma called DLBCL. When they announce this data – and I think it may be at this conference – if it looks good and looks approvable, that would have a big impact on the stock.

Another company that has some really important data coming up – though I don’t think this one will necessarily be at the conference since it could be close to the timeframe – is AstraZeneca. You might have seen that Bristol-Myers had a very disruptive move in August because they had a lung cancer trial fail. AstraZeneca has a big trial result coming out  in the same space that Bristol’s failed, and they’re using a combination of two drugs. So there’s reason to believe that their trial might succeed where that Bristol one failed. So that’s another company to watch at the conference or shortly thereafter.

Marc Lichtenfeld: Let me ask you about your thoughts on CAR-T. I’ve always been very guarded, because the side effects are so severe. There was a trial earlier in the year that was stopped because patients were dying. Like I said, I’m very guarded about it. It sounds like you might be a little bit more optimistic?

Brad Loncar: I am. It’s always very meaningful when something crosses the FDA finish line for the first time like these might. That always gets people’s attention and attracts a lot more investment. The important thing to think about with CAR-T – and you’re right: It’s been very stop and start, and they’ve had some hiccups in trials and they’re just learning how to control toxicity – but the real important thing to think about with CAR-T is – to use the  cliché analogy – this is like the first batter in the first inning of the baseball game. Just in the couple of years since we’ve all been following them, they’ve improved a lot. There’s one problem they were having called cytokine release syndrome that they’ve learned how to control. These are the first early studies that these companies are using this, and they’re going to learn from what they see and improve on it over time. And for untreatable patients, like in a type of leukemia called ALL, they’re producing complete remission rates in the 60% range in patients that are untreatable and have failed six or seven chemotherapies. If that’s your starting point, that’s a very special starting point to be. So I think it’s a technology that is special right now, and it’s going to improve a lot over time. So try to think of it in that context, I would say.

Marc Lichtenfeld: I also want to ask you about another emerging technology, gene editing, Crispr. Do you think we’re going to see any announcements or do you think people will be buzzing about it at the conference? What are you expecting here?

Brad Loncar: Crispr is where you’re able to edit genes, which could be very powerful if it works in humans. The interesting thing about it is how there are now three public companies – Editas, Intellia, and Crispr Therapeutics – that are not even in human trials yet. Five or 10 years ago, it was unthinkable for companies to be public before they were in the middle stage of testing, let alone not even in the human stage. These companies were able to go public and get that done because it’s such a promising technology. But it’s early. The thing I’ll be looking for from this conference specifically is to hear their timelines about when they’re going to get this into the clinic. One of the companies, Editas, always said that will be in 2017, so we’ll see if they stick to that and we’ll see what the others say, too. So this is another technology that’s been highly theoretical, and we want to see it become a reality. So we want to hear how close these companies are to actually testing this in humans.

Marc Lichtenfeld: And do these stocks, these CRISPR gene editing stocks, interest you at all from an investment standpoint or is it too early?

Brad Loncar: To me, it’s way too early. The stocks are being silly right now because they’re all suing each other because they all believe they own the intellectual property on this. And usually, what happens in cases like this, is that those lawsuits drag on and, at the end of the day, they all settle for peanuts. So the stocks are being whipsawed right now by news that’s going on with these lawsuits, and I just don’t think it’s meaningful to their long-term story. Especially for people who are not biotech specialists, this is way too early and way too risky to really give too much attention to. Once they’re in trials and once we see some data and see that this is for real, then I think it would be worth a second look.

Marc Lichtenfeld: Before we let you go, tell us a little bit about your ETF, the Loncar Cancer Immunotherapy.

Brad Loncar: Yeah, thanks a lot. So immunotherapy is a big theme right now. That and maybe gene editing like Crispr. I think it’s the most interesting science that’s happening, and the difference with immunotherapy is that it’s here now. The first generation of drugs has already been approved in six cancers and, over time, hopefully many more will be. So I’ve created an index that tracks the 30 leaders in this space. There are dozens of different approaches to immunotherapy, and it’s hard to keep track of that unless you’re somebody like me who obsesses about it on a daily basis.

So I created an index to track a basket of these leaders, and then there’s an index fund that tracks my index. So it allows people to focus on the theme itself rather than trying to do the research that’s required to learn about individual stocks and avoid the risk that comes with doing that.

 Marc Lichtenfeld: Alright. Unfortunately, we’re out of time, but we appreciate you spending so much time with us. And I look forward to seeing you in San Francisco.

Brad Loncar: Same here. We’ll see you there. Thanks a lot for having me.

 Marc Lichtenfeld: That’s Brad Loncar of Loncar Investments and the creator of the Loncar Cancer Immunotherapy ETF. As I mentioned, I’ll be in San Francisco next week. When I come back, I’ll have basically just stepped off the plane when I come into the studio. So I’ll still be  digesting a lot of what I saw. But I’ll certainly report back some of the things that I saw. I’m not going to recommend any stocks. It takes me a few weeks to a few months to dig into everything I learned, and do my due diligence and what have you. But I’ll certainly let you know about the highlights, the sentiment and some of the themes I saw emerging from this conference.

My thanks to Brad Loncar, Kevin Kocak, Curtis Daniels, Colleen Hill and all of you for listening. Until next time, I hope your longs go up and your shorts go down. I’m Marc Lichtenfeld.