Brad Loncar – founder and chief executive of Loncar Investments, who specialises in indexing and investing in biotech – believes the sector is too small for the investment excitement it has seen since the start of the coronavirus pandemic.
Positive headlines are misleading, he said. Loncar says that the biotech sector has had a “terrible year” so far in 2021. While there has been a buzz surrounding stocks like Pfizer [PFE] and Moderna [MRNA] for their COVID-19 vaccines, these are not the huge companies that investors tend to put money in. “There's a lot of new biotech investors out there, people throwing money at the headlines, and I think that created a bubble in our sector.”
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Loncar cites the example of the SPDR S&P Biotech ETF [XBI], a large biotech fund that tracks the performance of medium- and small-cap companies. The fund is down 13.1% since the start of the year (through 6 October).
In fact, some biotech companies have had a glut of financing, perhaps ahead of requirements, said Loncar. “Biotech is not a large enough sector, and individual biotech companies… have to be able to take in those kinds of inflows.”
“There have been [more than] 100 biotech IPOs this year, and there were about 75 last year… Over the long-term, that's a good thing. But over the short-term, it's brought in a lot of money, that it's really hard for these companies today to be efficiently priced”
“There have been [more than] 100 biotech IPOs this year, and there were about 75 last year… Over the long-term, that's a good thing. But over the short-term, it's brought in a lot of money, that it's really hard for these companies today to be efficiently priced.”
Loncar’s eye remains focused on finding the best in innovation. “The key to investing in biotech is investing in the best science.”
Some of the latest development include Merck’s anti-viral pill, which the company has said reduces COVID-19 hospitalisation by half. Loncar, wouldn’t call this a game-changer, but what makes the difference is that it is a pill, which is easy to administer. It will not replace the vaccine but would be useful in the return to normalcy.
Another key investment area is oncology and the treatment of cancer. Loncar focuses on immunotherapy or harnessing the immune system to treat cancer. Discoveries have been made that were discarded because the target set was too small, but with innovations in gene-related healthcare, some of these may be quite successful, Loncar said.
“Chemotherapy will always be part of the equation… [but for] most things going forward, I think the answer is combinations [of treatments].”
“That's just the nature of China. As an investor, if you're looking for calmness and tranquillity, China's not the place for you”
Loncar also has 10 years of experience investing in China. The big debate on how to interpret the Evergrande debt crisis and its impact on regional stocks seemed less worrisome to Loncar. “That's just the nature of China. As an investor, if you're looking for calmness and tranquillity, China's not the place for you.”
News of disruption in China is seemingly constant, and the market will move on from Evergrande like it did after the heightened regulation in China’s education and tech sector, Loncar said.
To find out more about Loncar’s biotech calls, listen to the full episode.
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