LCHINA Frequently Asked Questions
1. How is the index weighted?
2. How do you choose which companies to include in the index?
3. Why include large pharmaceutical and smaller growth companies together?
4. Why only include holdings that are listed on Nasdaq and HKEX?
5. How often is the index rebalanced and reconstituted?
6. What happens if a component is acquired in an M&A transaction?
7. How do you treat IPOs that might be eligible for inclusion?
8. Where can I find a quote for the index?
9. Who calculates the daily return of the index?
10. Why China BioPharma?
11. How do I contact you with further questions?
1. How is the index weighted?
The China BioPharma Index (LCHINA) uses a modified equal weighting strategy that gives modest extra credit to larger companies for their size and stability but also has substantial exposure to smaller innovators. This methodology is used because we believe larger companies should be credited for their size, stability, and contribution to the economy of China's biopharma industry, but not in a way that overshadows important advances made by smaller innovators.
All companies are given equal weight and then weighting factors are applied based on market capitalization categories. Companies with a market capitalization greater than $10 billion are given a weighting factor of 1.4, companies with a market capitalization between $1 billion and $10 billion are given a weighting factor of 1.0, and companies with a market capitalization between $200 million and $1 billion are given a weighting factor of 0.7.
2. How do you choose which companies to include in the index?
First, companies listed on Nasdaq or the Hong Kong Stock Exchange are filtered for their focus on growing China's biopharma industry (biopharma is a term that means innovative pharmaceutical or biotech medicines). This can include pharmaceutical companies, biotech companies, drug manufacturers, diagnostics companies, wholesalers, and distributors. Since our index is focused on the innovative side of the biopharma industry, those that focus strictly on manufacturing active pharmaceutical ingredients (API's) are not included.
Second, companies are screened for their roots in China and focus on this territory. If a company's principle headquarters is not located in China, it must be determined by the Index Provider to 1) have at least 51% of its product revenue and pipeline value tied directly to the China market. The index is meant to chart the growth of China biopharma leaders so only companies that are sufficiently focused and active in the region are included.
Third, the Index Provider excludes from the underlying index companies with any of the following characteristics:
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The company’s market capitalization is less than $200 million.
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The company's equity liquidity threshold does not surpass $300,000 in average daily trading volume for Nasdaq listed companies.
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The company's equity liquidity threshold does not surpass $500,000 in average daily trading volume for Hong Kong listed companies.
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The company is currently under investigation by a government or regulatory entity.
The total number of components is based solely on the number of companies that qualify for inclusion and will vary each time an annual reconstitution and rebalance occurs.
3. Why include large pharmaceutical and smaller growth companies together?
Both large pharmaceutical and smaller growth biotech companies deserve to be included in the index because companies of all sizes are making meaningful contributions to China's drug industry. Our weighting methodology gives modest extra credit to larger companies for their size and stability but also has substantial exposure to smaller innovators. We believe that having a wide mix of companies, but not doing so in a way that concentrates too much on giants and minimizes smaller companies, provides the best way of measuring the region's growth. The index aims to capture both the significant potential of the industry as a whole and the entrepreneurial spirit of innovators that are transforming it today.
5. How often is the index rebalanced and reconstituted?
The China BioPharma Index (LCHINA) is reconstituted (the list of index components is chosen) and rebalanced (componenets are given a modified equal weighting structure) on an annual basis. This takes place on the second Monday of February. For the reconstitution, companies will be removed from the index if they no longer meet inclusion qualifications and new ones will be added that do (see F.A.Q. #2 for a more detailed description of the inclusion requirements).
8. Where can I find a quote for the index?
Quotes for the China BioPharma Index can be found each day under the symbol "LCHINA" on the Bloomberg Professional service, Thomson Reuters Eikon, www.LoncarIndex.com, and other financial data providers. Furthermore, quotes, returns, historical prices, and constituent weightings will all be updated daily on www.LoncarIndex.com.
9. Who calculates the daily return of the index?
The daily price and return of the China BioPharma Index (LCHINA) is independently calculated each day by Indxx, LLC. Indxx, LLC is a professional index development, calculation, analytics, and research provider.
10. Why China BioPharma?
We believe that China’s biopharma industry is on the cusp of a global revolution as regional companies develop innovative new medicines that will benefit patients both at home and abroad. Consumer demographics, regulatory reform, and the high quality of science being conducted by Chinese companies are all converging together in a positive way. However, before our index, we believe there was no global way to quantify and track the progress of this. These are some of the most important companies in the space. A precise and comprehensive index is needed that follows China biopharma innovators whether they are listed in the region or in the United States. Our index is designed to be a global standard benchmark used by financial markets to quantify and track this exciting story going forward.
11. How do I contact you with further questions?
The provider of the Loncar Cancer Immunotherapy Index is Loncar Investments, LLC, which is principally owned by individual biotech investor Brad Loncar. You can reach Brad on Twitter here.
6. What happens if a component is acquired in an M&A transaction?
If an index component’s stock is tendered or discontinued due to a merger or acquisition, the weighting from the tendered or discontinued security shall be distributed to the remaining index components pro rata.
7. How do you treat IPOs that might be eligible for inclusion?
Eligible initial public offerings will be considered for inclusion on the index's next scheduled annual reconstitution date.
4. Why only include holdings that are listed on Nasdaq and HKEX?
The index provider believes that most innovators in the region will list either on Nasdaq or the Hong Kong Stock Exchange going forward. These markets have the deepest pool of sophisticated biopharma investors and high corporate governance standards. Nasdaq and HKEX's global presence and ease of access also make them well suited for investors who want to track an index. We believe it is regional leaders with global ambitions who choose to list on these exchanges that will power China’s biopharma revolution ahead. Therefore, we have limited LCHINA inclusion to companies on Nasdaq and HKEX at this time.