A Full Position In AC Immune To My Tax Loss Selling Basket (ACIU)

Tax Loss Selling Strategy

This is the fifth entry in my tax loss selling basket. I explained portions of the rationale for the strategy in the first three articles (here, here & here).

However, for those who haven’t read the earlier articles, here’s a quick synopsis:

• Investors who have net realized capital gains in the year can offset these by selling losers before December 28th (there’s a two-day settlement period, thus sales on the 29th or later will count for 2023).
• Stocks that are down on the year and preferably at multi year lows are good candidates for such selling.
• Because of the year-end deadline, investors who sell can become quite indiscriminate and this can create quick price plunges.
• Wash sale rules mean any investor who might want to get back into these names after realizing losses must wait 30 days. For this reason, I give the strategy through the middle of March to work, and no matter what the results, I sell the stock by that date. (If the stock bounces before then, I try to scale out of my position.)

An Ideal Setup

As the two charts below show, AC Immune (ACIU) is an ideal candidate for tax loss selling as it is trading at 5 year lows (which means that every shareholder is holding a loss and for some of them the loss might be quite hefty). But it is not just that the stock has potential for tax loss selling, the last 5 days show heavy selling (i.e. on large volume) with a big drop in price. See second chart. I believe that this selling is indeed from tax loss sellers and thus marks a short term buying opportunity.

AC Immune

AC Immune is a Swiss biotech company focused on the diagnosis, prevention and treatment of neurodegenerative diseases like Alzheimer’s and Parkinson’s Disease. It has a robust and well-partnered pipeline with several candidates in Phase II trials. (Note however that crenezumab failed its Phase II trial in AD.)

In particular, having 5 partnered programs not only lends objective validation to ACIU’s science (i.e. it stands the due diligence of major pharma companies), but it also minimizes cash burn and gives the company multiple and credible shots on goal.

Platforms

ACIU has two technology platforms underlying its therapies and diagnostics.

SupraAntigen-V

SupraAntigen-V is its vaccine technology for the neurodegenerative disease space.

It has three programs in the clinic.

And the Alzheimer’s treatment candidate partnered with Janssen recently had encouraging developments (my emphasis):

AC Immune SA (NASDAQ: ACIU), a clinical-stage biopharmaceutical company pioneering precision medicine for neurodegenerative diseases, today announced that based on the Phase 1b/2a interim data, ACI-35.030, a potential first-in-class anti-phosphorylated-Tau (pTau) vaccine candidate, has been selected for further development. The ACI-35.030 anti-pTau vaccine candidate is being developed in collaboration with Janssen Pharmaceuticals, Inc. (Janssen), part of the Janssen Pharmaceutical Companies of Johnson & Johnson.

[…]

The selection of ACI-35.030 is supported by new clinical data from the Phase 1b/2a trial presented at the Clinical Trials on Alzheimer’s Disease (CTAD) Conference 2022. The results show that ACI-35.030 treatment rapidly leads to the strong and durable induction of antibodies specific for pathological forms of Tau such as pTau and its aggregated form, ePHF. The ACI-35.030-induced antibody response was sustained and could be periodically boosted over a period of 72 weeks. The vaccine candidate was generally well tolerated. The decision to select ACI-35.030 follows the comparison, presented at CTAD, demonstrating its strengths relative to a protein conjugate vaccine, JACI-35.054, an alternative anti-pTau vaccine also being evaluated in parallel in the Phase 1b/2 trial.

Dr. Andrea Pfeifer, CEO of AC Immune SA, added: “Looking forward into 2023 AC Immune will have three vaccine candidates in Phase 2 development, highlighting the Company’s position as a leader in active vaccination for neurodegenerative diseases. Importantly, our vaccine programs are complemented by additional therapeutic and diagnostic candidates driving our precision medicine approach in neurodegenerative diseases. Some programs have already generated significant revenues from collaborations with companies such as Janssen, Eli Lilly, Genentech (Roche), and Life Molecular Imaging. Collectively, these programs form the most comprehensive pipeline in neurodegenerative disease, with clinical candidates targeting Tau, Abeta, and alpha-synuclein. We look forward to advancing these programs towards additional value creating milestones as our pipeline matures and grows.”

Morphomer (Small Molecules)

This technology is in partnership with Lilly for rare tauopathies and AD treatment. It is also the focus of several pre-clinical target discovery programs:

Valuation

ACIU has a relatively low cash burn rate and has benefitted from partnerships which include revenues due to upfront and milestone payments.

It also currently trades at 0.76X book value.

Cash On Hand

ACIU says that it is funded through Q3 of 2024 and that it has ~$142.6M of cash on hand. Looking at its balance sheet (which is denominated in Swiss francs), this number is actually made up of “cash and cash equivalents” along with “short term financial assets”. Being funded well into 2024 means that there should be little risk of a dilutive financing in the near term.

Also, with 83.6M shares outstanding, this means that the company has about $1.70 in cash per share. The stock is currently trading at $1.75 which means it is essentially trading at its cash on hand value. This greatly de-risks a purchase of the shares in my opinion.

Quant Ratings

Seeking Alpha currently rates the stock a buy with the best factor grade being “revisions” and the worst being “momentum”.

Risks

ACIU is an early stage biotech company which has no products in Phase III testing let alone any that are approved. Thus, any capital placed here is at risk for a full loss.

The risks, in my opinion, are somewhat mitigated however by two factors. First, the company has multiple big name partners who have presumably vetted the science, and second the company trades for just slightly above its cash on hand.

Trading Strategy

Given that the stock appears to have been beaten down by indiscriminate tax loss selling over the past few trading sessions, I have taken a full position in the stock for my tax loss selling basket. If the stock bounces I will try to scale out of it, and no matter what happens, I’ll be out by mid-March.

However, the more I learn about the company, the more I’m considering also adding some shares for a long term hold. These would be in addition to the shares that have been allocated to my tax loss selling strategy.