XenoPort, Inc. (XNPT) & CareDx Inc (CDNA): Two Life Sciences Stocks That Can Outperform

Julian Baker and Felix Baker’s Baker Bros. Advisors is tightening its grip over XenoPort, Inc. (NASDAQ:XNPT) and so is James E. Flynn’s Deerfield Management over CareDx Inc (NASDAQ:CDNA). According to two recent filings with Securities and Exchange Commission (SEC), Baker Bros. Advisors has increased its stake in XenoPort, Inc. (NASDAQ:XNPT) from around 1.0 million shares to over 6.8 million shares, and Deerfield Management grew its stake in  CareDx Inc (NASDAQ:CDNA) from 575,000 shares to 804,000 shares. Baker Bros. Advisors now owns almost 11% of XenoPort, Inc. (NASDAQ:XNPT)’s common stock and Deerfield Management now owns over 6.7% of all shares of CareDx Inc (NASDAQ:CDNA).

XenoPort, Inc. (NASDAQ:XNPT)

Julian Baker and Felix Baker found Baker Bros. Advisors in 2000. It is a long-term fund that majorly focuses on life sciences companies. The fund manages money for major foundations and university endowments. Baker Bros. Advisors also owns above 30% stake in Synageva Biopharma Corp (NASDAQ:GEVA), which is up by over 13% year on year.  Another major holding of the fund is Seattle Genetics, Inc. (NASDAQ:SGEN), which is down over 20% year on year.

Other prominent investors in XenoPort, Inc. (NASDAQ:XNPT) include Samuel Isaly’s Orbimed Advisors and Israel Englander’s Millennium Management. As of June 30, 2014, Orbimed Advisors owns over 5.5 million shares and Millennium Management owns over 1.6 million shares of XenoPort, Inc. (NASDAQ:XNPT).

XenoPort, Inc. (NASDAQ:XNPT) is a $367 million market cap, biopharmaceutical company that develops product for treatment of neurological disorders. For the second quarter of 2014, the company reported total revenues of $5.3 million and a negative EPS of $0.31, compared to total revenue of $2.1 million and negative EPS of $0.51 in the same period last year.

Just like Baker Bros. Advisors, Deerfield Management also mainly invests in health sciences companies. Deerfield was launched in 1994 with $17 million in equity, now the fund boasts of over $5 billion in assets under management.  James E. Flynn has been managing the fund since 2000. Deerfield’s other major investments include Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL) and InterMune Inc (NASDAQ:ITMN), both of which have generated fabulous return in the past one year. Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL), in which Deerfield owns over 10% of all common stock,  is up by over 75% year over year, and InterMune Inc (NASDAQ:ITMN)’s stock has climbed up by a whopping 427% since last year.

CareDx Inc (NASDAQ:CDNA) is a $80 million market cap, commercial stage company that develops diagnostic surveillance solution for heart transplant recipients. The company had its IPO in July this year. For the second quarter of 2014, CareDx Inc (NASDAQ:CDNA) reported revenue of $6.8 million and EPS of $0.87, compared to revenue of $5.5 million and negative EPS of $0.79 in the same period last year.

Though past performance doesn’t guarantee future returns, the kind of track record these funds have had can’t also be ignored. Hedge funds that focus on investing in a particular industry sector, do so only because they are confident about their edge in that sector. A regular investor can’t gather the resources that are at disposal of hedge funds, but what they can do is emulate their strategies to make superior returns.

Disclosure: None