Shares of XOMA Corp (NASDAQ:XOMA) rocketed up today to as much as $4.56 per share, or 22.58% higher after the Cowen Group reiterated its ‘Outperform’ rating on the firm’s stock ahead of the upcoming results for the firm’s EYEGUARD-B Phase 3 clinical program for its drug gevokizumab that aims to treat the rare Behçet’s disease uveitis (BDU). In his note, Cowen analyst Phil Nadeau wrote that their “consultants view the data from gevokizumab’s two pilot studies as ‘very encouraging,’ ‘impressive,’ and ‘promising’ while the drug’s overall safety profile ‘looks good’. The data on the clinical study, conducted by Laboratoires Servier, is designed to determine gevokizumab’s ability to aid patients with BDU having an exacerbation while reducing steroid dosage. The results are due in two weeks, and may be a “big binary event for XOMA,” Nadeau notes. He estimates a 70% chance the EYEGUARD-B trial hits its primary endpoint which could then cause XOMA to outperform the market by over 100%. There is a risk of 60% underperformance, however, with a failure, Nadeau cautions. The smart money seemingly isn’t as optimistic about the trial’s chances as Nadeau is.
The upbeat outlook on XOMA contrasts with the general hedge fund sentiment during the first quarter. Overall, there was negative sentiment from hedge funds by the end of the first quarter as they reduced their total stakes in XOMA Corp (NASDAQ:XOMA), even if more of the hedge funds tracked by Insider Monkey held long positions in the stock at the end of said period. The total value of their holdings decreased by 8.63% to $113.23 million by March 31 from $123.93 million by December 31, while a total of 16 of the hedge funds we track had stakes in the firm, up 7% from the end of the fourth quarter. The decrease in the size of these funds’ investment in the pharmaceutical company comes despite its stock gaining 5.07% in the first three months of the year. However, it should be pointed out that just last month, Kingdon Capital led by Mark Kingdon upped its stake in XOMA to 10.82 million shares from the 7.57 million shares it held on March 31, a continuation of the bullish sentiment from the hedge fund after it showed confidence in the antibody-based therapeutics firm in the first quarter by increasing its stake at the time by 24%.
We follow hedge funds like Kingdon Capital because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 135%, outperforming the S&P 500 ETF by nearly 80 percentage points (see more details here).
We also track insider sentiment, to see whether executives inside companies like XOMA are confident in their firms’ own shares. There have been no recorded purchases by insiders of XOMA this year. It should be noted, however, that there have been regular sales of shares by insiders, the latest of which was carried out by CEO John Varian, who sold 10,000 shares on June 15. Varian has been selling shares of the company regularly every month since May 2013.
Remembering all of this, let’s review the how hedge funds traded XOMA Corp through the end of the first quarter on the next page.