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Biotech CEO Profits as Stock Tanks

Titan Pharmaceuticals' CEO made more than $9 million hedging his stock in the company.

Titan Pharmaceuticals

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CEO Louis Bucalo did what few others could: make money on the company's shares.

Bucalo collected about $9.5 million by hedging his stock in the company over the last two years, a time period in which Titan's shareholders have absorbed investment losses of more than $1.6 billion.

The CEO used a stock-collaring strategy that involved selling call options and buying put options. This limited his downside risk, but also capped any upside gains.

Bucalo's simultaneous purchase of both put and call options on Titan shares was disclosed in a Form 4 dated Nov. 6, 2000, and timely filed with the

Securities and Exchange Commission

. initially reported erroneously that Bucalo's hedging transaction wasn't publicly disclosed until October 2002 as a footnote in an SEC filing.

Although Bucalo's hedging strategy was perfectly legal, some experts say it gives the appearance of an insider selling stock with minimal exposure. The chief executive made his money as Titan's share price fell from an all-time high of $65 to just over $1. The stock closed Monday at $2.19.

Titan would not return repeated phone calls. Rebecca Novak, a spokeswoman employed by Titan's outside public relations firm, GCI Group, said, "I don't think

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Bucalo is going to want to comment on this."

David Miller, co-founder of the monthly investment newsletter

Biotech Monthly

, says stock collars, especially when done by CEOs at young, development-stage biotech firms, are a no-no.

"Titan told me that these kinds of arrangements are quite common, so I asked the management of all the biotech companies in our model portfolio whether they hedge their own stock," Miller says. "Not only did none of them do it, but they were aghast that someone would."

Bucalo initiated a "no-cost collar" on 200,000 shares, or about 17%, of his Titan stock on Oct. 2, 2000. The collar capped his gains on the stock at $78.86 per share, but also protected his investment if the stock fell below $51.02 per share, according to a Form 4 filed by the chief executive with the SEC on or about Nov. 7, 2000.

According to a proxy statement at the end of 1999, Bucalo had 754,000 exercisable share options, which the company estimated were worth $9.9 million, based on a share price of $19. A statement filed in July 2000 stated that Bucalo had 1.2 million shares or exercisable options on shares in Titan.

Last month, Bucalo purchased 250,000 Titan shares and now holds more than he did before he initiated his hedging strategy, says Fran M. Stoller, a New York-based partner at Loeb & Loeb LLP, a law firm representing Titan.

As originally published, this story contained an error. Please see

Corrections and Clarifications.