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Top biotech PM sells Arena after big runup

July 12, 2017

Today, after a successful phase 2 trial on a rare lung disease treatment, Arena Pharmaceuticals (ARNA) jumped almost 45% to just under $28. Todd Hagopian is taking profits, selling more than half of his ARNA position.

Ken Kam: Arena is having a great day! How big a position did you have?

Todd Hagopian: Arena Pharmaceuticals has had a very exciting month. The company announced a reverse split in June, which typically is a devastating sign for a stock. However, three analysts immediately came out with buy recommendations setting price targets that indicated the stock had room to double, or even more. All of the analysts seemed to believe that the drugs in their pipeline were poised for trial success. I bought a 7.5% position on June 27.

Kam: What are you going to do with the proceeds from this sale? Do you have another stock in mind, or are you going to hold onto the cash?

Hagopian:  Cannabis stocks have been a major focus for the most aggressive, and forward thinking, biotech investors over the past couple of years. I have made money on GW Pharmaceuticals (GWPH), and Insys Therapeutics (INSY), because they are companies who actually have FDA-approved drugs in their arsenal.

The real fun, however, comes when you look at early stage clinical drug companies in the cannabis-based biotech space. These stocks can be extremely volatile, as we have seen recently with Cara Therapeutics (CARA) as the company fell 55% from it’s high on a subpar drug trial result.

I am considering moving the money to Zynerba Pharmaceuticals (ZYNE) a canabis-based biotech that is down over 30% from its high.

ZYNE will be releasing results from two key trials in July/August. All 7 analysts following them rate them a strong buy, with a price target of $30, which would represent a 66% return. I believe ZYNE is a strong alternative to increasing my ARNA position by 50% which is what would happen if I did not sell any.

What Should Investors Do?

After a big gain, many investors wonder whether they should sell to lock in their gains, or hold on. While everyone has access to the news, not everyone can interpret the news from an investor’s perspective. To know whether your interpretation of the news leads to good investment decisions, you need to know your track record.

Todd started his Biotech fund at Marketocracy in March, 2011. The fund has returned 25.61% over the past five years, outperforming every mutual fund manager in the country.

For those who invested in Todd’s Biotech portfolio, Todd purchased Arena at $15.15 on June 27. After selling today at $27.58, Todd netted an 82% gain.


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