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SAN FRANCISCO — As the stock of drug maker Titan Pharmaceuticals crashed to all-time lows, at least one savvy shareholder made a killing: its chief executive officer. 

Dr. Louis Bucalo legally cashed in 200,000 shares on Oct. 2 for about $9.5 million, according to federal filings, giving him a windfall nearly 40 times greater than the $1.28-per-share price average investors sold at that same day. 

Bucalo’s good fortune can be attributed to an investment strategy known as a stock collar — a popular tool in the hedging community but a rare and controversial move for an executive to make with his won company’s stock. 

Two years ago, Bucalo simultaneously made two bets: first that the stock would fall below $51.02 a share, second that the price would rise above $78.86. 

That collared his sale price between those two numbers — locking in a guaranteed minimum value for his shares. In exchange, he sacrificed potential profits should the stock rise above $78.86. 

At the time, Titan was reporting positive results from a Phase III trial of its experimental schitzophenia drug iloperidone. Its stock hovered near its all-time high of $65 a share. 

Since then, Titan’s shareholders lost $1.6 billion as the company’s stock tumbled with the market. 

When Bucalo’s two bets came due Oct. 2, the stock had cratered and he was able to sell 200,000 shares at $51.02. 

Bucalo initially disclosed the move in a November 2000 filing with the Securities and Exchange Commission, and again last month. Now, some are criticizing Bucalo for betting against the company he leads as chief executive and chairman. 

“It’s just not right for a chief executive of a development-stage company like Titan, which has never posted a profit, to bet against his company,” said David Miller, co-founder of the investment newsletter Biotech Monthly. 

Miller said the technique erodes investor confidence in money-losing startups and should be used only — if ever — by insiders at blue chip companies. 

Bucalo referred a telephone call for comment to Titan lawyer Fran Stoller of New York’s Loeb & Loeb. 

Stoller defended the collar as legal and appropriate, and said it was the first time Bucalo sold Titan stock since he founded the company in 1991. 

“After being in a company for ten years, it was time to do something,” Stoller said. “Everything he owns is in the company.” 

Judy Shine, president of money manager Shine Investment Advisory Services in Englewood, Colo., said it’s a good idea to hedge like Bucalo did when a person’s portfolio is loaded with a single stock. 

“I have presented this to people left and right,” Shine said. “It makes sense for a person with a highly concentrated portfolio to get into a collar.” 

Stoller said when Bucalo entered into the collar, nobody foresaw the stock’s crash. At the time, she said, Bucalo risked never realizing potential profits if the company’s stock soared past the $78.86 a share price. 

“He is no Ken Lay,” Stoller said. 

Stoller said the collar was a popular hedging strategy at the time. Miller and others disputed that, saying it’s rare among executives trading shares of their own companies. 

In the latest issue of Biotech Monthly, where Bucalo’s deal was first reported, nine biotechnology companies unanimously said they prohibit their executives from entering into similar deals, with one saying it was a fireable offense. 

“It happens, but not that often,” said Lon Gerber, director of insider research at Thomson Financial. “It is not a common practice.” 

SEC filings also show Bucalo bought 250,000 Titan shares at about $1.50 each in the week after his windfall. He now holds 300,231 shares in Titan, which is also developing drugs to fight cancer and Parkinson’s disease.