Is Arcutis Still a Buy After 100%+ Gains and Insider/Fund Selling?

The biotechnology sector, long a haven for high-risk, high-reward investing, has seen Arcutis Biotherapeutics (ARQT) emerge as a standout performer. With its stock surging over 100% in recent months, driven by robust sales of ZORYVE and improved guidance, the question now looms: Is Arcutis still a buy despite growing insider and institutional selling? To answer this, one must dissect the interplay between its financial performance, risk metrics, and the behavioral signals embedded in ownership dynamics.

A Tale of Two Narratives: Performance vs. Selling Pressure

Arcutis's Q3 2025 results were nothing short of stellar. ZORYVE net product sales hit $99.2 million, a 122% increase year-over-year, while the company exceeded earnings expectations and raised revenue forecasts. Such performance has justified the stock's meteoric rise. Yet, this optimism clashes with a parallel narrative: significant insider and institutional selling.

Insiders, including CEO Todd Watanabe and General Counsel Matsuda Masaru, sold shares at prices ranging from $14.33 to $30.36 in Q3 2023, while Q3 2025 saw further exits by hedge funds like Polar Capital Holdings PLC, which reduced its stake by 25.35%. These actions raise questions about alignment between management and shareholders. However, insider ownership remains substantial at 14.31%, suggesting that key stakeholders still hold considerable skin in the game.

Institutional investors, meanwhile, have shown a mixed picture. While Polar Capital and Point72 Asset Management cut positions, others like Jennison Associates LLC and Rubric Capital Management LP significantly increased holdings. This divergence reflects divergent views on Arcutis's valuation and growth trajectory.

Risk-Adjusted Returns: A Double-Edged Sword

Arcutis's volatility is baked into its DNA. With a beta of 1.70 over five years, the stock is nearly twice as volatile as the market. This high beta, while attractive for aggressive growth seekers, amplifies downside risk. The Sharpe ratio of 2.21-a measure of risk-adjusted return-suggests the stock has delivered strong returns relative to its volatility. Yet, this metric assumes normal market conditions and does not account for tail risks inherent in biotech, such as regulatory setbacks or clinical trial failures.

Analysts remain bullish, with a "Strong Buy" consensus and an average price target of $24.83, 16.86% below the current price. This discrepancy hints at either overvaluation or confidence in Arcutis's ability to sustain growth. However, analyst optimism often lags behind market momentum, and the current price may already reflect much of the positive news.

Conviction-Based Position Sizing in High-Growth Biotech

The key to navigating Arcutis's risks lies in conviction-based position sizing. High-growth biotech stocks demand a nuanced approach: investors must balance the allure of outsized returns with the reality of concentrated risk. For Arcutis, this means sizing positions according to one's risk tolerance and diversification strategy.

Given its beta and volatility, even a "Strong Buy" recommendation should not justify overexposure. A 5–10% allocation in a diversified portfolio might be prudent, reflecting both the stock's potential and its inherent instability. This approach acknowledges the company's financial strength while mitigating the impact of a potential correction.

The Final Verdict: Buy, But With Caution

Arcutis remains a compelling story for those who can stomach its volatility. Its financial performance and product pipeline justify optimism, but the selling by insiders and certain institutions serve as cautionary signals. The stock's risk profile-high beta, high volatility-demands a disciplined approach to position sizing.

For investors with a high-risk appetite and a long-term horizon, Arcutis could still be a buy. However, the current valuation leaves little margin for error. As with all high-growth biotech plays, the key is to invest with conviction, but not recklessness. In the words of Warren Buffett, "Only when you see a sign saying 'Permanently Closed' should you step in." For Arcutis, the sign is not yet visible-but the flashing lights are growing brighter.