Durus Capital Rattles Biotech

Scott Sacane, a little-known hedge fund manager, has "inadvertently" become a big fish in the small-cap biotech pond.

Sacane's Durus Capital Management hedge fund significantly increased its ownership stakes in recent months to become a major shareholder in two small biotech companies, Esperion Therapeutics(ESPR) and Aksys(AKSY).

Durus calls it an accident, but the revelations have fueled speculation that the fund might have bought shares to bid up their prices and improve the fund's performance.

In the case of Aksys, a manufacturer of dialysis machines, Sacane has acquired roughly 70% of the small, Illinois-based company's stock. The fund also claims a 33% ownership stake in Esperion, a manufacturer of drugs that treat cardiovascular disease.

Sacane and his fund say that they acquired the stake by inadvertently purchasing millions of shares in both companies' stock. Sacane made the unusual disclosure in several recent filings with the Securities and Exchange Commission, in which he disavows any intent to gain control of the companies. The "inadvertent" purchases of Aksys date to April and go back as far as last November for Esperion.

Making Waves

Sacane didn't return several telephone calls to his offices in Norwalk, Conn. One of his lawyers also didn't return phone calls.

But some biotech fund managers were skeptical of the explanation that the trades were inadvertent, and they offered an alternative explanation: The fund could have engaged in "extreme" window-dressing. By buying up as much stock as possible, the fund would create artificial demand and drive the stock prices up. By doing this, Durus could have boosted its performance artificially in a way that neither investors nor the SEC would notice. From what is known so far, Durus didn't disclose the trades immediately after they occurred.

Like many biotech shares, Esperion and Aksys did see significant gains that lasted through mid-July. But in the last few days, both stocks have sold off. Shares of Esperion fell $2.50, or 12.6%, to $17.38 on Tuesday. Aksys dropped $2.69, or 24%, to $8.45 on Tuesday.

Representatives of Esperion and Aksys themselves seemed as surprised as anyone by Sacane's big stock purchases.

Last Friday, Aksys said in a news release that it was investigating the matter and considering its options. The company couldn't be reached for comment on Tuesday.

In a Tuesday afternoon conference call, Esperion's CFO Tim Mayleben said the company wasn't aware that Durus' holdings rose to 33% from about 22% in December until this weekend.

While offering assurances, Mayleben acknowledged that there are far more questions than answers right now. Even though he called Sacane a "model shareholder" who communicated regularly with the company, he couldn't explain why the hedge fund manager had inadvertently increased his Esperion stake.