OSI Pharmaceuticals has turned down Astellas Pharma’s hostile $3.5 billion takeover bid and is contacting other potential purchasers.

The Japanese drugmaker launched its unsolicited offer at the beginning of March and is offering $52.00 per share in cash, which represents a premium of over 40% on OSI’s closing price of $37.02 on February 26. The Tokyo-headquartered company has been pursuing OSI for over 13 months and was prepared to negotiate a deal in the range of $55-$57 per share as recently as June last year. However that offer was rejected as too low.

Unsurprisingly, therefore, the $52,00 per share offer has now been rejected unanimously by OSI’s board. Chairman Robert Ingram said “after carefully analysing and considering Astellas' offer”, the US firm believes it does not fully reflect its “fundamental, intrinsic value”. He added that OSI “is a unique asset – the only profitable, mid-cap biotech company with a growing, high quality and fully integrated oncology franchise” and a strong diabetes and obesity pipeline.

OSI’s profits are a result of the success of the blockbuster Tarceva (erlotinib), which is co-marketed with Roche for lung and pancreatic cancer. In 2009, total group revenues were $428 million, up nearly 13% and net income from continuing operations increased to $181 million, an increase of 15%. The company ended the year with $540 million in cash and equivalents.

Mr Ingram urged stockholders not to tender their shares to Astellas and in a long letter listed the reasons why the board believes the bid is inadequate. That letter notes that prior to the unsolicited offer, the company offered to provide Astellas with certain non-public information that was “fundamental to understanding the value of OSI, subject to it entering into a nondisclosure agreement”.

Astellas has since sued OSI and said the offer to provide nonpublic information is “hollow”, but OSI now says Astellas never responded to the proposal nor asked to review any of the confidential information. Also it never made any attempt to negotiate the terms of the draft nondisclosure agreement, OSI says.

OSI says it remains willing to share confidential information with Astellas, but is casting its net wider to catch the eye of other potential buyers. The board has instructed OSI management, with the assistance of its financial advisors, “to contact appropriate third parties in order to explore the availability of a transaction that reflects the full intrinsic value of the company”.

Unsurprisingly, Roche has been mentioned as a possible purchaser, as have Pfizer and Celgene Corp.