Japan's Astellas Pharma Inc. launched a $3.5 billion hostile bid for OSI Pharmaceuticals to gain access to the U.S. company's Tarceva cancer drug and become a bigger player in oncology.
OSI shares immediately surged above Astellas' $52-per-share offer as analysts expected a higher price.
"We expect Astellas will eventually be successful in acquiring OSIP, and that the likely acquisition price will be modestly higher than $52," Cowen & Co analyst Eric Schmidt said in a research note.
Astellas said it was taking its offer directly to OSI shareholders after the company rejected the bid last month.
"This offer follows our attempts over the past 13 months to engage OSI in meaningful discussions," Astellas' Chief Executive Officer Masafumi Nogimori said in a statement.
OSI had said the offer, which represents a premium of more than 40 percent to its Friday closing price, "very significantly undervalues" it, according to Astellas.
"That response was the latest indication to us that OSI is not interested in engaging in substantive discussions," Nogimori said. "We are therefore taking our offer directly to OSI's stockholders."
However, Astellas said it was open to having discussions with OSI's management to effect a negotiated transaction.
OSI officials did not immediately return calls for comment.
Astellas said it had cash and cash equivalents on hand to complete the deal and planned to nominate directors at OSI's upcoming annual meeting. The Japanese drugmaker, which is being advised by Citigroup, will begin a tender offer on Tuesday.
Astellas, which is Japan's No. 2 drugmaker, is scrambling to develop next-generation drugs as patents on its mainstay products expire. It said it expected the OSI deal to support its effort to become a global leader in oncology.
OSI's Tarceva, which the company co-markets with Swiss drugmaker Roche Holding AG, is approved as a second-line treatment for patients whose lung cancer has gotten worse following at least one round of chemotherapy.
OSI receives royalties on sales of the blockbuster drug, which is also approved for pancreatic cancer.
"We think that it is feasible that Roche could step in with a competitive offer, but we note that Roche is historically valuation sensitive and their rights to Tarceva are unchanged with a new owner," JPMorgan analyst Geoff Meacham said in a research note.
Roche declined to comment.
Astellas is no stranger to making hostile offers. Last year it bid $1 billion for heart drug specialist CV Therapeutics, but lost out to Gilead Sciences.
Its bid marks the latest effort by Japanese drugmakers to buy U.S. companies. In recent years, Takeda Pharmaceutical Co Ltd. has acquired biotech Millennium Pharmaceuticals for $8.9 billion, and Eisai Co Ltd. bought MGI Pharma for $3.9 billion.
Astellas' offer for OSI also comes as German pharmaceutical company Merck KGAA said on Sunday that it would buy U.S. life sciences tools maker Millipore for $7.2 billion.
OSI shares were up 49.4 percent at $55.30 in early Nasdaq trading on Monday. They closed at $37.02 Friday.
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