* $52/share bid does not reflect OSI's value, board says
* OSI to explore deals with third parties
* Astellas to proceed with offer directly to shareholders
* Shares rise 0.4 pct (Adds Astellas response, shareholder lawsuit)
By Lewis Krauskopf
NEW YORK, March 15 (Reuters) - OSI Pharmaceuticals Inc's OSIP.O board rejected on Monday a hostile $3.5 billion takeover bid by Japan's Astellas Pharma Inc (4503.T) and said it told OSI management to look for other potential deals.
The move comes after investors already sent OSI shares well above the offer from Japan's No. 2 drugmaker as they bet on either a higher price or a competing bidder.
OSI, which sells the blockbuster Tarceva cancer drug, said its board recommended shareholders not tender their shares to the $52 per share offer, which had represented a 40 percent premium. OSI shares rose 0.4 percent to $57.91 shortly before the market closed.
"After carefully analyzing and considering Astellas' offer, the board has unanimously concluded that the offer does not fully reflect OSI's fundamental, intrinsic value," OSI Board Chairman Robert Ingram said in a statement.
Ingram said the board has told OSI management "to contact appropriate third parties in order to explore the availability of a transaction that reflects the full intrinsic value of the company."
Astellas said it continues to believe in its proposed deal and would proceed with its offer directly to OSI shareholders. The Japanese company originally revealed its bid for OSI on March 1 in a deal that would boost its U.S. presence as it faces generic competition to its own drugs.
Separately, OSI shareholders filed suit on Friday in Delaware's Chancery Court to prevent the company's board from hindering the takeover, according to court documents. The lawsuit aims to prevent OSI's board from employing a "poison pill" to block the takeover. [ID:nN15204509]
On top of Tarceva, OSI Chief Executive Officer Colin Goddard said the company holds significant value as a rare profitable mid-cap biotechnology company that is fully integrated with discovery and commercial capabilities.
Goddard also touted two other experimental medicines as having blockbuster potential: OSI-906, which is in late-stage development for adrenocortical carcinoma, a rare disease which affects the adrenal gland; and PSN821, which is in mid-stage development for diabetes.
"One of the consequences of the Astellas offer is it allows us to focus attention on the very significant value we've built into this business," Goddard said in an interview.
Astellas had said it was prepared to negotiate a deal in the range of $55 to $57 per share as recently as June, but OSI rejected the offer as too low.
Goddard said that $55- to $57-per-share offer was a "highly conditional indication of interest."
After Astellas' most recent approach, he said, Melville, New York-based OSI offered to give Astellas an opportunity to sign a confidential disclosure agreement, but Astellas did not respond to that proposal.
"One would suppose at the moment at least they have no real need to engage in further dialogue," Goddard said. "We have nothing against Astellas at all. Simply, they haven't valued the company appropriately."
The OSI chief declined to comment on whether the company has had any talks with third parties or whether a transaction would mean seeking a "white knight" buyer for the company.
Analysts have speculated Swiss-based Roche Holding AG ROG.VX, OSI's partner on Tarceva, could be a candidate to buy OSI. However, the field of acquirers could be wider as pharmaceutical companies looking to buy biotechs appear less daunted by partnerships the potential target companies hold with rival drugmakers. [ID:nN09215904]
In a presentation designed to underscore its value, OSI on Monday projected at least $7 billion in cumulative Tarceva-related revenue through 2020.
Centerview Partners LLC is acting as lead financial adviser to OSI, while Lazard is also advising the biotechnology company. (Reporting by Lewis Krauskopf; Editing by Maureen Bavdek, Tim Dobbyn and Richard Chang)