Cambridge-based bidding war jolts biotech world

Seven months ago, Deborah Dunsire boarded a plane for Vancouver, British Columbia, hoping to make her first major deal as chief executive of Millennium Pharmaceuticals Inc.

In a hotel meeting room, Dunsire sat before the executives of AnorMed Inc., a small firm with an impressive potential cancer drug. Millennium could pay AnorMed for rights to develop and sell the drug, she said. Or, if they agreed on a price, she would buy the company outright.

For Dunsire, a career pharmaceutical executive hired the previous summer to right one of Cambridge's best-known biotech-nology companies, such a deal would be a defining moment. But unknown to her, AnorMed was also holding private talks with another suitor: biotech giant Genzyme Corp., just across Kendall Square from Dunsire's Cambridge office. Genzyme's chief executive Henri Termeer also wanted to cut a deal with Anor-Med, or buy it.

AnorMed's board eventually spurned both Dunsire and Termeer, setting the table for what investors are calling the ``Battle of Boston," the biggest hostile bidding war in the history of biotechnology.

Six weeks ago the battle erupted publicly when Genzyme, frustrated with AnorMed's management, sent its $380 million offer directly to the company's shareholders. Millennium countered, and on Tuesday Genzyme raised the stakes by offering to buy AnorMed for $580 million , topping Millennium's latest offer by 13 percent.

Securities and Exchange Commission filings show that behind the scenes, boardroom maneuvers had been going on for more than a year, giving a rare window into the competition between two of the top names in the Massachusetts life sciences industry. The prize: AnorMed's drug Mozobil , an experimental cancer treatment that could help boost the effectiveness of bone-marrow transplants. Analysts say Mozobil could generate $100 million to $300 million a year in sales.

BIOTECH BIDDING WAR Read previous coverage of the battle to buy AnorMed at boston.com/business

The open competition for AnorMed has electrified the closely networked biotech industry, in which deals are almost always sealed in private. Investors and observers are now getting an insight into the lengths companies will now go to acquire potentially lucrative future drugs. For many, it also represents an evolutionary moment in the local biotech industry: Companies are now large enough to wage the kind of big-ticket bidding efforts once reserved for multinational conglomerates.

``These are global companies now," said venture capitalist Michael Greeley of IDG Ventures Boston . ``They're not just New England companies, they're not just domestic companies."

Behind the bids are two very different personalities. At Millennium, the quiet and controlled Dunsire, 44 , marked her first year on the job this summer. Born in South Africa and trained as a doctor of internal medicine, she had spent more than 15 years climbing the executive ladder at international drugmaker Novartis AG before taking over at Millennium. She was hired after shareholders tired of a decade of medically promising but unprofitable science. Though she had never run a company, Dunsire represented the discipline and sales know-how investors hoped would finally bring Millennium into the black.

Dunsire soon cut the research budget and started looking outside Millennium's Landsdowne Street labs for drugs that could provide fresh revenue until its own ideas started to bear fruit. One potential new product was AnorMed's cancer drug.

Throughout the fall of 2005, executives from Millennium and AnorMed met and talked about how they might jointly develop the experimental treatment, sharing the costs and profits. When Dunsire made her offer to AnorMed's board on March 7, she assumed the company had other suitors, but didn't realize one of them was so close by.

Genzyme, an $18 billion company -- roughly six times the size of Millennium -- is run by Henri Termeer, a Dutch-born economist with a long string of successful takeovers under his belt. Over nearly 25 years, he built Genzyme from a small office in Boston's Combat Zone into an 8,500-employee firm, one of the few profitable players in the industry.

Genzyme also liked what it had seen of Mozobil and wanted it. If the drug succeeded in its final human trials, it would join more than a dozen other products sold by the Cambridge company, many added when Genzyme swallowed the small firms that made them.

Without knowing it, the rookie Dunsire was facing one of biotechnology's best-known dealmakers.

``If it was my first attempt to do this kind of deal, I'm not sure I would want to go up against Genzyme. They're very shrewd," said James Sherblom , a Waltham venture capitalist who was Genzyme's finance chief for five years.

With two big companies at its door, AnorMed itself entered a period of chaos. Unhappy with the firm's handling of Mozobil's development, AnorMed's top shareholders -- two brothers who run a New York investment fund -- led a proxy war that deposed the board of directors. The new management made a public statement that AnorMed would remain independent. Privately, the company's new chief executive told the rival firms there would be no deal.

Termeer renewed his offer, though, and then did something no one expected: In August, he went public with a hostile bid, meaning he appealed directly to AnorMed's shareholders over the objections of its management. He was willing to pay $380 million, about 40 percent more than AnorMed's market price.

``It's a pretty bold thing to come forward with a hostile bid," said Jonathan Spitzer, a merger specialist at investment firm Arnhold and S. Bleichroeder Advisers LLC. ``We think it's the first hostile bid in the biotech industry."

At many biotech firms, such a move could destroy a company's value by alienating the scientist-executives who best understand how its drugs work. But AnorMed had just been through its own management shakeup.

Almost immediately, Millennium re-opened talks and soon came to a friendly agreement to buy AnorMed, with the support of the Vancouver company's management, for $515 million. Dunsire would also have the right to beat any competing bid, and if AnorMed took another offer, Millennium could collect a $19.5 million break-up fee. But Termeer wasn't finished. As a hostile bidder, Genzyme had been boxed out of seeing AnorMed's ``data room," the financial and scientific information it provided to friendly bidders. Genzyme quickly negotiated to see the data and began poring through it over the Columbus Day weekend. Tuesday, Genzyme raised its bid to $580 million, or $13.50 per share -- far higher than Genzyme's original set of offers, which had started at $7.75 per share in April.

``Genzyme quite obviously [was] trying to steal the company," said Declan Quirke , head of healthcare mergers for investment bank Cowen & Co .

Last night AnorMed formally declared Genzyme's new offer superior, triggering a three-day deadline for Millennium to raise its bid and forcing Dunsire to answer questions about how far she will go to obtain Mozobil. Wall Street has already proved tepid on the deal. With $630 million in cash in the bank, Millennium will either sharply deplete its accounts, or sell stock to help finance the deal . In Genzyme's statement disclosing its new bid, Termeer took what could be seen as a dig at the smaller company's resources.

``With approximately $1.4 billion in cash on our balance sheet at the end of June, 2006, our strong financial position enables us to complete this transaction without any need for dilutive financing," he said.

Now, investors are waiting to see if Millennium jumps back in, or walks away and watches Mozobil become the newest specialized Genzyme drug.

``Each party can only control its own emotion," Dunsire said , ``and what I can tell you is the clear-headed view of the value of [Mozobil] to Millennium shareholders is what governs this company."

All told, Dunsire said, Millennium would rather have bought AnorMed the normal way, quietly, with executives and scientists lining up to praise the deal.

``That would be ideal," she said. ``But the normal way isn't always available."

Stephen Heuser can be reached at sheuser@globe.com.