Shareholders of Bioenvision Inc have dumped a $345 million acquisition bid by biotech pioneer Genzyme Corp.

The news comes amidst disappointing phase 3 results of two of Genzyme''s pipeline compounds. Two of its experimental drugs, one for severe diarrhoea, the other for pain caused by osteoarthritis in the knee, also stumbled badly in high-profile clinical trials.

Genzyme, which has built itself into one of the world''s largest biotech companies on the success of enzyme replacement drugs for patients with rare genetic disorders, suffered a setback on both counts and the market is split on the biotech company''s future.

Genzyme seems to have miscalculated the amount of resistance it would face and never moved to negotiate with dissenting shareholders.

"We haven''t heard from them, and we never heard from them," said Steven Rouhandeh, chairman of New York-based SCO Financial Group, who wrote an open letter to Bioenvision management the day the deal was announced. SCO holds 13 per cent of Bioenvision.

Genzyme offered $5.60 a share for Bioenvision common stock in late May, leading to resentment among common shareholders. The revolt spread, forcing Genzime to extend the offer with only 20 per cent of common shares, or 11.1 million on offer to Genzyme.

On July 10, the percentage of tendered shares dropped further to 12 per cent, or 6.9 million.

Genzyme said in a statement that its tender offer is finished and it would buy the common shares offered, as well as 100 per cent of Bioenvision''s preferred stock at $11.20. The preferred stock, which Genzyme bought from the Perseus-Soros Biopharmaceutical Fund LP and several individuals, converts to two common shares, giving Genzyme 19 per cent of the company.

Genzyme''s two drugs - tolevamer for diarrhoea associated with a drug-resistant "superbug" called C. difficile, and hylastan for arthritic knee pain - failed to show any improvement over standard therapies, and company officials seem resigned that neither will come to market any time soon.

While pipeline failures are usual in the drug industry, two at once is a blow for a mid sized company like Genzyme, and that underscored the importance of the Bioenvision bid.

Bioenvision holds rights to clofaribine, a modestly selling children''s leukemia drug. Genzyme markets clofaribine in North America, but it wants to buy Bioenvision and gain 100 per cent control.

When the deal was announced in May, Genzyme CEO Henri Termeer said the drug could expand to adult patients and other indications and serve as a cornerstone in Genzyme''s efforts to build a cancer treatment business. "This is the first step to develop a global organisation in oncology," Termeer said.

Genzyme''s control of the preferred stock could, however, give the firm leverage over Bioenvision''s future moves. According to the company, it now has a separate vote regarding future mergers or business deals as well as the approval of additional Bioenvision shares. Genzyme executives said in a statement the firm would play "an active and constructive role" as a long-term shareholder. Whether it tries to block Bioenvision from pursuing other deals remains to be seen. "I can''t imagine it would become a major shareholder, then try to detract from shareholder value," Rouhandeh said.

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