Independent board members at Genentech Inc. (DNA) rejected an $86.50-a-share tender offer from Roche Holding AG (RHHBY) to buy the 44% of the biotech giant it doesn't already own, saying the offer undervalues the company.

The move isn't a surprise, as the board rejected an $89-a-share approach from Roche in July, but it lessens the likelihood of the two companies reaching an agreed takeover prior to key data from Genentech's flagship cancer drug Avastin coming as early as mid-April.

The next step is the expiration of Roche's offer on March 12.

Notably, there has been minimal contact between the two companies in recent weeks - a Genentech spokesman said that Roche Chairman Franz Humer called Genentech independent board member Charles Sanders on Jan. 29 to inform him of the tender offer. Sanders then contacted Humer on Monday to inform him of the board's recommendation.

"I'm not aware of any further communications," the spokesman said.

In a filing with the Securities and Exchange Commission Monday, Genentech notes that the independent committee is well aware of the valuation implications of data that tests Avastin's use as an adjuvant therapy in colorectal cancer, which means it is given to patients following surgery to prevent relapse of the disease.

The success of the trial could produce billions more in annual sales of the drug, but its failure could translate to slowing growth for the blockbuster.

Avastin is approved to treat advanced breast, lung and colorectal cancer and had 2008 sales of $2.69 billion.

In the filing, the company notes that if shareholders decide to tender their shares and the trial is negative, Roche may decide not to consummate the offer, or reduce the offer price. On the contrary, if the trial is positive, the value of Genentech would be greater that the tender amount.

When it launched the tender offer earlier this month, Roche expressed frustration with the Genentech independent committee's assertion that $112 a share was an appropriate starting point for takeover negotiations. Roche asserts that it shouldn't have to pay a change-in-control premium because it already owns a majority of Genentech.

On the other hand, Genentech contends that Roche is undervaluing the degree to which full ownership of Genentech would benefit its own operations.

"Genentech's strong projected financial performance implies a valuation substantially in excess of Roche's offer price," said Sanders, the committee's chairman, in a statement Monday. He added the company's "exceptional management and team, including its world-renowned scientists, can create far more value for stockholders than Roche has offered."

Roche has said it would exercise its option to have a majority of seats on Genentech's board if the tender offer is unsuccessful.

The tender is widely expected by Wall Street to fail. A Citigroup survey conducted earlier this month concluded that 92% of Genentech shareholders will not tender their shares prior to the Avastin adjuvant data.

It has also been busy in the debt markets raising money to avoid having to borrow from banks. Roche last week sold a record $16 billion in bonds to help finance the hostile takeover. That cash, though, could also boost the chances that Roche might ultimately raise the offer to cement shareholder approval.

Genentech shares closed Monday down 0.6% at $84.55 but rose 0.8% to $85.24 in after-hours trading.

-Thomas Gryta; Dow Jones Newswires; 201-938-2053; thomas.gryta@dowjones.com