A source close to the situation said top Illumina shareholder Capital Research, which owns 11.4 per cent of the company according to Thomson Reuters data, had pressured the board to engage with the Swiss drugmaker in the wake of the improved bid.

However, hedge fund investors who asked not to be identified said they saw Illumina's strong refusal yesterday as an indication that second-largest shareholder Baillie Gifford had been successful in building an opposition front including other heavyweights.

Officials at the two top shareholders were not immediately available for comment.

Roche chief executive Severin Schwan said he hoped Illumina shareholders would "see the substantial value in our increased offer" and vote in favour of directors friendly to its overtures at an annual meeting on April 18th.

"Roche's increased offer is highly attractive," Mr Schwan said in a statement today. "By not engaging with Roche, Illumina reinforces the notion that its board and management are determined to preserve their positions rather than maximize shareholder value."

Illumina's board unanimously rejected Roche's higher offer of $51 per share, saying it dramatically undervalued the company. Roche's tender offer expires on April 20th.

Illumina is being pursued by Roche for equipment that decodes a person's entire genome, which would give it a strong position in the gene sequencing market and bolster its strategy of combining medicines with diagnostic tests.

Roche, the world's largest maker of cancer drugs, has been forging ahead in developing targeted therapies and Illumina's technology could help it better identify which patients benefit from a given drug.

Baillie Gifford is said to have bought its shares at $60 or more, and is unwilling to take a large loss on the position. But other shareholders said Roche could probably garner majority support with an offer in the $55-60 range.

These shareholders said they did not expect Roche to get the two-thirds of votes at Illumina's general meeting on April 18th needed to appoint six new board members and take control of the board.

The hedge funds said, however, they hope that Roche will get a simple majority at the meeting, allowing it to name four new members and force Illumina to come to the negotiating table.

Illumina shares closed at $51.37 yesterday, indicating that some investors expect Roche to raise its bid again. A source close to the talks last week told Reuters that Roche could further increase its bid if it found more value in the business during the due diligence process.

"As long as Illumina can keep the majority from backing the Roche bid, they can orchestrate the fight for a higher price. For the board to save face they have to get a price better than $51," per share, Bank Vontobel analyst Andrew Weiss said.

"Roche has been rather successful in doing these kind of 'persuasive' takeovers ... In essence it's a battle. You're going to draw lines in the sand but you're not going to say where you're putting your troops."

Illumina yesterday projected first-quarter revenue well above consensus estimates, and said it expects profit to meet or exceed market expectations.

Analysts said while Illumina revenues can be volatile due to factors like government spending, better-than-expected results could strengthen the case for a higher bid, although Roche would want something in return.

"Making a higher offer contingent on certain performance metrics may go down better than simply raising the offer," West LB analyst Oliver Kaemmerer said.

Reuters