Pfizer juggles 'buckets of cash' abroad and at home in M&A review

Pfizer CEO Ian Read

On the company's third-quarter earnings call, Pfizer ($PFE) Chairman and CEO Ian Read fended off repeated questions on a new structure for the company that could be spurred by tax changes while letting a key executive paint a broad picture of how cash stashed abroad may play a part in any decision.

Of interest were comments by Frank D'Amelio, chief financial officer, who used the term "tweener" (something between two recognized categories) to describe a complex evaluation process of juggling cash that could be from the company's own resources offshore, or from an acquisition, and working with those flows in any transaction to restructure the company or buy a target at home or overseas.

"The way we think about this is, there's four buckets of cash in a hypothetical transaction like this," D'Amelio said on the Oct. 27 earnings call.

"There's our existing overseas cash and then there's our going-forward operating cash flow and then there's the target's existing overseas cash, and then their going-forward operating cash flow. The target's existing overseas cash and going-forward operating cash flow would be unencumbered. Our existing overseas cash and going-forward operating cash flow would be encumbered."

And as if to point out why Read has D'Amelio as chief financial officer--he gave the answer as a riddle.

"And then the question becomes in a tweener situation, how much of our encumbered existing overseas cash and how much of our encumbered going-forward operating cash can become unencumbered? That's based on tax planning and those kinds of actions. And that is really, I'll call it on a case-by-case, situation-by-situation, company-by-company basis. But we think of it in those four buckets," D'Amelio said.

In a call otherwise slim on comments on international operations, John Young, president of Global Established Pharma, did quantify to a degree the company's hopes on biosimilars overseas.

"Obviously as you know, the biosimilars market is still in the process of forming in different regions of the world. We're very excited to be playing a leading role in the formation of that market with the portfolio that we now have, both of our own legacy Pfizer pipeline of biosimilars, but also the end market portfolio of products from Hospira," Young said.

"Overall, the market opportunity that we see is around about $100 billion worth of revenues from currently patented branded biologics that will lose patent protection over the next five years. The global market for biosimilars, looking at many analysts, is expected to grow from around about $1 billion today to somewhere in the order of $17 billion to $20 billion by 2020."

- here's the release (PDF) and presentation (PDF)