Pfizer’s $33 Billion Cash Pile Has Everyone Guessing

Pfizer Inc. (PFE) has $33 billion in cash and a million potential ways to use it.

That total on the balance sheet has been the focus of speculation among investors ever since the New York-based pharmaceutical company walked away from an almost $120 billion deal to acquire U.K. drugmaker AstraZeneca Plc (AZN) last year.

The use of that cash is likely to be a topic of discussion after the biggest U.S. drugmaker reports fourth-quarter earnings Tuesday. In October, executives announced an $11 billion buyback over an undefined timeframe, not enough to keep the company from doing deals, according to analysts.

Chief Executive Officer Ian Read’s search for an acquisition target has been far and wide. After the AstraZeneca deal fell apart, Pfizer approached Actavis Plc (ACT), people familiar with the matter said last year. That company announced a deal to buy Allergan Inc. in November. Pfizer also reached out to Teva Pharmaceutical Industries Ltd. (TEVA) last year, but the Israeli drugmaker quickly rejected the overture, Bloomberg News reported on Friday, citing other people with knowledge of the encounter.

The AstraZeneca deal was attractive to Pfizer in part because of the U.K. company’s oncology pipeline. The proposed deal would also have let Pfizer relocate its legal address overseas, lowering its U.S. tax bills. Months after Pfizer dropped its pursuit, the U.S. Treasury Department imposed rules to limit the tax benefits of so-called inversion deals.

Political Hurdles

Pfizer hasn’t ruled out doing an inversion in the wake of those changes. Still, there could be political hurdles to an overseas deal from both domestic and foreign governments, just as Pfizer met resistance in the U.K. after proposing to buy AstraZeneca.

Pfizer’s management is also going to be careful about how much it pays for its next target, which could make it hard to strike a deal at all, according to David Heupel, senior health-care analyst at Thrivent Financial, which holds Pfizer shares.

“They’re looking for strategic assets and they’re taking a pretty broad stroke as to what they’re looking at,” he said. “But I think they’re going to take a diligent and disciplined financial approach, and I don’t think that’s going to equate to a lot of opportunity for them.”

In recent months, Pfizer’s name has been linked to a range of companies. Analyst Jeffrey Holford at Jefferies laid out a range of scenarios for Pfizer, including deals with the likes of Mylan Inc., Actavis, Valeant Pharmaceuticals International Inc. and GlaxoSmithKline Plc.

A Pfizer press representative declined to comment on market speculation.

Oncology Partnership

In November, Pfizer announced a partnership with Germany’s Merck KGaA, boosting its foothold in oncology by giving it rights to an experimental drug that’s part of an emerging class of cancer therapies. That deal makes it less likely that Pfizer renews its pursuit of AstraZeneca, analysts have said, since the U.K. company’s oncology products under development were a large part of its appeal for Pfizer.

Pfizer also has its own drugs under development, such as palbociclib, a potential blockbuster that has shown promise in treating a form of breast cancer.

The company could seek to bolster its established-product business, which includes medicine with expired or expiring patents, in order to spin off that division later, Holford said in a December note to clients.

“Investors overwhelmingly want Pfizer to take some sort of corporate action to unlock value,” said the analyst, who advises buying the shares.

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