Cytodyn Inc (CYDY)

[Titan V]

Managing Stock Market Trading Risk in this Era of Increased Volatility

Pros and Cons Digest for Gilead Sciences (GILD) May 2016
Topic: Rising inter-firm competition

Pros:

• Gilead Sciences’ financial strength leaves it well positioned to overwhelm the competition in price wars.

• With the prevalence of HIV/AIDs rising in some important regions, including USA, and given the status of the disease as being incurable for the foreseeable future, there is ample room for Gilead Sciences to continue thriving as the HIV/AIDs treatment leader while more competition enters the market. [6]

Cons:

• In addition to the well-known presence of several competitors in the HCV market, a significant threat could arise in the HIV market if a major biotech firm acquires one of the small firms now working on alternatives to the HAART treatments sold by Gilead Sciences. An example is the treatment named PRO140, developed by CitoDyn Inc.

• At least one large biotech firm is becoming more active in the HIV/AIDs field. GlaxoSmithKile has developed Triumeq and Tivicay, both of which treat HIV. [1]

• Some larger firms, such as Merck, can do deep price-cutting that will put much pressure on Gilead Sciences.

Topic: Failure to make an acquisition that will boost net income in the short run

Pros:

• Gilead is pursuing a good strategy of small-firm acquisitions that, with support from its R&D team, may lead to block-buster drugs. For small firms whose technologies are compatible with areas where Gilead Sciences’ basic science strengths are great, acquisition by Gilead provides access both to needed capital and to professional support, enhancing the chances of bringing out successful products.

• Acquiring a large firm that is already generating substantial net income would probably require the offering of stock by Gilead; thus diluting the holdings of current stock holders.

• Gilead Sciences’ acquisition strategy focuses on broadening the scope of the R&D program toward marketing new products over the longer-term. This has higher priority than acquisitions designed to boost net income in the short run, a boost that the business does not need. [6] (This remark should be linked to the discussion below about long-term investing versus trading, as well as to that about the issue of whether GILD is a value trap.)

Cons:

• This failure represents a misapplication of capital in an industry where acquisitions are a major way to achieve continued healthy revenue growth as specific medications rise and fall in their ability to generate that growth.