Layoffs have been making headlines so far in 2023, even though we’re just a few days into the new year. That’s true even for gene-editing stocks.
While the focus has been on tech — and understandably so — other parts of the economy are starting to feel the pinch. Ironically, the December jobs report came in stronger than expected.
That said, most of the job-loss pain has been contained to tech. That’s highlighted by the 10% workforce reduction that Salesforce (NYSE:CRM) announced this week, followed by the larger-than-expected reduction at Amazon (NASDAQ:AMZN). The latter is planning on cutting 18,000 jobs.
However, those stocks have the financials to keep themselves propped up. At least to some degree. Unfortunately for Fate Therapeutics (NASDAQ:FATE), the stock is getting crushed. FATE stock is down about 60% on the day after announcing a wave of layoffs.
The company reportedly plans to cut down to 220 employees, down from more than 540 in 2022. Worse, it’s also cutting some of its experimental drugs.
The move comes after its collaboration with Johnson & Johnson’s (NYSE:JNJ) Janssen unit ended. Fate previously received an upfront payment of $50 million after a collaboration agreement was reached in April 2020.
Gene-Editing Stocks Need to Ride Out the Storm
There’s good news and bad news for gene-editing stocks. However, the former seems reserved for companies with promising pipelines and enough capital to get through the current downtrend.
When companies like Salesforce, Amazon or even a firm like McDonald’s (NYSE:MCD) cut jobs, it’s different. They are doing so to preserve margins and boost their operating output. They are trying to maximize shareholder value. When gene-editing stocks cut jobs, it’s to stay in business.
Is it the end of the world for these firms? Of course not! But it’s the prudent thing to do amid the current economic climate.
Right now, companies need to preserve capital. That’s particularly true for those that do not generate positive free cash flow, as they only have so much money to lean on before they need more funding.
For instance, a company like Tcr2 Therapeutics has a reasonably solid balance sheet right now. However, it doesn’t generate revenue. Management has to be proactive in this regard.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.