In biotech, layoffs typically happen for two reasons: It turns out a product can't get approved because it doesn't work, or it gets approved but the expected demand isn't there.
I've written about the former -- and how investors should be focused on getting to the finish line -- but the latter seems to be a growing concern. Earlier this month, Dendreon
Pac Bio sells third-generation sequencers and apparently the demand isn't as great as the biotech was expecting; shares dropped more than 23% on the news yesterday. Investors are rightfully worried that the lower-than-expected demand isn't just for the Pac Bio RS machine but for all sequencers in general. Both Illumina
It's a tough spot for companies to be in. Do you plan for the best and cut your losses? Or plan small and try to expand quickly if demand picks up? The latter can be just as costly. ViroPharma
While no one wants to see people lose their jobs, layoffs are a necessary evil of high-growth companies trying to maximize profits. I'd much rather Dendreon and Pac Bio conserve their cash now in the hopes of being cash-flow positive at some point than have to dilute their shareholders even further through capital raises to pay the additional salaries.
Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Illumina and Pacific Biosciences of California. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.