Why Biotech Stocks Like Recursion Pharmaceuticals, CRISPR Therapeutics, and Summit Therapeutics Plunged Today

Shares of biotechnology stocks such as Recursion Pharmaceuticals (NASDAQ: RXRX), Summit Therapeutics (NASDAQ: SMMT), and CRISPR Therapeutics AG (NASDAQ: CRSP) plunged on Monday, down 9.4%, 5.6%, and 9.2%, respectively, as of 12:55 p.m. ET.

All three companies are early-stage biotechnology companies working on next-generation therapeutics with advanced technologies. However, that means none of these companies actually makes much revenue today, let alone profit.

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So not only were these stocks slammed by the risk-off mentality in the markets ahead of tariffs coming on April 2, but a key resignation at the Federal Drug Administration (FDA) over the weekend raised questions about the speed and willingness of the agency to approve new drug technologies going forward. The double whammy sent these stocks down much more than the market today.

Key FDA regulator Marks abruptly leaves

Over the weekend, Dr. Peter Marks, who headed the FDA's Center for Biologics Evaluation and Research, as well as its vaccine division, resigned in protest. Of note, Dr. Marks was instrumental in "Operation Warp Speed" during President Trump's first term, which sped up the development and approval of the COVID-19 vaccine. But with the appointment of vaccine skeptic Robert F. Kennedy Jr. as Secretary of Health and Human Services, it appears Trump 2.0 will take a different path forward regarding the FDA.

In his resignation letter to FDA Commissioner Sara Brenner over the weekend, Dr. Marks wrote:

I was willing to work to address the Secretary's concerns regarding vaccine safety and transparency by hearing from the public and implementing a variety of different public meetings and engagements with the National Academy of Sciences, Engineering, and Medicine. However, it has become clear that truth and transparency are not desired by the Secretary, but rather he wishes subservient confirmation of his misinformation and lies. My hope is that during the coming years, the unprecedented assault on scientific truth that has adversely impacted public health in our nation comes to an end so that the citizens of our country can fully benefit from the breadth of advances in medical science.

In an interview on CNBC this morning, former FDA Commissioner Scott Gottlieb cited other reporting that Dr. Marks had been forced to resign by Kennedy, or be fired.

Both Marks' letter and Gottlieb's interview stressed Marks' role in the creation of more modern approval processes for new gene therapies, which was as consequential -- if not more so -- than his presiding over the nation's vaccine approval process. During Marks' tenure, the FDA approved 22 gene therapies, including new treatments across a range of diseases such as inherited blindness, sickle cell anemia, and child leukemia, among many others. Overall, Marks had been an advocate for newer, more flexible approval processes for new drugs, especially orphan diseases. Therefore, with his departure, it's possible the approval process for therapies with newer technologies could be slowed down.

A bad combination compounding for biotech

While we don't know who Marks' successor will be, his resignation certainly throws more uncertainty into the drug approval process, which could be significant for these three very forward-looking biotechs.

Recursion Pharmaceuticals uses artificial intelligence (AI) in its proprietary operating system to match new compounds against a vast library of human genes in order to come up with new therapies. Currently, Recursion has trials underway for a variety of neurological diseases, as well as some cancers.

Summit Therapeutics is much larger than the other two stocks, thanks to last year's promising Phase III results for its lung cancer monoclonal antibody drug ivonescimab, which received "fast-track" designation by the FDA late last year. But with the change of leadership at the FDA, the timeline for final approval could be pushed out later than it otherwise would be.

Finally, CRISPR is at the forefront of revolutionary gene-editing therapies for a variety of blood and cardiovascular diseases, as well as certain cancers.

Should these new and novel therapies get rejected or their approval timeline get extended, it could affect the future revenue and profit outlook for these companies. In addition, since none of these stocks are profitable, each may have to raise more money at some point to fund their research. With a potentially longer path to approval and equity valuations currently plunging broadly, that could mean more shareholder dilution.

Therefore, it's no surprise to see these stocks sell off hard today. But as with most of the market's current issues, whether it be tariff policies, geopolitical issues, or the change of leadership at HHS and the FDA, right now there is just profound uncertainty. Investors have to hope that a sensible replacement for Marks will move new therapies along in a timely manner.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CRISPR Therapeutics and Summit Therapeutics. The Motley Fool has a disclosure policy.