Why Biotech Stocks Such as Biohaven, Recursion Pharmaceuticals, and CRISPR Therapeutics Plunged in March

Shares of early-stage biotech stocks, including Biohaven (NYSE: BHVN), Recursion Pharmaceuticals (NASDAQ: RXRX), and CRISPR Therapeutics (NASDAQ: CRSP), plunged in March, with the stocks down 35.3%, 29.6%, and 22.5%, respectively, according to data from S&P Global Market Intelligence .

The stocks endured multiple headwinds during the month, especially Biohaven, which had one of its drug candidates deliver underwhelming results in a recent study. In addition, all money-losing biotechs sold off hard along with the broader market, as lower equity valuations could make it harder for these companies to raise capital to fund their research.

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Finally, the resignation of a key Federal Food and Drug Administration (FDA) regulator toward the end of the month cast a pall over the FDA approval process under the tenure of new Secretary of Health and Human Services, Robert F. Kennedy Jr.

Multiple headwinds sink these high-risk, high-upside stocks

March was clearly a bad month for any stock deemed "risky" by investors. Profound uncertainty over tariffs and the economic outlook likely spurred factor-oriented investment funds to sell stocks with certain "high-risk" characteristics such as a high beta, which describes a lot of technology and biotechnology names.

All three of these companies have market caps just between $2 billion and $3 billion, which is fairly small. In addition, all three are losing money, as they invest in research and development of next-generation biotechnology to cure or treat many serious diseases. Over the past 12 months, these three companies endured net losses between $300 million and $900 million, depending on the company. So, definitely "high risk."

Ongoing net losses mean all three of these companies may have to raise more capital at some point, either through the debt or equity markets. Typically, biotech companies prefer raising equity to minimize the risk of bankruptcy. However, if the overall market is in a tailspin due to unrelated fears over tariffs and recession, that means lower equity prices, which would make capital raising more expensive.

The biotech sector also received another blow last weekend when key FDA regulator Dr. Peter Marks resigned from the agency, publishing a scathing letter on his way out lambasting incoming HHS Secretary Robert F. Kennedy Jr. as being anti-science.

Biotech stocks sold off hard on Monday, March 31 after news of the resignation came out over the prior weekend. While the direct conflict with RFK Jr. was likely around vaccines, which Dr. Marks regulated in his role, Marks was also instrumental in streamlining the approval process for novel drugs during his tenure at the FDA. Therefore, the fear might be that Dr. Marks' sped-up approvals of new therapies could be slowed down under new leadership, although that is yet to be determined. If that were the case, that could mean money-losing biotechs could be forced to raise even more money in order to extend their runways.

Finally, both Biohaven and CRISPR had some negative company-specific news in March. On its fourth-quarter earnings release, not only did Biohaven miss its earnings estimates, but management also disclosed its BHV-7000 drug for bipolar mania did not deliver a meaningful difference from the existing comparative drug set in a phase 2/3 trial.

Biohaven has a diverse pipeline of other promising drug candidates, so the negative news is not exactly fatal. However, the news was definitely an incremental negative.

For CRISPR, the company announced its chief operating officer of six years, Julianne Bruno, would leave the company April 11. There wasn't much disclosure around her departure, only that Bruno was leaving to "pursue other opportunities." So, the fact that Bruno may have seen a better opportunity at another unspecified company likely didn't sit well with CRISPR investors.

Biotechs face ongoing uncertainty, but they're not alone

Certainly, the volatile capital markets and regime change at the FDA add considerable uncertainty to the biotech sector. However, there is also a lot of uncertainty around most other market sectors, as tariffs, economics, and geopolitics have upended the outlook for most stocks.

Therefore, you shouldn't immediately look to change your allocation to biotechs. Whatever your investing plan was regarding the biotech sector at the beginning of the year, you should probably stick to that allocation. After all, market upheaval is no reason to abandon a long-term investing plan, assuming that investing plan was thoughtfully constructed in the first place.

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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. The Motley Fool has a disclosure policy.