Why Yahoo!, Idenix Pharmaceuticals, and Progenix Pharmaceuticals Tumbled Today

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After a one-day respite, the stock market fell sharply again today, as the Federal Reserve chose not to change its glide-path toward curbing its bond buying under its quantitative easing program. Yet the roughly 1% drop in major market benchmarks paled in comparison to larger drops in Yahoo! (NASDAQ: YHOO  ) , Idenix Pharmaceuticals (NASDAQ: IDIX  ) , and Progenix Pharmaceuticals (NASDAQ: PGNX  ) .

Yahoo! fell almost 9% despite reporting impressive revenue and earnings results that came in much higher than investors had expected, as well as favorable revenue guidance for the current quarter. But shareholders weren't pleased about the extent to which Yahoo!'s digital-ad share has dropped in recent years, and with earnings guidance suggesting that profit margins could narrow substantially, the bullish story for the Internet-portal giant took a bit of a hit today. Moreover, results tied to Chinese Internet player Alibaba, in which Yahoo! holds a 24% stake, suggested slowing growth there as well. The stock's earnings multiple is high enough that even small declines in future growth expectations can have a big impact on the share price if investors lose confidence in the trajectory of its revenue and net income.

Idenix dropped 10%, giving up a substantial portion of the 17% gains it posted yesterday. The biopharmaceutical company said on Tuesday that it would sell 16.42 million shares of stock to private-equity firm Baupost Group for $6.50 per share, helping Idenix raise more than $100 million in funding. Even though Baupost got a bargain price for the shares, paying more than 5% less than its closing value on Monday, investors still celebrated the vote of confidence on Tuesday. Even after today's drop, the shares fetch 11% more than Baupost paid, giving the company a nice immediate paper profit.

Progenix plunged 27% after results of its experimental PSMA-ADC treatment for prostate cancer reportedly included deaths of two patients in a phase 2 trial. In advance of comments that Progenix said it would make tomorrow concerning the study, investors had little choice but to speculate on the possible toxicity of the treatment and weigh it against its potential upside. With doubts about whether Progenix will move forward with a phase 3 trial of the treatment, investors are worried that a promising candidate could disappear from the company's pipeline.

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