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Facebook, Incyte Fall Despite the Nasdaq's Strong Wednesday Start

By Dan Caplinger – Sep 22, 2021 at 11:36AM

Key Points

  • The Nasdaq kept bouncing back on Wednesday morning, but some stocks still fell.
  • Facebook continued to struggle as a pair of shareholder derivative lawsuits became public.
  • Incyte got FDA approval for a key treatment, but only with a boxed warning.

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Find out what held these laggards back.

The stock market got off to a strong start on Wednesday, and the Nasdaq Composite (^IXIC -0.64%) benefited from more positive sentiment on Wall Street. As of 10 a.m. EDT, the Nasdaq was up more than half a percent, continuing to claw back some of the ground it lost in Monday's large sell-off.

However, not every stock in the Nasdaq contributed to the market rally. Both Facebook (META -0.35%) and Incyte (INCY 1.42%) moved lower on Wednesday morning, reacting to news items that for one of the companies seemed more positive than problematic. Below, we'll look at both stocks to see why they're missing the Nasdaq's rally and whether investors should expect more setbacks ahead.

Five young people against a wall using mobile devices.

Image source: Getty Images.

Unliking Facebook

Shares of Facebook fell more than 3% on Wednesday morning. The social media giant's decline likely stems from news that it was named as a nominal defendant in stockholder derivative lawsuits against CEO Mark Zuckerberg, COO Sheryl Sandberg, and various Facebook directors.

The suits, filed last year by various public retirement systems and pension funds but made public late Tuesday, allege that Facebook's settlements with the Federal Trade Commission that eventually led to the company paying record fines to regulators improperly failed to take into account the conflicts of interest between Facebook and Zuckerberg. Essentially, the plaintiffs appear to believe that the FTC agreed to accept a higher fine paid by the company in exchange for not pursuing individual causes of action against Zuckerberg personally.

Shareholder derivative lawsuits enable investors to take up causes of action that a company has against other parties but that it chooses not to pursue. Here, the plaintiffs discuss the influence that Zuckerberg has even over those who could potentially serve on independent committees. By doing so, they attempt to explain the justification for allowing a derivative suit to move forward.

The stock's negative reaction likely reflects broad investor concerns about Facebook's inability to put issues over privacy, antitrust, and the health impacts of social media to rest. Whether the lawsuits ultimately succeed is less important than how Facebook aims to stay focused on competing effectively against a rising tide of rival companies.

Good news, bad result?

Elsewhere on the Nasdaq, Incyte shares moved lower by more than 6%. The drop came despite what seemed like good news on the regulatory front for the biotech company.

Late Tuesday, Incyte announced that the U.S. Food and Drug Administration had approved Opzelura, its topical treatment for mild to moderate atopic dermatitis, in patients 12 and older. The disease is often difficult for medical professionals to manage, with existing treatments failing to be effective for a wide range of patients.

FDA approval seems like an unqualified positive for Incyte, but there was a catch. The approval was contingent on Opzelura having a so-called "boxed warning" -- in this case, including warnings about JAK inhibitors and the risks of heart problems and serious infections. That's expected to lead to medical professionals being somewhat more reluctant to prescribe Opzelura even with FDA approval, and in turn, that would hurt the potential revenue that the treatment will generate.

With today's drop, Incyte stock fell to its lowest level in more than a year. That's hardly cause for celebration, but it reflects just how much investors wanted approval for Opzelura without warnings.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Incyte. The Motley Fool has a disclosure policy.

Stocks Mentioned

Meta Platforms Stock Quote
Meta Platforms
META
$113.72 (-0.35%) $0.40
Incyte Stock Quote
Incyte
INCY
$83.71 (1.42%) $1.17
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$10,944.61 (-0.64%) $-70.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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