AbbVie Inc. (NYSE: ABBV) and Express Scripts Holding Co. (NASDAQ: ESRX) entered into an exclusive distribution agreement following the U.S. Food and Drug Administration’s (FDA) approval of AbbVie’s hepatitis C treatment. This agreement was precipitated by what was considered high pricing of the hepatitis C treatment produced by Gilead Sciences Inc. (NASDAQ: GILD). Analysts are beginning to make their calls for what the future will hold for these companies, and 24/7 Wall St. has obtained an analyst report from Merrill Lynch that should shed some light on what the outlook is for Gilead in particular. They think a severe value trap is lurking here.

Because Gilead has a low price-to-earnings (P/E) multiple of nine times future earnings, it might appear attractive — or seriously cheap — on the surface to some investors. The analyst team at Merrill Lynch views this much differently, based on the new exclusion.

The prospect of weak pricing makes Gilead appear to be a less attractive investment. As a result, Merrill Lynch downgraded the stock to an Underperform rating from Buy and lowered its price target to $87 from $130. Merrill Lynch’s Underperform is the equivalent of a Sell rating at most other firms. This is based on a nine-times P/E multiple on the analyst firm’s adjusted 2016 earnings per share estimate of $9.63, down from $10.81.

The risks to the price objective include faster than expected growth from product sales, less than anticipated pressure on pricing, weaker than expected competition, and greater and faster progress with its pipeline.

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AbbVie has not announced the exact discount that Express Scripts will receive to purvey its hepatitis C treatment. However, Steve Miller, the chief medical officer of Express Scripts, said that the discount will significantly narrow the price gap between the United States and Europe. The cost of a Sovaldi treatment in the U.S. is $84,000, compared to a range of $51,000 to $66,000 in Europe, so it would make sense for there to be roughly a 30% to 35% discount.

It is worth noting that Express Scripts has indicated that patients would be allowed to receive Harvoni or Sovaldi treatment on a case-by-case basis, if deemed medically necessary.

Merrill Lynch considers that a price war could be started from this deal, which overall would not bode well for the hepatitis C market. It might also force future competitors to further cut pricing in an effort to acquire more market share. The analyst firm went on to say that the pricing war initiated by AbbVie is unprecedented and could have a ripple effect across multiple branded biopharm companies.

Merrill Lynch is also removing Gilead from its quarterly U.S. Top 10 Ideas List due to the change in the rating to Underperform. Analysts now expect challenging pricing in the hepatitis C therapy market.

S&P Capital IQ maintained its very favorable Strong Buy rating, but it did cut the expectations. S&P said, “We believe this unprecedented deal will hurt GILD sales by at least $1B in 2015. We lower our 12-mo.target $15 to $135 on below-peers 15X our ’15 EPS est. of $9.00, down from $9.65.”

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Shares of Gilead were down 4% Tuesday at $88.88 in the first half of the trading day. The stock has a consensus analyst price target of $122.83 and a 52-week trading range of $63.50 to $116.83. The market cap is $130 billion.

Shares of Express Scripts were up over 1% at $83.27. The consensus analyst price target is $84.10, and the 52-week trading range is $64.64 to $85.72. The company has a market cap of $61 billion.

Shares of AbbVie were down over 2% at $65.38. The consensus price target is $69.86, and the 52-week trading range is $45.50 to $70.76. AbbVie has a market cap of $104 billion.

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