Source: Gilead Sciences 

And the battle rages.

Gilead Sciences (NASDAQ:GILD) had a victory on Monday in the major hepatitis C contest under way with AbbVie (NYSE:ABBV). CVS Health (NYSE:CVS), the second-largest pharmacy benefits manager, or PBM, in the U.S., signed an exclusive deal with Gilead to offer the biotech's HCV drugs Sovaldi and Harvoni for several of its major health plans. This follows a similar arrangement between AbbVie and Express Scripts, the nation's largest PBM, that was announced in December.

This competition isn't surprising, considering the enormous profits that can be made in the hepatitis C market. There is one big surprise so far in the battle, though: the collateral impact on each stock.

Tale of the tapes
You might expect the punches and counter punches between the two hep-C heavyweights would result in inverse effects on their respective stock prices, but that's not really what has happened.   

ABBV Chart

After the news splashed on Dec. 22 about the deal between AbbVie and Express Scripts,  Gilead Sciences shares plunged more than 15% before settling down. That decline wiped out over $29 billion in market cap for Gilead. It has since recovered only partially.

What happened to AbbVie as a result of the terrific news? The stock barely moved.

Fast forward a few days to Jan. 5, when CVS Health announced its exclusive arrangement for Sovaldi and Harvoni. Gilead saw a nice bounce on a day when the overall market tanked. AbbVie's shares dropped a little over 1% -- less than the S&P 500 fell. 

Elements of the surprise
There are several possible explanations why the impact on AbbVie's and Gilead's stocks have been disproportionate. One is shock factor. Gilead investors seemed to be breathing easy on reports that AbbVie's pricing of its hep-C regimen, Viekira Pak, were only nominally lower than the $84,000 that Gilead charges for a 12-week treatment of Sovaldi. However, AbbVie's exclusive deal with Express Scripts knocked the breath out of many of those investors.

Sovaldi. Source: Gilead Sciences 

Why didn't AbbVie surge then? Remember that Humira remains the company's real cash cow. Strong Viekira Pak sales will be great for AbbVie, but Humira is still the king for now. Meanwhile, Gilead's hepatitis C franchise is much more important to the company's financials.

But that can't be all there is to the story. Express Scripts had made no secret of its desire to play AbbVie against Gilead. A deal between the two companies shouldn't have been too shocking. And after the Express Scripts announcement, Gilead forging a relationship with CVS Health made perfect sense. You didn't have to be a fortuneteller to see at least the potential for that development.

So why hasn't AbbVie's stock moved much on good or bad news while Gilead's stock took a beating on bad news and is now rebounding on good news? Here's my explanation: The market simply overreacted. Gilead Sciences didn't suddenly become $29 billion less valuable because of AbbVie's agreement with Express Scripts. The market went too far and got it wrong.

In the balance
Benjamin Graham, legendary investor and mentor of Warren Buffett, explains these irrational movements well with his analogy of Mr. Market. Graham wrote in The Intelligent Investor that Mr. Market typically acts rationally but sometimes becomes overly emotional and acts erratically. When Mr. Market behaves irrationally, Graham noted, he can present good buying opportunities for investors.

Graham also wrote that "in the short run, the market is a voting machine but in the long run, it is a weighing machine". As the scales take their deserved role of more prominence than the voting machine, I expect both AbbVie and Gilead Sciences to perform well. Thanks to Mr. Market's irrational behavior, though, Gilead looks like the better opportunity right now.