NEW YORK (TheStreet) -- My biotech stock predictions for 2015.
1. Drug pricing fears finally catch up to the biotech sector and the multi-year bull market ends. However, the closely watched biotech stock indices churn up and down to end the year basically flat, which frustrates both the bulls and the bears equally.
2. Investor sentiment for diagnostic stocks improves as an increasing number of insurance companies decide to reimburse for genetic tests. This trend will be positive for Foundation Medicine (FMI) - Get Foundation Medicine, Inc. Report .
3. Investor sentiment cools off for CAR-T stocks -- Juno Therapeutics (JUNO) , Kite Pharma (KITE) , Bellicum Pharma (BLCM) - Get Bellicum Pharmaceuticals Inc Report , Novartis (NVS) - Get Novartis AG Report , etc. Why? The natural growing pains of CAR-T clinical trials where increasing numbers of patients are being treated will demonstrate that developing these cancer immunotherapies is a more complex undertaking than previously believed.
4. Animal health becomes a more significant part of the biotech investment discussion. Activist investors in Zoetis (ZTS) - Get Zoetis, Inc. Class A Report ratchet up their activity and Aratana Therapeutics (PETX) - Get Aratana Therapeutics, Inc. Report ontinues to execute on its clinical trials. In addition, animal health is almost exclusively a cash business, meaning it will not be affected by any broader drug pricing concerns.
5. Mergers and acquisition activity by and involving large-cap biotech and Big Pharma decreases due to concerns about the sustainability of drug pricing and high market valuations These companies, however, will continue to produce outsized cash flow, which will be returned to shareholders through more share buybacks leveraged with cheap debt. Look for Pfizer (PFE) - Get Pfizer Inc. Report and Gilead Sciences (GILD) - Get Gilead Sciences, Inc. Report to lead this effort.
6. M&A won't dry up completely, of course. Roche (RHHBY) will buy Exelixis (EXEL) - Get Exelixis, Inc. Report . Biogen Idec (BIIB) - Get Biogen Inc. Report will buy Bluebird Bio (BLUE) - Get bluebird bio, Inc. Report . Finally, in the largest and most talked-about deal of 2015, Gilead will acquire Vertex Pharmaceuticals (VRTX) - Get Vertex Pharmaceuticals Incorporated Report.
This article is commentary by an independent contributor. At the time of publication, the author held long positions in Bluebird , Aratana and Gilead.