Investors expect next year to be a "stock picker's market," a term that always initially strikes me as tautological but simply suggests the biotech sector may be directionless or overly volatile. I agree, but would add my view that the market will increasingly reward only true medical innovation going forward. Sarepta Therapeutics' ( SRPT) eteplirsen and GlaxoSmithKline's ( GSK) drisapersen, two novel drug candidates to treat Duchene muscular dystrophy (DMD), are good examples of the kind of products that will justify sustainable premium pricing. In contrast, the global commercial environment will likely grow increasingly difficult for products with either a modest long-term clinical benefit (Arena and Vivus' weight loss drugs) or impending competition and unclear cost-adjusted value ( Edwards Lifesciences'm ( EW) transcatheter heart valve technology). Memorial Sloan-Kettering's refusal to use Regeneron Pharmaceuticals' ( REGN) oncology drug Zaltrap because of its high cost strikes me as a dark cloud on the horizon. As a fundamentals-based healthcare investor, I consider pushback against flagrantly unjustified drug pricing to be a positive. Generalist investors, however, might quickly become extremely concerned if drug-pricing power seems unsustainable. Cost pressures on the healthcare system will invariably increase over time. Eventually, I think these dynamics will force more widespread adoption of cost-effectiveness analysis such as the roughly $50,000 Quality Adjusted Life Year (QALY) threshold used by the U.K.'s National Institute for Health and Clinical Excellence (NICE). Company executives always complain that increased use of cost-effectiveness analyses will quash innovation. I call shenanigans. No other segment of the economy benefits from annual "inflation driven" price hikes in perpetuity for a stagnant product, yet innovation abounds. It's becoming increasingly clear that the salad days of healthcare pricing are over and executives need to adjust accordingly. Oaktree Capital Chairman Howard Marks frequently reminds investors of his favorite adage: Never forget the six-foot tall man who drowned crossing the river that was five feet deep on average. This cautious tone feels especially relevant in healthcare as we head into 2013. Sadeghi has no positions in stocks mentioned in this column.