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Goldman loves this ‘transformational’ sector — which is down over 50% in the past year


U.S. biotech is a hot pick for Goldman Sachs , which said the sector offers investors some “very attractive” entry points. Luke Barrs, head of fundamental equity, EMEA at Goldman Sachs Asset Management, told CNBC there is a “transformational change” happening in healthcare, particularly in genomic technology, a developing area of medicine that can personalize treatments to patients. Barrs flagged that the SPDR S & P Biotech ETF ( XBI ) was “underperforming very materially versus the broader market.” XBI is down over 40% this year, and has slipped around 53% over the last 12 months. The S & P 500 , by comparison, is down 21% year-to-date and 11.7% on a 12-month timeframe. Some companies in the sector have “immediate challenges,” according to Barrs, such as developing drugs to be approved by regulators, which is expensive. However, he added: “A third of that universe is trading below cash on balance sheet, so you’re looking at companies in negative enterprise value position. That seems like a very attractive entry point, if you buy into the long-term growth story.” Such firms are ripe for takeover, Barrs said. “If you think about the exit strategy for some of these businesses, clearly the opportunity for M & A in this space — where large pharma companies could step in and acquire some of these unique and new technologies — is very attractive.” The 12 largest pharmaceuticals firms currently have around $600 billion in cash on their balance sheets, Barrs added. “The large pharma industry could easily come in and take out a lot of those new unique technologies, giving you a very interesting upside exit point, if you are committed to some of those new and unique technologies.” Other banks noted opportunities in biotech firms earlier this month . Piper Sandler analyst Christopher Raymond pointed to Cogent Biosciences as his favorite “under-the-radar” small cap pick, with an overweight rating, while Morgan Stanley’s Matthew Harrison likes BioMarin Pharmaceutical . – CNBC’s Christina Cheddar Berk contributed to this report.

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