FUNDVIEW-Franklin fund sees opportunity in cheap biotechs

* Sees little downside from proposed healthcare reforms

* Says Gilead Sciences is favorite large-cap

* Likes Ardea Biosciences in small and mid-cap space

* Sees number of takeover possibilities in biotech

* Says Ardea, BioMarin, Celgene attractive takeover targets

By Suzannah Benjamin

BANGALORE, July 6 (Reuters) - Biotechnology stocks are likely to thrive once the final shape of U.S. healthcare overhaul becomes clear, a portfolio manager for a biotechnology-focused fund said.

"When President Barack Obama released his budget proposal in February, he included a number of proposals that were viewed as negative for the healthcare sector, particularly the biotechnology sector," said Evan McCulloch of Franklin Biotechnology Discovery Fund FBDIX.O.

Stocks have sold off on concerns about the possible negative impact of healthcare reforms, McCulloch said, but the selloff has also produced an opportunity in biotech stocks that now offer attractive valuations and little downside.

"We look at the proposals for healthcare reform and we don't think anything in there is onerous to the biotechnology sector," he said.

Obama's U.S. healthcare plan aims to provide medical coverage to most of the 46 million Americans who currently lack it.

While expanded coverage could expand the market for biotech companies' products, it could also lead to price cuts and other cost controls.

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The fund's favorite large-cap and its largest holding is in Foster City, California-based Gilead Sciences Inc (GILD.O).

As of March 31, the fund held 701,700 shares of Gilead with a market value $32.5 million.

"Gilead Sciences is our number one position for a reason," McCulloch said. "The bulk of their business is in HIV, a product category very well insulated from any sort of managed care reimbursement pressure from healthcare reform."