Biotech gives Putnam fund shot in arm

By Svea Herbst-Bayliss

BOSTON (Reuters) - Biotechnology firms that promise to battle diseases ranging from diabetes to high blood pressure have already bolstered returns at Putnam Investments and may help give one of its funds another shot in the arm this year.

"Healthcare stocks have helped the portfolio quite a bit," said Anthony Sutton, in charge of selecting science companies among others for Boston-based Putnam's $446 million Small Cap Growth fund.

Names likes Salix Pharmaceuticals (SLXP.O: Quote, Profile, Research, Stock Buzz), Myogen MYOG.O and Amylin (AMLN.O: Quote, Profile, Research, Stock Buzz) have all been hits for the fund, which boasted an 8.5 percent return last year, beating both its industry benchmark and peers in the $8.4 trillion mutual fund industry. Since January, the fund has returned 7.4 percent.

Sutton, who got his taste for investing while serving in the U.S. Marine Corps after high school, spends hours poring over drug trial data, visiting with management, and conversing with competitors all to better understand what a company does. Sutton earned his business degree from MIT's Sloan School of Management and has worked on the Small Cap Growth fund since 2004 alongside fund's lead manager, Rick Weed.

"The biggest risk is understanding the companies and what they can do," he told the Reuters Biotechnology Summit in Boston on Thursday.

Companies working on ways to treat cancer and cardio vascular disease, both huge killers of Americans, are generally popular with investors. Sutton also eyes firms that have products in late stage 2 trials where the chances of bringing a drug to market rise.

The fund holds roughly 243 stocks, and roughly 20 percent are healthcare stocks with around 10 companies representing pure biotech companies, Sutton said.

Among his biggest positions is Salix Pharmaceuticals which makes a gastrointestinal drug approved to treat travelers' diarrhea. But the company also has trials to treat Crohn's disease and irritable bowel syndrome and Sutton was optimistic the stock, which had slipped some recently, has room to rise.  Continued...