Posted on 23-6-2003

Biotechnology Company Pulls Plug On GE Sheep
by Kent Atkinson, NZPA, 20.06.2003

Scottish biotechnology company PPL Therapeutics Ltd is pulling the plug for
at least three years on New Zealand's first transgenic livestock field
trial - in which more than 4000 sheep are grazing Waikato pastures.

No details have yet been announced on the fate of the New Zealand flock of
genetically engineered sheep producing milk containing a human protein, now
that PPL has canned its plans to develop a lung drug extracted from the GE
milk. PPL - which created Dolly the cloned sheep in 1997 - announced today
it was laying off 90 per cent of its staff - between 90 and 140 jobs in
Edinburgh and New Zealand. PPL's project is based on a 50ha farm at
Whakamaru, 140km south of Hamilton, and it had been in the process of
buying another property so it could begin milking cloned ewes later this
year. PPL is thought to have as many as 1000 transgenic ewes among the 4000
sheep on its 50ha South Waikato property, which has been building up its
flock numbers in preparation for milking. The milk was to be taken from the
ewes, frozen and sent to Edinburgh for the removal of the protein
recombinant alpha-1-antitrypsin (rAAT).

Recombinant proteins are human proteins produced outside the body, often by
genetically engineering herd sheep or cattle and then harvesting the
proteins from their milk.

Shares in PPL Therapeutics fell nearly 10 per cent overnight in Britain
after the biotech entrepreneur said it had interrupted the development of
recombinant hAAT with drug company Bayer AG. PPL had worked for three years
with Bayer, which was due to carry out clinical trials and marketing, with
PPL developing and making the protein. But PPL last night expressed
"disappointment" that its German partner had effectively pulled the plug on
the whole scheme. "In the light of today's joint announcement by PPL and
Bayer concerning the future of the hAAT programme, PPL also announces today
a significant restructuring of its business," the company said. It would
instead focus on the potential for building a surgical sealants business
around PPL's Fibrin I programme, designed to offer surgical sealants for a
potential market of 3 to 4 million operations a year in the United States.
The hAAT protein was a major component of PPL's business, both in terms of
its research and development activities and also its manufacturing
capacity. The company said it had retained its intellectual property for
hAAT "and will seek to maximise value for this". "In the short term,
placing this programme on hold will mean the potential loss of between 90
and 140 jobs in the company at its sites in Scotland and New Zealand," the
company said in a statement.

The final number of job losses in the Waikato and at its Roisin head office
near Edinburgh would be decided in a strategic review, but were hoped to
help halve its spending of $1.7 million a month. The strategic review by
accountancy company KPMG may see PPL Therapeutics wound up, and its $25.3
million of remaining cash returned to shareholders - a step some investors
expected to seek at the company's annual meeting. Such a move could raise
concerns in New Zealand about what should be done
with the GE sheep in the Waikato. Environmental Risk Management Authority
chief executive Dr Bas Walker said today the authority had had no formal
notice from PPL that the status of its New Zealand transgenic flock had
changed. PPL would be legally responsible for ensuring the conditions under
which the trial was granted were not breached.

PPL chief executive Geoff Cook said Bayer's decision left PPL with
intellectual property but little chance of developing it in the short term.
"We have got few options other than to reduce cash burn," he said. "What we
can offer shareholders ... is a sealants plan with Fibrin 1, liquidating
assets, or the sale of the company." The assets to be liquidated would
include its New Zealand operation. PPL is reported to have written off
nearly $22 million last year after dropping plans for building its new
manufacturing plant for the hAAT from its New Zealand sheep.

Analysts said the PPL experience indicated that great technology did not
necessarily make great business. A little over a month ago PPL dropped
plans for a centre to produce a range of Dolly-type drugs, but said at the
time it remained committed to developing hAAT. PPL had said it hoped to
launch the product in 2007, but there have been fears in investment circles
that the company would run out of money first. PPL was given permission to
"field test" its genetically engineered sheep in New Zealand on March 23
1999, when it already had a flock of 100 transgenic sheep at Whakamaru,
140km south of Hamilton. It bred the flock from semen imported from
Scotland, with permission given by the Environment Ministry's interim
assessment group -- the forerunner to Erma -- in 1996. The hearing on the
field trials was one of Erma's highest profile public hearings. It was told
by the authority's own Maori advisory committee, Nga Kaihautu Tikanga
Taiao, that some Maori found the insertion of human genetic material into
other species culturally offensive and abhorrent, and said the bridge
between human and non-human species should not be crossed.

PPL's then managing director, Ron James, said he wants to lift the flock's
size, first to 1000 ewes and later to 10,000, but it promised that no more
than 5000 sheep would be based on its initial quarantine site in the
Waikato. Erma, a semi-judicial body of eight experts, said the adverse
effects of the genetic engineering were outweighed by the beneficial
effects "taking into account the scope for risk management". A containment
regime proposed by PPL, together with additional controls imposed by Erma,
would adequately contain the organism, the authority said. The controls
included keeping all sheep in containment approved by the Ministry of
Agriculture and Forestry (MAF), and disposal of all waste milk, sheep
carcasses and any biological material on site or by incineration.
Unauthorised people and other organisms would be excluded from the farms,
its 2m-high perimeter fencing electronically alarmed and individual sheep
tagged and implanted with microchips.

The transgenic sheep have been modified with copies of human genes from a
Danish woman to produce the human protein alpha-1-antitrypsin (hAAT). The
company has said this could theoretically be used to treat conditions such
as cystic fibrosis and acute respiratory problems, although a vocal critic
of the PPL project, New Zealand scientist Robert Mann, told regulators that
preliminary trials overseas using AAT proved very little.