Biotechnology company pulls plug on GE sheep

4.30pm - By KENT ATKINSON

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, tonight New Zealand time.

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.

- NZPA