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Investment: PPL prospects uncertain

CLONING DOLLY the sheep was all a bit of fun and earned PPL Therapeutics unprecedented attention from the media. But it is now time for the biotech company to turn to the serious business of developing drugs. The price of yesterday's heavily discounted rights issue, at 80p against the closing price of 112.5p, shows the going will be far from easy.

The company plans to spend the bulk of the pounds 20.4m raised in the six-for- five issue to fund development of BSSL, its cystic fibrosis and pancreatitis drug, and Factor IX, a haemophilia treatment, to be launched in 2002-3. These compounds, like all PPL's drugs, are derived from the milk of genetically engineered sheep such as Polly, Dolly's successor.

This is an innovative technology and could lead to the development of more user-friendly and less costly medicines. But does it work? The answer will come in the first quarter of next year, when PPL is due to publish the results of a trial for the anti-cystic fibrosis drug AAT, its most advanced and most promising product.

A positive result would also speed negotiations with two mystery pharmaceutical partners to launch AAT in 2001. If the sheep's milk technology is shown to work with AAT, then PPL with its focused pipeline, multi-million pound potential markets and reasonably good balance sheet, could become one of the biotech successes of the next millennium. If it fails, PPL will look fragile. Given the uncertainty over the company's prospects, the shares are no more than a hold.