Milky mystery churns up a scientific clash

By GEOFF SENESCALL

Something in the milk is turning scientists sour.

It is also driving crazy the share price of A2 Corporation, a little-known company trading on the unlisted market.

Ask anyone at A2 Corporation what is going on and they clam up and try to play it down.

But it is hard to throw a veil of secrecy around a company whose paper value has rocketed from $2 million to $61 million virtually overnight.

So is there something in the milk, or is it just froth?

A small herd of scientists believes there certainly is substance.

A2's supporters suggests there is a link between milk protein in cows and the incidence of diabetes and heart disease.

About 80 per cent of New Zealand cows are said to carry only the A1 milk protein, which is blamed for such diseases.

But as the prospect of creaming huge profits from the $8 billion New Zealand milk industry becomes a possibility, there is a rub.

That is the question of ownership of the science surrounding A2, potentially worth millions if it is commercialised.

From here everything becomes murky as scientists point to patents and run for lawyers.

At the centre of the potential bustup is Professor Bob Elliott, who runs a South Auckland company called Diatranz.

In February 1997, he unveiled controversial research identifying a protein in milk that he believes triggers insulin-dependent diabetes in those prone to the condition.

Professor Elliott claims that the intellectual property the Dunedin-based A2 Corporation is dealing with, and has issued patents on, came from him. He is threatening legal action to prove it.

A2 Corporation is loath to say anything or get into any exchanges. The only person allowed to speak for the company is its executive and lawyer, David Parker.

"I would be happy to go on the record to say that Bob Elliott is a scientist of some ability who deserves credit for his research. But beyond that I will not comment," he says - a patter used regularly throughout questioning.

Mr Parker dismisses the suggestion that Professor Elliott's research is the basis of what A2 is doing.

"It was the first research which led to other research," he says, refusing to comment further ... except to say he believes there to be no claim on A2.

Weekend Business also tried to discuss the issue with Auckland scientist Dr Corran McLachlan, who introduced the A2 product to a group of investors, including South Island entrepreneur Howard Paterson.

He denies having any previous links with Professor Elliott, and directs further questions to Mr Parker.

But Dr McLachlan has a lot at stake.

He owns about 30 per cent of A2 Corporation after the company's move to the unlisted market in April through the issue of 20 million 10c shares.

At yesterday's close, his holding had a paper value of $18 million.

The other major shareholders are Mr Paterson with around 12 per cent, Wellington investment company Southern Capital (with which Mr Paterson has links) with about 9 per cent and an unidentified Monaco company, also with about 9 per cent.

The rest of the shares are widely held. It is Mr Paterson's involvement in A2 Corporation that has created a stir, mainly among South Islanders, who have been the biggest traders in the stock.

Certainly the "wink wink, say no more" approach has created a punters' paradise.

In the past month about half a million shares have changed hands in a company that officially has said nothing.

But on the unlisted market, it is "buyer beware."

As Arthur Lim, of broking firm Ord Minnett, points out, no strict disclosure or market surveillance regimes protect investors in the unlisted market. He therefore warns caution.

As for A2, Mr Lim says he knows nothing about it, although he has heard the hype.

Part of the secrecy over the corporation appears to relate to delicate negotiations it is holding with the Dairy Board - which has deep pockets to pay for a commercial application of A2 milk.

Once again A2 Corporation pulls the no comment line, refusing even to confirm it is talking to the board.

But the board is much more open. Spokesman Neville Martin freely admits discussions have taken place.

"We certainly take seriously anything which relates to health and dairy products," he says.

"The whole issue is one we have taken seriously."

More important to A2 Corporation is the fact that the board has its own A2 patents, which are registered in several countries.

Mr Martin confirms that the board is continuing its research in that area.

As far as the status of the A2 Corporation patent goes, he will only say the board is aware it exists. But it does seem all might not be milk and honey down on the farm.

In the end it might come down to patent lawyers if things get sticky.

They certainly will if Professor Elliott is not cut in on any deal that A2 may strike.

But Professor Elliott has no beef with the Dairy Board.

He has had a strong connection with the board going back to the early 1990s, when he was doing work for the Child Health Research Foundation.

Research done by him and Dairy Research Institute scientist Dr Jeremy Hill ended with the two taking out patents on behalf of their financial backers.

As Professor Elliott explains it, the A2 milk issue came about after he noticed that countries which did not consume milk lacked type one diabetes and related diseases such as high levels of coronary heart disease.

"So the more milk you drank the higher the risk," he says.

"But there were some exceptions to this."

One of the notable exceptions is Iceland, which has the highest consumption of milk in the world, but low rates of diabetes and coronary heart disease.

"It turns out that the milk they consume is from a different sort of cow, a very ancient Norske breed.

"So we pinned down what the difference was, and it relates to the A1 and A2 casein.

"And that is the major evidence at the moment - that the diabetes and coronary heart disease risk rate appears to be associated with the consumption, not of milk so much, but of a component of it which is found in cows associated with casein A1 but not with A2.

"So if you want to produce milk apparently free of this objectionable material you produce A2 milk."

Professor Elliott stresses that no health claim can be made for A2 milk at the moment.

But, he says, it is a "very interesting research finding indeed."

It is research that Professor Elliott continues to pursue through his own company, Diatranz.

However, he says he does not have any claim to those initial patents. They belong to the Dairy Board and the Child Health Research Foundation.

The foundation's view, says chief executive Lee Schoushkoff, is that it is leaving any commercial negotiations to the board.

Professor Elliott's former co-researcher Dr Hill has sympathy for his plight, but says he knows nothing about its legalities.

As for the science, Dr Hill, who still works for the Dairy Research Institute, says he has yet to be convinced.

"I think there is something to it, though it depends on what you are talking about

"If you are talking about there being a silver bullet called A2 milk that is a cure-all, I think you've got another Lyprinol story on your hands.

"But if you are saying there is something in this A2 business, possibly. For all diseases, I doubt it very much."

He says he is more convinced of the link between A2 and diabetes than he is for coronary heart disease. But that is not to say it is a cure for diabetes.

Certainly, Dr Hill says, he is right behind research continuing.

Given the uncertainty about A2 Corporation, it is little wonder the "no comment" line is being used so frequently.

But the mega-dollar potential if A2 milk can be commercialised is an obvious lure to keep going.

Cutting out all the politics, Professor Elliott believes getting A2 milk on to the market is a laudable idea.

But no way exists so far to prove its benefits.

"You can do all the statistics until the cows come home, but in the end it is going to be a matter of sucking and seeing.

"If you can reduce the proportion of A1 in people's diets by promoting A2, then theoretically you should have much less disease. If you don't then there is nothing to it.