`VALUE ADDED' ANIMALS: WHAT IS ON THE HORIZON? Seven years ago scientists produced the first animal containing a gene from a different species - a mouse with a rabbit gene. Biotechnology has come a long way since then, but researchers need a better understanding of animal physiology to progress.

IN Australia, Robert Seamark and his colleagues at the University of Adelaide are nurturing the seventh generation of pigs descended from animals with an extra growth-hormone gene. These pigs convert feed into meat 30 percent more efficiently and reach market weight seven weeks earlier than do normal pigs. The researchers expect the pigs will be available to farmers within five years. In the United States, the Framingham, Mass., company Integrated Genetics Inc., working with the National Institutes of Health, has given mice a human gene. The mice then produce milk enriched with the human TPA protein that dissolves blood clots. This points the way toward transforming milk-producing mammals into drug factories.

In Britain, where a similar trick has been done with sheep, scientists with the Institute of Animal Physiology and Genetics Research in Edinburgh have taken a different tack. J.Paul Simons, M.McClenaghan, and A.John Clark gave mice a sheep gene that adds a major protein to the mouse milk. As they noted in their research paper published in Nature last August, this suggests that ``gene transfer into dairy animals should be viewed as a realistic approach for the production of milk with enhanced nutritional value.''

In these and other experiments, genetic engineers have come a long way in the seven years since Ohio University's Edison Animal Biotechnology Center produced the first transgenic animal - a mouse with a rabbit gene. But they still have far to go before genetic engineering (the direct transfer of genes into and between organisms) has a major effect on livestock.

The technology for gene-tailoring animals is less advanced than it is for plants and microbes. That is why the public issues swirling around this research have less to do with the testing and release of novel organisms than with the morality of tinkering with animals in this way - a subject taken up in part 3 of this three-day series.

Nevertheless, there is a consensus among the researchers that, as Richard D. Godown, president of the Industrial Biotechnology Association (IBA), puts it, genetic engineering ``is a scientific tool that will help small and large farmers improve animal husbandry, will make ... agriculture more efficient and productive, and will widen the scope of medical research.''

It is one of the major tools of what animal scientists consider a biotechnological revolution. It promises to improve the food quality and disease resistance of livestock, as well as their productivity. The term livestock includes fish and even insects. Research teams in several countries are working to improve the genetic makeup of salmon. And, the IBA notes, some scientists talk of caterpillar farms producing medically useful human proteins.

Techniques for inserting new genetic material into animal germ cells are not as advanced as they are for plants and microbes. Much of the work is done by microinjection - a technique the Ohio University Edison Center first developed. Scientists insert new genetic material into a fertilized egg cell during early embryo formation. It works, but not very efficiently. In mice, 20 injected embryos typically produce eight live animals, of which only about a third express the new gene.

Animal designers could use something that would easily carry new genes into cells the way certain viruses and bacterial elements invade plant cells and microbes. A number of laboratories are working to develop such ``vectors,'' as biologists call them.

Meanwhile, Lyman B. Crittenden and Donald W. Salter, at the US Department of Agriculture's East Lansing, Mich., research station, have done something akin to this. Last year, they reported artificially inserting genes from a virus into chicken eggs. The chickens then passed on the new genes to offspring.

The chicken is an obvious target for genetic improvement. It has great food value and reproduces rapidly. One ``super'' chicken can soon have lots of offspring. Genetic manipulators, however, have found the animal hard to work with. Generally, the developing embryos have not taken up genes inserted into fertilized eggs. So getting viral genes successfully into chickens was a minor breakthrough. ``[It] brings closer the day when geneticists can custom-design chickens to resist disease, lay bigger eggs, or have other traits valued by producers,'' Dr. Crittenden said in his announcement.

So too does the work of Margaret Perry at the Institute of Animal Physiology and Genetics in Edinburgh. She reported the birth of the world's first test-tube chickens earlier this year. That means that she has learned how to start an embryo growing in a jar, transfer it to an eggshell, seal this up in a container, and have the chick develop normally. This will allow scientists to microinject new genes directly into chicken embryos at the single cell stage, as they now do with many other animals.

In fact, animal genetic engineers depend heavily on the other major tools of their biotech revolution - embryo culture and transfer, cloning, and artificial insemination. It would be hard to do much with gene transfer itself if these other techniques were not already developed. In the United States alone, there were some 150,000 embryo transfers in cows last year. Many of the embryos had been frozen. This allows all the potential offspring of a valuable cow eventually to be born of foster mothers. Artificial insemination, by which a single superior bull may service 100,000 cows a year on average, is another proven technology.

Thus, the genetic engineer can put new genes into a cell knowing that the resulting embryo can be transferred to a foster mother and brought to term. If this leads to improvement that is transmitted through the species' male line, artificial insemination can quickly spread the advantage.

Another way of multiplying a new germ line is through embryo cloning. Embryos can be split in two to provide twins. Alternatively, an embryo can yield several cell masses that then develop into complete embryos. Steen Willadsen, now at the University of Calgary, Canada, who pioneered embryo cloning for domestic animals several years ago, has cloned lambs and calves experimentally.

More recently, Neal First and his colleagues at the University of Wisconsin, Madison, cloned female calves. Their process involved transferring nuclei from the cells of multi-cell embryos into single- cell embryos. After initial development, these new embryos were transferred to cows that then gave birth to the identical calves. The Madison lab also produced the first calf that developed from an egg fertilized and matured in the laboratory before being implanted in a cow.

Biologists such as Dr. First who are developing these techniques say they do indeed believe they are at the beginning of a revolution in animal husbandry in which genetic engineering will be a key factor.

Before that happens, however, they have to improve their techniques. And, as First explains in the accompanying interview, this new opportunity challenges them to get a deeper understanding of the animals themselves.