Gary Reed has been spying on his potato plants. What he sees comes as a welcome surprise. In one section, the beetles, which normally munch down the green leaves, leaving behind only a spindly stalk, have become transfixed. "They're afraid to move, afraid to fly and afraid to eat," the Oregon State University entomologist says, describing the scene in the 50 selected rows of his 1.6-acre plot.

Adjoining this thriving growth, Reed has cultivated another area - this one a sorry bunch of bare stalks indeed. Here, the beetles have had a heyday.Both plots remain free from chemical pesticides. The difference between the two: The vibrant green bundles have been genetically engineered to resist beetle infestation. Scientists have incorporated insecticidal genes into the plants' own DNA. Taken from the bacterium Bacillus thuringiensis, the gene produces a protein that is toxic to beetles, caterpillars and flies, though harmless to humans and beneficial insects.

Bacillus thuringiensis, commonly referred to as B.t., has been sprayed by farmers as a benign insecticide for 30 years. When the attacking bugs gnaw away at the plant leaves, they also ingest a protein produced by B.t. The protein breaks down into two pieces, one of which wreaks havoc on the insects' digestive systems. The critters stop eating and ultimately die of starvation.

But because B.t. is an expensive pesticide, it can be used only on high-value crops. Furthermore, the B.t. toxin is degraded rapidly in the environment and washed off by rainfall.

For these reasons, botanists would like to incorporate it directly into the plant, reducing the cost of use and providing permanent protection throughout the plant's lifetime. That is precisely what Reed has achieved in his potato plots.

Plant biology is undergoing a revolution more profound than any since the monk Gregor Mendel discovered the principles of the inheritance of genes 125 years ago. Molecular biologists are modifying agricultural crops to give them a variety of new characteristics, including resistance to pests and herbicides, tolerance to salt and drought and increased nutritional properties.

They also are developing plants, such as tobacco, that will manufacture drugs that can be isolated inexpensively after the crop is harvested. Already, major chemical and biotechnology companies have conducted more than 120 field trials of genetically engineered plants in the United States, and the numbers are increasing each year.

But one of the principal focuses has been on providing increased resistance to insects, because of the public's growing distaste for chemical pesticides and the mammoth size of the pesticides industry - $1 billion per year in the United States and $5 billion worldwide. The biotechnology companies hope to grab a significant share of that market, enticing farmers to buy seeds that might cost 50 percent more than normal but that would save several times the cost in reduced use of pesticides. Much of the research focuses on B.t.

In the mid-1980s, researchers at Plant Genetic Systems in Belgium successfully inserted the gene for B.t.'s insecticidal protein into a tobacco plant. "And lo and behold," comments Ron Muessen, director of plant biotechnology research at Northrup King, "if you put caterpillars on the plants, they would start to eat and die."

But years of work lay ahead. Tobacco had been used only as a model. It was plants like potatoes, tomatoes and corn that would benefit from B.t. genes - plants that suffered specifically from caterpillar and beetle damage.

Since then, numerous companies have succeeded in transferring B.t. genes to tomato, cotton and corn plants. As entomologists like Reed are observing, the plants do stave off predators without harming beneficial insects in the process. They also seem to produce no adverse environmental effects and no known effect on humans. Industry analysts predict that the first genetically engineered crops, such as cotton, could be approved by the government by 1995.

Some companies have tried to circumvent the cumbersome regulatory process by using genetic engineering techniques on the pesticide rather than the plant itself and are therefore more likely to win speedy approval.

Scientists at Mycogen in San Diego and Ecogen in Langhorne, Pa., are trying to develop more effective versions of the topical pesticide.

At Mycogen, molecular biologists have inserted the B.t. toxin genes into another bacterium, Pseudomonas fluorescens. The altered bacteria, grown in laboratory vats, produce large quantities of B.t. toxin. When the bacteria are killed, their outer membranes form "biocapsules" that retain the toxin and prevent it from being degraded. The dead bacteria are sprayed onto plants, where they provide protection for weeks instead of days.

Mycogen makes two versions of the product, both of which were approved by the EPA last summer. One, called MVP, kills the diamondback moth and other caterpillar pests that attack cabbage, broccoli, lettuce and other vegetables. The second, called M-Trak, attacks the Colorado potato beetle, which attacks potatoes, tomatoes and eggplant. The world market for pesticides for these crops alone is $400 million, according to the company.

This approach could have a much wider impact. Scientists have identified up to 9,000 varying strains of B.t., each with varying toxicity and different targets. While scientists assumed B.t. only destroyed a short list of insects, Mycogen has recently identified particular B.t.s that poison other organisms, including nematodes and flatworms.

Ecogen has capitalized on this breadth of toxins by inserting genes for several different B.t. toxins into one strain of B.t. In that manner, they can target caterpillars and beetles with a single insecticidal swat using the same product.

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Rather than inserting a single gene into the new B.t., Ecogen's scientists introduce a large chunk of DNA carrying the desired gene within it. Their process resembles traditional breeding techniques more than today's precise genetic engineering. The result: Ecogen has had no trouble obtaining regulatory approval for the genetically "altered," rather than "engineered," products. One other company has taken a third course, combining elements from both approaches. Crop Genetics International of Hanover, Md., has developed a plant "vaccine." Scientists there insert the B.t. toxin gene into a bacterium, called Cxc endophyte, which normally lives inside Bermuda grass.

Laboratory and field tests have shown that if the altered bacterium, which the company calls InCide, is inoculated into corn seed, it multiplies and carries the B.t. toxin throughout the corn plant's stalks, leaves and roots.

The primary advantage of this approach, compared to engineering the B.t. gene into the plant itself is that the B.t. toxin does not enter the corn kernels - so there is no question that the kernels are safe to eat. Crop Genetics hopes to begin marketing InCide for corn by next year.

However, while enthusiasm for B.t. is strong, none of the developers imagine that biological insect control will ever put the chemical companies out of business. "The whole race here is to begin to replace some of the chemicals with biologicals," comments CGI's Carlson. "(However,) biologicals were not made to stand by themselves."

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