(FORTUNE Magazine) – AGRICULTURAL biotechnology is finally emerging from a miasma of wild-eyed claims and promises that have swathed it in recent years. After researchers at the Max Planck Institute in West Germany succeeded in producing a plant that grew tomatoes above ground and potatoes below ground in 1978, companies around the world geared up, or sprang into being, to develop a new generation of superplants. Their leaders promised that techniques at the frontiers of science -- inserting new genes into plants, fusing cells from unrelated species -- would yield soybean plants the size of fir trees, along with crops that were high yielding, self-fertilizing, and resistant to drought and insects; one company president even foresaw a plant that produced pork chops. Most of these ambitious undertakings turned out to be economic dead ends -- including the celebrated pomato, which produced only minuscule, sterile fruit. The reality of biotechnology in the 1980s is more mundane -- and a lot more practical. Eschewing the exotic, a small but prospering coterie of companies are using humbler methods to turn out all sorts of commercially promising new plants. Among them: 3/4-inch seed potatoes called minitubers, which are disease-free, high yielding, and easy for farmers to handle; disease-proof sugar cane seedlings, never before available to growers on a commercial basis; and roses that bloom when the plants are only two months old and can be mass-produced year-round. Not far off are tomatoes with a high solids content, useful for processors; tomatoes with vine-ripened taste, to be sold in supermarkets; petunias with unusual flowers; popcorn tasty enough to be eaten without salt or butter; disease-resistant tobacco plants; and a cornucopia of other plant products for growers, processors, and consumers. (For a look at another cornucopia -- of high-tech gadgets and machines aimed at raising farm productivity -- see the following picture portfolio.) The down-to-earth techniques these practical-minded companies are applying start with what is called tissue culture -- growing cells, tissues, or whole plants in laboratory dishes. Many plant varieties will reproduce in the laboratory from a single cell, and scientists have found ways to manipulate those cells to force a kind of unnatural selection. Cells can be exposed, for example, to a disease that kills their parent plants; if some eventually survive, they can be grown into plants that are immune. Scientists can also cross cells from a wild (and less productive) variety that has a desirable trait, such as drought resistance, with cells from a cultivated plant of the same species, yielding a cultivatable plant as sturdy as its wild cousin. The technique, called protoplast fusion (protoplasts are plant cells whose outer walls have been chemically removed), replicates speedily in a petri dish what could take years of conventional crossbreeding. Among the new stars of plant biotechnology, the brightest is NPI (for Native Plants Inc., its original name) of Salt Lake City. NPI is a classic niche company. Its first products were landscape flowers, shrubs, and trees, as well as cultivatable versions of wild plants collected around the world. NPI selected genetically superior plants tolerant of such stresses as drought, saline soil, and heat. As biotechnology evolved, the company began to apply many of the new techniques; it now has a staff of 125 research scientists at work with an eye on products that can be marketed. ''What we have here,'' says NPI President Peter Meldrum, ''is a marriage between research and a very strong marketing orientation.'' The marriage has been fruitful. NPI, which is privately held, is now the largest of the small plant biotech companies. It has been profitable for years and expects 1985 sales to top $20 million -- making it a giant among the plant biotech pygmies. Among NPI's products are those minitubers for the $180-million-a-year seed potato market and roses grown by tissue culture -- the quickest way to mass- propagate a new variety, bypassing seeds. Unlike most roses, NPI's flowers don't have to be grafted onto other rootstock. That also saves production costs. Moreover, the new roses begin to bloom after as little as two months. Why that happens isn't known for certain; normally roses don't produce flowers until they're a year old. NPI's Forever brand roses, potted and packaged in individual containers, are being retailed at $3.99 and up through mass- marketers such as K mart and Skaggs Alpha Beta. For roughly the price of a single packaged cut rose, the buyer gets a flowering plant that can be displayed indoors and later put into a garden. Meldrum says this year's production is already sold out. NPI's aim is to sell large quantities of the roses to retail outlets, plucking a few petals from the $3-billion-a-year U.S. flower market -- or, more likely, expanding it. Through cell selection NPI has also produced a novel white petunia with a purple throat, which it has moved out of the hothouse and into the fields for testing. The company is working on improved tomato varieties and markets about 20 other plants, shrubs, and trees produced through tissue culture. AT THE SAME TIME, NPI is pushing into the more esoteric realms of biotechnology. It is using protoplast fusion to create a bright yellow petunia -- another new color for that flower -- by fusing cells of a cultivated plant with cells from a brilliant yellow but less attractive wild relative. NPI avoids competing against the likes of Monsanto and Du Pont, which have lately expanded their plant biotechnology efforts to improve major crops such as corn, soybeans, and wheat. NPI executives feel there is plenty of money to be made in horticulture and specialized agriculture without bumping into the giants. At the other end of the country, in the Philadelphia suburb of Cinnaminson, % New Jersey, DNA Plant Technology Corp. also exploits a unique niche. One of two publicly held plant biotech start-ups, DNAP, as the company is known, aims products not at farmers, but at consumers and food processors. DNAP was founded in 1981 by two scientists from Campbell Soup. Businessoriented from the start, DNAP does extensive consumer studies and testing before it starts a research project. Says William Sharp, a founder who is now executive vice president: ''We're practical here.'' With Campbell Soup as a major backer and customer, DNAP has attracted big stars. President Richard Laster was formerly executive vice president of General Foods; John T. Connor, the chairman, was once chairman of both Allied Chemical and Merck. Two Nobel prizewinners, Norman E. Borlaug, ''father'' of the green revolution that produced high-yielding varieties of rice and other grains for the Third World, and Melvin Calvin, who elucidated the photosynthetic process in plants, are on the advisory board. Under contract with Campbell, DNAP has proceeded from the laboratory stage to field-testing tomatoes developed through cell selection that have an unusually high proportion of solids to water. They are expected to be cheaper to grow and process, because a given field will yield more tomato solids and less energy will be needed to evaporate unwanted water. For the consumer, the company is field-testing tomatoes (also developed through cell selection) that can be ripened on the vine -- unlike most rubbery-tasting tomatoes today, which are picked green and artificially ripened in transit. The DNAP tomatoes are designed to be sturdy enough to withstand shipment and retain the flavor and taste of freshly picked tomatoes. For any plant, extensive field-testing is the last step before commercial production; DNAP's tomatoes are anywhere from one to three years from reaching supermarket shelves. Two of DNAP's projects aim to fill niches its surveys have identified in the fast-growing market for healthy snack foods. The company is developing a popcorn that would be flavorful enough to be eaten without salt or butter, and has also bred unusually tasty carrots and celery that it slices into sticks and packages as Vegisnax, which Kraft will test-market around the country early next year. Besides research on its own behalf, DNAP is performing contract studies for General Foods, Hershey, Brown & Williamson Tobacco, and Koppers. Among its objectives are extracting flavors and fragrances from plants or plant cells, | making coffee and cocoa beans easier to process, and growing disease-resistant tobacco. By fusing cells of a wild tobacco plant and a cultivated one, DNAP has already produced and successfully field-tested new varieties that resist the eight major tobacco diseases. DNAP is pushing prudently against the frontiers of plant biotechnology even as it builds its day-to-day business. Its scientists are pioneering in the use of protoplast fusion to transfer selectively the DNA -- the giant molecule that determines heredity -- responsible for flavor, color, and other plant attributes. The company is also trying to bypass the tissue-culture step by incorporating additional DNA directly into plant pollen; the DNA-laden pollen could be deposited on the flowers of ordinary plants to give their offspring new traits. As Sharp puts it: ''It's a simple process compared with all the complicated genetic-engineering methods that have been proposed so far. We're exploiting existing biological systems -- we don't have to reinvent the wheel.'' Typically for a young high-tech company, DNAP has yet to turn a profit. But it expects to be in the black within a year or two. Laster sees sales growing to $200 million a year in the early 1990s; John Ball, a security analyst at the PaineWebber brokerage firm, thinks that's entirely possible. Investors seem to share that belief: the company went public in January 1984, selling a unit of one share and a warrant to buy half of another for $5.75, and the unit was recently fetching $10. The other publicly held company, Advanced Genetic Sciences of Oakland, which has concentrated on less immediately exploitable work with plants, lost $7 million last year. Its stock, $15 a share at the September 1983 offering, recently hit a low of $3.50 before easing back up to $3.75. BUILDING ON existing techniques much as DNAP has, another company, called Crop Genetics International N.V. of Dorsey, Maryland, began marketing late last year one of biotechnology's first products: disease-free sugar cane seedlings. Crop Genetics is the brainchild of John B. Henry II, a Wall Street lawyer who teamed up in 1981 with Peter Carlson, a plant geneticist then at Michigan State University. Carlson had pioneered the use of cell fusion to introduce new traits into plants. Both agreed that Crop Genetics would concentrate on short-term real-world products. The company's sugar cane seedlings are made through laboratory tissue culture, transferred to a greenhouse, and finally transplanted to the company's fields in Florida and Louisiana. Stalks of full-grown disease-free sugar cane are then chopped into segments and sold to growers for planting. The company expects to sell $2 million of the seedlings this year and plans eventually to capture at least one-third of a market estimated at $750 million a year. ''The choice of objective is as important as the state of technology,'' Carlson says. A number of other companies have heeded his lesson. Plant Genetics Inc. of Davis, California, has developed even smaller minitubers than NPI's and thinks it will be able to produce them on a far larger scale than NPI once it devises automated means of harvesting them directly from tissue culture. Even with manual harvesting, the company will sell about $1 million of the tiny potatoes to seed growers this year. ''We can't produce enough,'' says the company's quiet-spoken president, Zachary Wochok. Using cell selection, Plant Genetics is also developing several plants with new qualities, including a variety of alfalfa that can tolerate the highly saline soils that occur, for example, in the Middle East and the American Southwest. Another practical-minded company, Sungene Technologies Corp. of Palo Alto, California, is field-testing high-yield hybrid feed corn developed through cell selection. Its new corn ripens a week earlier than existing varieties and so could extend high-yield corn growing into more northerly regions. Creating hybrids is a plant breeder's best protection from competitors. First, he can keep secret the identity of the hybrid's parents, giving him a proprietary advantage. Second, since hybrids cannot reproduce themselves, farmers have to keep coming back to the creator for new seeds year after year. Though the here-and-now techniques of plant biotechnology have yielded all the commercial successes to date, researchers continue to pursue the dream of perfecting high-frontier technologies. The most ambitious of these is incorporating new genes into plants. Companies working to this end include, besides Advanced Genetic Sciences, Du Pont, Monsanto, Calgene of Davis, California, and Agracetus of Middleton, Wisconsin. For the most part, they are working with recombinant DNA, which gets its name from splicing genes -- pieces of DNA -- from cells of one organism into the cells of another. The pieces are recombined in the DNA of the host cells. The newly inserted gene then orchestrates the manufacture of a new protein with the desired qualities. Recombinant DNA has already been used to make human insulin and other medicinal substances, but employing it in plants is much harder. For one thing, plant genetic structures are at least as complicated as those of animals, and less well understood -- some characteristics, such as yield, involve dozens, possibly hundreds, of different genes. Because the locations of genes on plant chromosomes are poorly mapped, scientists looking for economically useful genes are operating in uncharted terrain. Moreover, the most promising gene transfer technique, making use of the bacterium Agrobacterium tumefaciens, works for some plants -- potatoes, tomatoes, alfalfa, soybeans -- but not for others, including corn and wheat. And many important plants are difficult to regenerate from a single cell; the result isn't necessarily a viable plant. EVEN THE SUCCESSFUL plant genetic engineers haven't got very far. A legal barrier to testing genetically engineered microbes and plants in the field was raised last year by environmental activist Jeremy Rifkin, president of the privately funded Foundation on Economic Trends in Washington, D.C. Arguing that possible hazards hadn't been properly assessed, Rifkin got an injunction preventing researchers with the University of California at Berkeley from testing in an open field bacteria that had been genetically altered to retard the formation of frost on plants. As a result, no microbe or plant genetically altered by recombinant DNA has yet been field-tested in this country. Though the injunction prohibited only institutions that get federal grants from testing the new organisms, private companies have voluntarily abided by it to avoid lawsuits and unfavorable publicity -- even though genetically altered plants would seem to present no unique hazards. All the genetic engineers can do at the moment is fume about their inability to get their plants into the field. The experience of Agracetus is typical. For three years now this joint venture of W.R. Grace and Cetus Corp. has been trying to get approval from the Department of Agriculture to field-test an experimental tobacco plant into which it has introduced a disease-resistant gene from a bacterium. The tobacco plant was to serve as a test vehicle for other economically important plants. So far, though, it remains imprisoned in Agracetus greenhouses. W.R. Grace is committed to invest at least $60 million into the joint venture over a period of up to six years. Along with other well-heeled companies such as Monsanto and Du Pont, Agracetus may be able to wait out the resolution of the field-testing question, which could take years. But time is beginning to run out for the less fortunate small companies. If skeptics are right, though, extra time won't be much help. A case in point is the drive at Calgene, Monsanto, Du Pont, and other companies to produce crop plants such as soybeans, corn, and wheat with a gene that would enable them to tolerate herbicides. The project that is most advanced so far, Calgene's improved tobacco plant, has not produced a commercially valuable strain; its resistance would have to be increased four or five fold before it would work in a farmer's field. Meantime, American Cyanamid has sponsored development through down-to-earth cell selection of a feed corn type that resists its Scepter and related herbicides and is reportedly looking for a seed company to license as a producer. The credo of the pragmatic route to biotechnology breakthroughs is enunciated by Jerry Caulder, president of Mycogen Corp. of San Diego, which also uses relatively simple techniques to improve weed control. ''I think the judicious approach is to take biotechnology as it exists and then apply it in innovative ways to create products,'' he says. ''Science advances not on an inclined plane but in stair steps. At each step, there are products to be harvested if you use innovative approaches. You can't wait until all the problems are solved.'' So far the profits have been to those who haven't waited -- the doers, not the dreamers. BOX: INVESTOR'S SNAPSHOTS DNA PLANT TECHNOLOGY SALES (LATEST FOUR QUARTERS) $2.0 MILLION CHANGE FROM YEAR EARLIER UP 139% NET LOSS $0.5 MILLION CHANGE LOSS YEAR EARLIER RETURN ON COMMON STOCKHOLDERS' EQUITY -3% FIVE-YEAR AVERAGE -7% RECENT SHARE PRICE $8.25 PRICE/EARNINGS MULTIPLE N.A. TOTAL RETURN TO INVESTORS (12 MONTHS TO 8/2) 230% PRINCIPAL MARKET NASDAQ Explanatory notes: page 106 ADVANCED GENETIC SCIENCES SALES (LATEST FOUR QUARTERS) $0.1 MILLION CHANGE FROM YEAR EARLIER DOWN 93% NET LOSS $7.4 MILLION CHANGE LOSS YEAR EARLIER RETURN ON COMMON STOCKHOLDERS' EQUITY -98% FIVE-YEAR AVERAGE -28% RECENT SHARE PRICE $3.75 PRICE/EARNINGS MULTIPLE N.A. TOTAL RETURN TO INVESTORS (12 MONTHS TO 8/2) 3% PRINCIPAL MARKET NASDAQ