"There's a war going on out there between the farmers and the insects," said John B. Henry, whose firm is designing a whole new set of high-tech weapons for farmers to use against bugs.

Henry is the chairman and cofounder of Crop Genetics International Corp. of Hanover, Md., a young company that is working on a sophisticated biotechnology system that would enable plants to defend themselves from the voracious pests that annually destroy billions of dollars worth of crops.

For some years now, chemical pesticides have been the main line of defense against insects. But more and more, questions are being raised about the long-range impact that bug-killing chemicals have on people and the environment. At Crop Genetics, they've chosen a path that takes them away from chemicals.

"We want to substitute biology for chemistry," Henry said.

Moreover, Henry's colleagues want to fight the insects from within the growing plant -- instead of from outside.

Crop Genetics says its system uses microorganisms that already live inside a plant and modifies them genetically in a way that makes the plant inhospitable to specific insects. The plants, however, remain safe for people, the company says.

These biopesticides, as they are called, are inserted into seeds and plants and function within a plant's vascular system.

Until now, the battle against bugs has been waged chiefly with the spray gun. While chemical sprays are the most widely used weapons, some companies are producing nonchemical biopesticides that are also applied to the outside of plants.

Beyond the spray gun, geneticists have been trying to improve plant breeding so that the plant is able to fight off pesky bugs on its own.

Each process has its defenders and its critics. But at Crop Genetics, a group of blue-chip investors put up $12.8 million during the last three years to demonstrate their faith in the future of the company's products.

The investors included ABS Ventures Limited Partnerships, an affiliate of Alex. Brown & Sons, and New Enterprise Associates Partnerships, both of Baltimore. Each invested $2.25 million. General Electric Venture Capital Corp. put in $1 million.

Last spring, Crop Genetics raised another $23.2 million, before expenses, in a public offering of 1.6 million shares at $14.50 a share. The underwriter was Drexel Burnham Lambert of New York.

The stock has since drifted down to the $8 to $9 area, closing Friday at $8.25.

The key questions about Crop Genetics' future are: Will its system work the way the company hopes? And will it clear the government's regulatory hurdles?

"This company has potential, but in no manner or measure is it a sure thing," said Charles W. Newhall III, managing partner at New Enterprise Associates.

Newhall, a director of Crop Genetics, summed up his thoughts about the company this way: "They have a good market and a good management team. But there is continuing regulatory and technical risk."

However, if Crop Genetics does succeed, Newhall added, the company will have "a very profound effect" on the agricultural industry.

As befits a company in the biopesticides business, Crop Genetics' bottom line is a continuing tale of red ink. Company sales have reached $2.5 million, mostly from Crop Genetics' other business, the sale of disease-free sugar cane seed products.

But since 1981, when the company opened for business, it has incurred net losses of $8 million. Henry expects the losses to continue for a while.

"It's a long march," said Henry.

Henry suggested that it is likely to cost $20 million before Crop Genetics completes work on what it calls its "InCide" system and sells its first product -- one designed to battle the borer that eats into cornfield profits on a massive scale.

Three steps are required to "prove" a product, said Henry. First you prove it in the lab, then in the greenhouse and then in the field. They've already proved the corn borer product in the lab, Henry said, and they are now testing it in the greenhouse. By next year, they plan to test it in the field.

First, however, there is the matter of getting approval from the Environmental Protection Agency and the U.S. Department of Agriculture. Crop Genetics will soon seek permits to field test the corn protection product; later it will need approval to sell the product.

Crop Genetics' requests are likely to run into many hard questions about whether the genetically engineered product poses any dangers to plant life, animal life or to people.

Henry said he is confident the product will pass two key tests: It is nontoxic and it will not travel through the air. Even so, the regulatory review of genetically engineered products is a relatively new process and will take the company and the regulators into what Henry called "uncharted waters."

But if the technique works on corn, the company believes it will be able to create products that will protect cotton, soybeans, rice, wheat and other crops.

If things go well, Henry said, the first product should be on sale in 1990 or 1991.

At 39, Henry has a background in government and politics from a stint as a congressional staffer and experience in the securities industry as a lawyer for a New York firm.

When Henry became bored with the law, he decided to venture into the biotech business -- choosing not the popular medical side but the agricultural side.

The opportunities seemed clear to Henry.

Farmers spend $14 billion a year worldwide on chemical pesticides to protect their crops. With many of those chemicals under attack, a viable alternative was needed.

"Where the deep social needs are, is where you find the biggest business opportunities," he said.

Searching for a way to start, Henry talked with more than 200 scientists. In his travels, he met Peter S. Carlson, a professor at Michigan State University with a doctorate in genetics from Yale. Henry said that it was Carlson's idea to fight insects from within the plant and that Carlson, too, had been seeking a business enterprise.

"Peter had a vision of what could be done," Henry said.

Henry and Carlson became cofounders of the company.

Unlike many executives, Henry seems to have a well-developed appreciation for the role public opinion can play in a company's success or failure. That insight is likely to be valuable for a company probing the frontiers of genetic engineering, a field that has generated an ample amount of controversy.

Henry realizes that his company must not only produce a product that is safe but a product that people will believe is safe.

"The perception is as important as the reality," Henry said.

As a result, Henry organized a four-member blue-ribbon "Committee on Social Responsibility," to help his firm develop products that are environmentally safe and to assist the firm in planning regulatory strategy.

The committee includes William D. Ruckelshaus, whose extensive government experience includes two tours as head of EPA; Douglas M. Costle, now dean of the Vermont Law School who was also head of EPA; and Elliot L. Richardson, who has been U.S. attorney general and secretary of Defense, Commerce and the old Department of Health, Education and Welfare.

The fourth member is Robert M. Teeter, a prominent political pollster and political adviser.

Crop Genetics gave the four options on a total of 16,668 shares of stock at a price of $6.87 a share. The options are good for five years. The committee members, who meet several times a year, get $1,000 for each meeting.

Costel said he joined the committee because he was interested in the company's projects and goals and impressed with its desire "to do it right."

Costel said he was excited by the outlook for biotechnology and expected the next 30 to 50 years to produce "revolutionary developments."

"If physics was the science of the first half of the century," he said, "then biotechnology will be the science of the next half of the century."endqua