Tinker, Tailor, Soldier, Biotech Spy?

On a dreary day last December, two men entered a hotel room in the Boston suburb of Framingham, Mass. One wore the expensive clothes of a prosperous businessman, the other had the tweedy attire of a research scientist. Inside the cooler they carried was a tiny frozen cluster of genetically altered hamster ovary cells, capable of producing the blockbuster drug known as erythropoietin, or EPO. Waiting to collect the cells was an FBI undercover agent posing as a buyer for Russia's KGB.

So began the nation's first industrial espionage case to generate criminal indictments for the theft of biotechnology. Indictments in the case, unsealed on Oct. 18 by the U.S. Attorney in Boston, underscore just what a juicy target America's world-leading high-tech industries are for spies. The thieves allegedly stole a cell line--a sort of DNA factory small enough to fit in a test tube--that turns out EPO, a protein that stimulates red-blood-cell production. Drugs incorporating EPO rang up sales of $970 million in the U.S. last year.

INDIAN CONNECTION. Numbers like those led Subrahmanyam M. Kota, the businessman in the Framingham hotel room, to shift his spying efforts from military to industrial secrets, prosecutors contend. They have charged Kota with espionage, contending that he gathered classified information from Massachusetts companies and sold it to the KGB. Kota's previous job as a software manager for Data General Corp. put him in the heart of Boston's high-tech sector, though Data General itself appears not to have been a target. Kota left DG in 1992.

Kota, now a software consultant, denies the charges. His lawyer says Kota has refused a plea-bargain offer--despite facing a maximum of 25 years in prison and a $750,000 fine. Says Kota: "The most serious run-in I have had with the law [before the indictment] is a parking ticket."

Federal prosecutors, however, paint Kota as less than law-abiding. The FBI traces his contact with the KGB to 1985--eight years after his arrival in the U.S. from his native India--when he met with someone employed by the Soviet espionage agency in Bermuda and, according to the indictment, handed over unspecified documents. He allegedly was paid $5,000. The feds charge he got $15,000 more for documents he gave the KGB in Lisbon the following year.

In 1988, Kota formed a crucial alliance with a prominent Indian businessman, Aluru J. Prasad, managing director of Hyderabad Batteries Ltd., which among other things makes batteries for the nascent Indian space program. On Oct. 8, Prasad was arrested on federal wire and mail fraud charges. The Justice Dept. contends Prasad worked for the KGB. Prasad's attorney says his client denies that and plans to fight the charges.

Along the way, Kota also hooked up with a research scientist named Vemuri Bhaksar Reddy, another Indian immigrant. The government charges that Reddy--the tweedy scientist in the Framingham hotel room--stole the EPO cells in 1988 from his employer, Integrated Genetics Inc. in Framingham. The theft went undetected at the time, and court documents don't say why Reddy might have waited six years to sell the cells. Reddy's lawyer says the government has "misconstrued" his client's involvement with Kota.

Integrated Genetics contends that developing and producing the stolen cells from scratch would cost $100 million to $200 million. The material stolen by Reddy "may be the most efficient cell line in the world, in terms of yield," says Mark A. Hofer, general counsel of Genzyme Corp., which acquired Integrated Genetics in 1989. Not that owning it did Genzyme much good: The race to patent the EPO cell line was won in 1989 by Amgen Inc., and Genzyme is blocked from selling drugs containing it.

Recognizing EPO's potential value, the indictment says, Kota agreed to sell it to the undercover FBI agent for $300,000. Unfortunately for him and Reddy, other agents were monitoring their every move by closed-circuit TV when the alleged sale was finally made.

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