A scientific victory can quickly devolve into a public-relations disaster, as Lou Hawthorne, CEO of Genetic Savings and Clone (GSC), learned the hard way in February 2002. Researchers funded by GSC at Texas A&M University in College Station, TX, had just produced the world’s first cloned cat, CC. The achievement was a critical step toward GSC’s goal of helping bereft pet owners duplicate their aging or deceased cats and dogs. The problem: CC wasn’t a very faithful copy. She was a gray tiger tabby and looked nothing like her genetic donor, an orange calico named Rainbow.

The scientific explanation was simple. The color of a calico’s coat is determined by genes on its X chromosomes, and in each cell of a calico’s body, one of the two X chromosomes is randomly inactivated. In the cell scientists took from Rainbow’s body to make CC, the orange-coat genes were apparently dormant. But disparaging newspaper reports didn’t capture these details, and Texas A&M’s communications staff didn’t try very hard to explain them, says Hawthorne. “The line they used again and again was, ‘We always said it was reproduction, not resurrection,’” he recalls. “Which could not be better engineered to damage our brand than if they had just said outright, ‘Clones won’t resemble their donors.’ Who would want a cloned pet if the resemblance is not going to happen? That is what we are selling! It doesn’t get worse than that for a pet-cloning company.”

Of course, there aren’t any other pet-cloning companies – which means GSC has had to craft its own solutions to a series of unusual business problems, of which the Texas debacle was only the first. The company’s biggest challenges: disentangling the company from its origins in academe and then finding the techniques needed to avoid future CCs and turn pet cloning into a reliable, assembly-line-like process. Then there are the inevitable charges from critics that pet cloning is dangerous, exploitative, sacrilegious, or wasteful. The San Francisco Chronicle, for example, has referred to GSC’s cloned cats as “Frankenpets,” and columnist Debra Saunders has called for a moratorium on pet cloning.

Indeed, the company’s undeniable eccentricities make it an easy target. Its capital, for example, comes solely from 84-year-old billionaire John Sperling, a notorious business maverick who made his fortune by founding the for-profit University of Phoenix. In recent years, Sperling has raised eyebrows by investing tens of millions in the controversial fields of antiaging science and medical marijuana legalization. Hawthorne, meanwhile, is hardly a typical science-educated biotech CEO; rather, he is a former filmmaker, interactive media producer, and former Zen practitioner who in 1996 documented Hell’s Buddhas, a spiritual pilgrimage across India by motorcycle. Moreover, GSC has set its prices so high – $50,000 for a single cat clone – that only the wealthiest and most obsessed pet lovers are able to afford the service, at least for now.

Nonetheless, Hawthorne says Genetic Savings and Clone is a serious business and that Sperling is “a master of tough love” who expects a return on his investment. The company is already reaching its first critical milestones. But whether it can turn pet cloning into a profitable industry will hinge on what Hawthorne calls “the three pillars” of the company’s business strategy: cutting-edge science, scalable operations, and extensive communications.

It was over breakfast with Hawthorne in 1997, shortly after Dolly the sheep made headlines as the world’s first mammalian clone, that Sperling decided he wanted to clone Missy, a high-spirited Border collie-Siberian husky mix belonging to his friend Joan Hawthorne (Lou Hawthorne’s mother). Hawthorne wrote a feasibility study, Sperling gave the go-ahead, and thus was born Missyplicity, a three-and-a-half-year, $4-million project assigned to Texas A&M cloning expert Mark Westhusin and his team.

Dog and cat lovers across the country greeted the project with enthusiasm, writing in to ask whether they, too, could have their pets cloned. The apparent demand inspired Sperling and Hawthorne to build a commercial service around Westhusin’s work, and, in 2000, Genetic Savings and Clone was incorporated. At first, the company existed mainly to fund the research at Texas A&M. But it also launched a “gene banking” service offering cryogenic preservation of clonable tissues from living or recently deceased pets; with charges ranging from $295 to $1,395, plus annual fees of $100 to $150, the service has provided GSC with a modest revenue stream.

While GSC was getting off the ground, however, Missyplicity was stumbling. The Texas researchers were having trouble gathering enough eggs for their experiments. Worse, nuclear transfer – the technique used to clone Dolly and most other agricultural animals – was resulting in virtually no live, healthy, identical cat clones. Nuclear transfer involves removing the nucleus from an egg cell and infusing the egg with nuclear DNA from the donor’s cell; the egg uses the new nuclear DNA to produce an embryo genetically identical to the donor. Unfortunately, this procedure is rarely successful.

Hawthorne says the Texas researchers resisted his pleas that they move beyond nuclear transfer and experiment with newer cloning techniques. When CC finally came along, she was a normal, healthy kitten, but her dissimilarity to Rainbow and the bad press that resulted was “the last straw” in the troubled relationship, Hawthorne says. It also precipitated a crisis of confidence within GSC. “We went through a really rough time. Maybe a third of the company was irretrievably negative about the future and about each other, and we had to get rid of those people. So there were some firings, there was some restructuring.” Missy herself died in July 2002, at the age of 15 (her tissues were gene-banked).

GSC spent a year on the edge of failure. But in mid-2003, after months of lobbying, Hawthorne finally convinced Sperling that GSC should not renew its contract with the Texas project but instead build its own labs and buy rights to a new cloning technique called chromatin transfer, developed by Connecticut-based Aurox. In chromatin transfer, donor cells are first treated to remove molecules associated with cell differentiation from the donor cell; by doing so, the donor cell is reprogrammed to an undifferentiated state. As Hawthorne puts it, chromatin transfer produces healthy embryos at a rate that is “in the same ballpark with nature.” GSC used the technique in 2004 to create the kittens Peaches, Tabouli, and Baba Ganoush, all identical copies of their genetic donors.

In December, GSC delivered a cloned cat named Little Nicky to its first paying client. (Little Nicky’s owner, an airline worker living in Dallas, says he is not only physically identical to the original Nicky, but even has the same behavioral traits, such as a predilection for climbing into people’s hair.) Four more cloned kittens are on their way to clients. But GSC has “a ways to go before we break even,” admits Hawthorne. “We spend millions of dollars a year on research, and last year we sold five clones at $50,000 each. That $250,000 won’t even pay for the new microscope we’re ordering.”

The microscope will be part of a new $1-million cloning facility outside Madison, WI, scheduled to open this spring. On the science side, GSC is hiring some of the world’s leading cloning experts to run the facility and to meet the challenge of dog cloning, which turns out to be even harder than cloning cats. This is because dogs are one of the rare mammalian species whose eggs are still immature when they leave the female’s ovaries; the eggs must be exposed to a sequence of biochemical signals in the oviducts before they become usable for cloning. Relying on nature to mature the eggs would mean maintaining a large colony of female dogs, which only come into estrus twice a year; and even then, most naturally matured eggs burst when their nuclei are removed. But the company’s new chief science officer, Philip Damiani, says those problems are already being overcome. Genetic Savings and Clone “has spared no expense to get the best equipment and the best people,” Damiani says. “I see the company being around a long time.”

On the communications side, GSC is aggressively open about its business: the Madison facility, for example, has a U-shaped observation hall with a glass-lined interior that allows journalists and TV crews to observe the entire cloning process. The company has also put substantial thought and money into logistics and operations. For example, it has built custom software to track gene banking, lab supplies, and clone development; created a network of spay clinics and dog breeders to ensure a constant supply of eggs and surrogates; and established a partnership with a London microengineering firm to build artificial oviducts for maturing dog eggs in the lab.

But first, GSC must prove it can clone dogs safely, increase production to dozens or hundreds of clones per year, and drastically lower its prices – all of which will take time. Fortunately, Sperling “doesn’t make short-term commitments,” says Hawthorne. (Sperling’s investment will be managed by a foundation after his death.) And at least one payoff may come sooner rather than later: GSC expects to clone Missy by the end of this year.

That may not be a giant leap for biomedical science, says Hawthorne, but it will certainly please his mom. “Are we curing cancer?” he asks. “No, we are cloning pets. Is that something that increases the sum of joy in the world? We think it does.”