[privacy] A Medical ID Business, Much Criticized, Plans a Stock Offering

["Richard M. Smith" <rms () computerbytesman com>]

http://www.nytimes.com/2007/02/05/technology/05verichip.html?_r=1
<http://www.nytimes.com/2007/02/05/technology/05verichip.html?_r=1&oref=slog
in&ref=technology&pagewanted=print>
&oref=slogin&ref=technology&pagewanted=print
 
February 5, 2007

A Medical ID Business, Much Criticized, Plans a Stock Offering 

By BARNABY FEDER

 
<http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com
/custom/nyt-com/html-companyprofile.asp&symb=ADSX> Applied Digital Solutions
has made headlines in recent years, and appalled privacy advocates, with its
technology to implant radio chip into humans. 

Now Applied Digital, of Delray Beach, Fla., is about to test Wall Street's
interest with an initial public offering as soon as Thursday in the nascent
business, the VeriChip Corporation. But some analysts are finding the effort
to raise about $30 million from public investors nearly as disconcerting as
the privacy advocates find the technology.

"People ask if there is a bubble in the I.P.O. market, and I say no," said
Francis Gaskins, president of  <http://ipodesktop.com/> IPODesktop.com in
the Marina del Rey section of Los Angeles, which tracks companies selling
shares to the public for the first time. "This is one of the first I've seen
recently that doesn't make money and doesn't have a clear path to break
even." 

VeriChip is primarily marketing the chip as the most secure and reliable way
to link people with their medical records because it cannot be lost and can
identify patients even when they are not conscious or lucid. 

The company, which has not yet reported fourth-quarter data, lost $3.45
million on sales of $20.34 million in the first nine months of 2006. The
revenue came primarily from businesses that make external radio tags for
keeping track of babies in hospitals and elderly patients in nursing homes -
businesses with plenty of competition. 

By contrast, the implanted chips have gained almost no traction in the
marketplace since the
<http://topics.nytimes.com/top/reference/timestopics/organizations/f/food_an
d_drug_administration/index.html?inline=nyt-org> Food and Drug
Administration approved their sale in 2004. 

Applied Digital plans to issue at least 4.3 million shares of VeriChip for
$6.50 to $8.50 a share, leaving it with 47.4 percent to 53.6 percent of the
stock, depending on whether the three underwriters exercise their rights to
buy additional shares, according to its registration statement. VeriChip
would net $27 million if the shares sold at $7.50, the filing said.

Its technology requires the injection of a rice-grain size capsule into a
user's upper right arm. The chip inside contains a coded identifying number
that is linked to whatever the user authorizes - whether his or her name,
address, emergency contacts and important medical records. The chip can be
energized and then scanned by a hand-held reader that has to be positioned
within inches of the arm to work reliably.

For the most part, the company has been giving hospitals and doctors the
gear needed to read the chips and link the encoded numbers in them to
patient information. In documents filed with the Securities and Exchange
Commission, VeriChip said that total revenue from the device and the
services tied to it was less than $100,000.

VeriChip said that more than 1,200 doctors had registered to take part in
VeriMed, as the company calls the medical application of its implant, as of
the end of 2006, and that close to 400 medical facilities had been equipped
with scanners and supporting gear. It said that only 222 patients have had
the device implanted. 

The company acknowledges that it relies mostly on patients to provide the
information linked to their identification numbers and that health care
workers may not be fully confident about its reliability until doctors or
members of their staffs supervise the data entry, one of many essential
steps that may not occur. No insurers reimburse doctors for participating. 

Scott R. Silverman, the chairman of Applied Digital and, since December,
chairman and chief executive of VeriChip, has no shortage of vision of how
the chips may eventually be embraced. He has referred to them as the
"natural successor to the dog tag" for the armed forces and recently
proposed that all immigrants and guest workers have the implants. But
VeriChip also says that it intends to build the market with voluntary
programs like VeriMed, a gesture to privacy concerns that has done little to
mollify critics. 

Marc Rotenberg, executive director of the Electronic Privacy Information
Center, said: "This technology sends the Orwell meter into the red zone.
There's almost no scenario under which the benefit can't be obtained from an
anklet or a bracelet. The only reason to implant it is so that it can't be
removed voluntarily, which makes it a human rights issue."

Applied Digital may be running out of time to overcome the critics and
doubters. It has been keeping the VeriChip business alive with a steady
stream of loans and a favorable supply contract with the Digital Angel
Corporation, a publicly traded subsidiary that sells similar implantable
devices for identifying and tracking pets and livestock. How long Applied
Digital's creditors and long-suffering shareholders would support this
largess is unclear. 

In its filing, VeriChip said that $7 million would go toward repaying money
lent by Applied Digital and that $8 million to $10 million would be invested
in developing VeriChip over the next two years.


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