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 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 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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