Animal Tags for People?

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By being able to spot health problems earlier via scanning of RFID chips compared to "managing by clipboard," says McGrath, the cost of the disease in lost animals and treatment was about $75,000, vs. an expected $250,000 without chips.

McGrath acknowledges that Digital Angel's chips are more appropriate for factory farms than for smaller farms focused on selling locally. "If you're a farmer who sells to a neighbor, who cares" about RFID chips? "But if you are a farmer who sells to Japan, the Japanese say they want you to categorically state [the animal] is this age and has not had these diseases. If you cannot show this, the Japanese won't buy it." For those farmers who can pass the test, $25-per-head premiums await, he says.

People Tags Are More Profitable

McGrath, for now, is content to focus Digital Angel on the factory farm market, having seen sales of the animal chip rise from 200,000 in 2003 to about 3 million last year. "We believe we will continue to grow at that rate," he says. In addition, Digital Angel continues selling tags to track lost pets and to monitor fish like salmon for environmental purposes.

Silverman is taking a similar tack with VeriChip by expanding existing markets—the two primary ones are tags for the bracelets and anklets worn by newborn babies and their parents to prevent kidnappings, and those for elderly nursing home patients with Alzheimer's disease to recover "wanderers." Its 2005 revenues were $24 million.

But the big attraction for both companies, and the reason for the upcoming VeriChip public offering, is the lure of implanting the chips into people. McGrath points out that while the RFID chips attached to animals sell for about $1.50 each, and will likely decline to under $1 within a few years because of competitive pressures, the chips for people sell for $25, based on special design to allow implanting. "To the extent they [VeriChip] would need 1 million [chips], it would be huge for us," McGrath says.

For now, VeriChip has only "a couple hundred patients" who have had the RFID chips surgically implanted in their arms. The company is focusing its attention on building databases of patient medical information to attract hospitals to adopt the company's chips. The chips are being targeted at an estimated 45 million "high-risk patients"—diabetics and heart patients, for example, who could be brought into hospitals unconscious or semiconscious and thus not be able to identify themselves.

Business May Compel Chip Wearing

Of course, no discussion of these cousin companies would be complete without addressing the privacy concerns many people have about being tagged. Both McGrath and Silverman say their companies protect privacy by limiting data stored on the chips for both farm animals and people to identification numbers only, which are extracted via special scanners and then matched to records in databases.

McGrath also says he appreciates the concerns many small farmers have about the potential infringement on their privacy that NAIS represents. "You're dealing with people who are intensely independent," he says. "They don't like people looking over their shoulders."

Silverman says: "We are leaders in the RFID industry in facing privacy issues head on." The chip for people "should always be a voluntary product, with opt-in and opt-out capability."

As comforting as such statements appear, it's important to remember that adoption of the RFID chips doesn't necessarily need to be legislated to become nearly universal. If enough hospitals and insurance companies begin requiring them, or treating patients wearing them more expeditiously than nonusers, or providing discounts for usage of the chips, they well could become the norm. Then, not wearing a chip might be akin to not having a bank ATM card or, increasingly in Eastern states with toll roads and turnpikes, not having a transponder to pay tolls in your car (see BusinessWeek.com, 10/9/06, "Radio-Shipment Tracking: A Revolution Delayed").

Animal Farms Put Us on Notice

It's also important to keep in mind that the real prize for VeriChip is in assembling the databases of patient health information. The more patients in the database, the more leverage it has in the health-care marketplace. In that sense, it's in competition with retailers like Walgreens (WAG) that are collecting data via their walk-in clinics (see BusinessWeek.com, 7/17/06, "Drugstore Clinics Are Bursting with Health").

The most important opinion may be rendered by the financial marketplace, and so far, investors haven't fallen over themselves for either company. Digital Angel's stock over the past two years has declined from about $7.50 a share to the current $2.60. VeriChip's IPO has been put off several times by "market conditions," says Silverman, since it first filed in December, 2005. Since then, it has filed five amended offering statements, the most recent on Jan. 9.

It may be a while before we all begin wearing medical information chips in our arms, but the farm animals are telling us it's closer than we may have imagined.

David Gumpert provides updates on this issue at his blog, www.thecompletepatient.com.

David E. Gumpert covers business/health issues and also writes the biweekly What Entrepreneurs Need to Know column.