VeriChip Launches IPO

To date, the company has generated little revenue from sales of its VeriMed system. According to documents filed with the SEC, VeriChip's revenue from the implant was less than $100,000. Thus far, the company claims to have approximately 1,200 doctors registered in its VeriMed physician network, all of whom have agreed to make the VeriMed system available to their patients. As of December 31, 2006, VeriChip says, 392 hospitals and other medical facilities have agreed to adopt the VeriMed system in their emergency rooms, though only 222 patients have actually been implanted with the chip to date.

VeriChip has shown greater expenses than profits in the past year. The company's gross profits for the first nine months of 2006 were $11,850,000, while the selling, general and administrative expense (SG&A) for the same time period was $12,580,000. "They're treading water in the SG&A," Gaskins says. The fact that the SG&A is slightly higher than the gross profit makes stock investment less desirable. "If they can get the profit above the SG&A, they could be quite profitable."

Among other companies launching IPOs, VeriChip stands out as an emerging company, smaller in size than most others. What's more, Gaskins adds, "the other ones typically have strong income statements."

"This is a classic emerging company that is hoping it continues to emerge," Gaskins explains. "It will be interesting to see the December quarter report. I think everyone will be looking at that closely."

Midsize IPOs can get lost in the larger IPO offerings taking place, according to David Menlow, president of independent research provider IPO Financial Network. "These mid-range offerings are not what investors are looking at these days," he says, adding, "The revenue curve is what is promising for this company, but people today are looking for more than a promise. What you can see here is that losses are not diminishing on a meaningful basis."

"It could use another year in the oven," Menlow says. However, the company may not have that year to wait. Thus far, VeriChip has received a series of loans from its parent company, Applied Digital, whose Digital Angel subsidiary sells similar RFID devices to be implanted in pets or livestock.

Of the money it gained from its IPO, VeriChip says it will now apply $7 million toward repayment of its debt to Applied Digital, according to the SEC filings. The firm intends to invest between $8 million and $10 million toward further developing VeriChip, primarily through increased sales and marketing over the next two years. In June 2006, Horizon Blue Cross Blue Shield of New Jersey initiated a two-year clinical trial to test the use VeriMed system (see Insurer Running VeriChip Trial). This trial involved using VeriChip's implantable tags to access the medical records of chronically ill patients.