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VeriChip to Place Implantable Division on Block

Once the RFID systems provider completes the recently announced sale of its Xmark subsidiary, it plans to sell the rest of its assets.
By Mary Catherine O'Connor
May 20, 2008VeriChip Corp., a provider of RFID systems for health-care and asset-tracking applications, has hired investment banking firm Kaufman Bros. to assist in the sale of its VeriMed Health Link business, as well as the possible sale of the entire company.

Jay McKeage, VeriChip's VP of business development, believes Kaufman will "shop the VeriMed business around widely," and that if the VeriMed business sells, another buyer could purchase the remainder of the company, which would then be "a shell of a quoted company." The buyer could then operate as a public company, he says, or "buy it and stop filing with the SEC."

Last week, VeriChip announced a $45 million definitive stock purchase agreement with tool and security firm The Stanley Works for the sale of VeriChip's wholly owned Canadian subsidiary, Xmark, which sells RFID-based products and services designed to help track infants in hospitals, as well as other patients and physical assets. The deal is currently pending approval from VeriChip shareholders, and is expected to be completed by midyear.

Applied Digital Solutions (doing business as Digital Angel) owns 48.2 percent of VeriChip's stock, and has stated its intention to approve the Xmark deal. According to McKeage, the Xmark business has been "nicely profitable" to VeriChip, as well as for Digital Angel, and has generated cash flow that funds the other half of VeriChip's operations—VeriMed Health Link. "That [VeriMed] business has a substantial cash burn," he says, "so once Xmark is sold, [VeriMed] is not sustainable on its own."

According to McKeage, Stanley approached VeriChip with the cash offer to purchase Xmark. While the specifics of the negotiations between the two companies will not be revealed until the proxy statement is issued, McKeage notes that given that the Stanley offer was for a cash transaction and represented a substantial premium, VeriChip was obliged to its shareholders to take the offer. "We would have been courting exposure to turn this down," he says.

Digital Angel manufactures RFID tags that are implanted in pets and wildlife for tracking purposes, as well as GPS-based active transponders for search-and-rescue applications (see Personal Location Beacons Usage Grows). In 2004, the U.S. Food and Drug Administration (FDA) gave its approval for VeriChip's implantable tag to be used for human patient identification and medical records tracking. VeriChip utilizes the implantable tag as part of its VeriMed Health Link services, through which doctors administer the implants, which are encoded with a unique 16-digit code that is associated, via a secure database, with the carrier's medical records.

Some U.S. hospitals have the RFID interrogators required to access the tag data, as well as access to the database (more than 900 facilities in the United States have agreed to carry the readers). The system is designed to enable health-care workers to gain quick access to a patient's medical history, even in the event that person cannot communicate due to illness or some other reason. The implantable tags are also employed in an emergency management system known as VeriTrace, designed to help identify and track the remains of deceased individuals—particularly during large-scale disasters with hundreds or thousands of fatalities (see VeriChip's VeriTrace Platform Sees Sales Boost).

Last month, VeriChip rebranded its VeriMed system, renaming it Health Link, and launched a three-month advertising campaign to market its services directly to potential end users in southern Florida (see VeriChip Markets Its Implantable RFID Tags and Services Direct to Consumers). According to Scott Silverman, VeriChip's CEO and chairman, the initiative included a partnership with hearing care provider HearUSA, with a goal of signing up 1,000 new customers.

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