Animal Tracking Implants for People?
Pastor Dale Morgan
Animal Tracking Implants for People?*
Two cousin companies bet the fast-expanding market for animal RFID chips
will extend to humans before long
by David E. Gumpert
Under the federally supported National Animal Identification System
(NAIS), digital tags are expected to be affixed to the U.S.'s 40 million
farm animals to enable regulators to track and respond quickly to
disease, bioterrorism, and other calamities. Opponents have many fears
about this plan, among them that it could be the forerunner of a similar
system for humans. The theory, circulated in blogs, goes like this: You
test it on the animals first, demonstrating the viability of the radio
frequency identification devices (RFIDs) to monitor each and every
animal's movements and health history from birth to death, and then move
on to people.
Well, all you conspiracy buffs, let me introduce you to Kevin McGrath
and Scott Silverman.
McGrath heads a small, growing company that makes RFID chips for
animals…and people.
Silverman heads a second company that sells the rice-size people chips,
which are the only ones with Food & Drug Administration (FDA) approval,
for implantation in an individual's right biceps. They carry an identity
marker that would be linked to medical records. His goal is to create
"the first RFID company for people."
Human-Chip Company Plans IPO
While the NAIS remains voluntary on a federal level, and there is no
formal people identification system as yet, both executives are moving
aggressively to position their companies for the day when chips in
animals and people are the norm rather than the exception. Mary Zanoni,
a lawyer and critic of NAIS who has written extensively about the
system, says that "the microchipping of livestock and pet animals is
intended to make tagging more acceptable in helping these companies
market their devices for people."
McGrath's company, Digital Angel (DOC), does nearly $60 million in
annual sales and has sold several million chips for attachment to
livestock, mostly in the U.S. and Canada.
Silverman's company, VeriChip Corp., is preparing for widespread
marketing of its people chips with an initial public offering that it
expects to complete within the next 60 days. It has begun building what
he refers to as "the infrastructure" by signing up more than 400
hospitals to adopt system scanners and databases and about 1,200
physicians to make chips available to patients likeliest to benefit from
them, such as diabetics.
While McGrath and Silverman aren't related, their companies are. Digital
Angel and VeriChip have the same majority owner. Applied Digital
Solutions (ADSX), the parent of seven smaller companies, owns 55% of
Digital Angel and all of VeriChip.
Larger Farms Join the RFID Program
Digital Angel has a big head start in marketing, thanks in part to the
Agriculture Dept.-sponsored NAIS program, which, while it is billed as
voluntary, is expected by various opponents of NAIS, including Zanoni as
well as blogs such as nonais.org, to be imposed on farmers by growing
numbers of states. Michigan begins requiring RFID tags for cattle on
Mar. 1 in the first such effort (see BusinessWeek.com, 12/19/06,
"Farmers Say No to Animal Tags").
Farmers running midsize and large operations are signing up for NAIS in
growing numbers. The USDA says 343,186 farms have registered, which
translates into millions of animals, driven by what McGrath says are
significant economic incentives.
One is inventory control. He points to a pig farm as an example. The
farmer can use RFID tags "to monitor the amount fed to the sows, the
medications they receive, when they get pregnant, the length of
pregnancies, the number born to each sow, and the number of days to
weaning."
As another example, he cites a farm with about 5,000 pigs that had an
outbreak of disease, where some of the pigs got fever and several died.
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 of last year. 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.