New Mandate Will Help Sell Veriteq's FDA-Approved Microchip
Jan. 10, 2014 4:34 PM ET
Most companies are trying to sell products, but very few companies have the government mandating purchases in their product category. Veriteq (OTCQB:VTEQ) found itself in this enviable position just a few months ago and will continue to enjoy this luck for the near-term future. Because of an FDA ruling with an initial compliance deadline of October 2014, Veriteq will begin to enjoy mandated demand for its niche industry before October 2014 and has forecasted revenue of $239 million - many multiples of its current market capitalization - with 61% gross profit margins. Because of the immediate nature of Veriteq's first-to-market business, I have bought shares and am very optimistic about the first three quarters of 2014. Below, I discuss my investment rationale and the real risks of Veriteq failing to accomplish its revenue goals.
To summarize so far, Veriteq is the exclusive provider of the world's first FDA-cleared RFID device for on demand identification of medical devices that are implanted inside the human body. In other words, Veriteq sells a tiny $500 RFID chip that goes inside artificial joints and breast implants so they can be scanned by a doctor - even after decades of being inside the body. Doctors scan Veriteq's radio microchips from outside the body using Veriteq's hand-held scanner.
Veriteq's RFID microchips and hand-held readers are fully FDA approved. Its microchips are installed within medical devices so that manufacturing information can be recalled on demand, passively, through the skin using radio waves, in the event of an emergency like a product failure. Patients often lose product warranty cards, making paper-based identification unreliable in urgent medical situations. Veriteq's RFID microchip can never be lost, as it is implanted inside the medical device itself and always accessible from the hand-held reader at the point of care.
You might be wondering why a would doctor need to scan a device years after surgery. In France in 2010, a manufacturer of breast implants named PIP used industrial-grade silicone instead of medical-grade in its implants. As a result, PIP implants had double the rupture rate versus other implants, and patients grew very concerned that they may have had PIP's implants inside of their bodies. Unfortunately, many of these patients had no idea who the manufacturers of their implants were, did not have their product or warranty cards, and their plastic surgeons did not have records. This uncertainty lead to understandable panic among patients.
FDA Steps In
In response to growing concern about product failures and anonymous medical devices in the U.S., the FDA proposed a rule on July 10, 2012, requiring medical device manufacturers to adopt a uniform identification system for their products. On September 20, 2013, the FDA finalized this rule reflected in § 801.50 requiring medical device makers to comply with its Unique Device Identification system (UDI). This FDA Final Rule for UDI requires manufacturers to disclose the product's lot or batch number, expiration date, and manufacturing date, as well as link this information through the product's UDI number to a searchable database administered by the government. Rapid access to data like a serial number could be potentially lifesaving in the event of a product recall or when an adverse event report is issued by the FDA.
No personally identifiable patient information will be stored in this database. UDI numbers will simply serve as a way to retrieve manufacturing details in the event of emergencies like product defects or recalls. Many other countries are joining the FDA by creating similar systems, such as England's statute expected to pass legislative approval by late 2014.
The FDA has scheduled deadlines for UDI compliance.
Class III medical devices (high risk) by October 2014
Class II medical devices (moderate risk) by October 2016
Class I medical devices (low risk) by October 2018
Catalyst: October 2014 Deadline
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