Mad Cow Rules the Fate of Digital Angel

On Oct. 7, the company announced that the UDSA bought 300,000 RFID tags to use in a variety of animal programs, including one to combat Scrapie, a chronic wasting disease found in sheep that is similar to mad cow disease. The company already works closely with the Department of Energy to track millions of endangered fish as they pass through hydroelectric dams of the Pacific Northwest.

The specific impact of the Oct. 7 contract announcement on Digital Angel's earnings will be a mystery until the company announces the results of its fourth quarter. The company was still posting losses when it announced third-quarter earnings on Nov. 14.

Digital Angel announced third-quarter revenue came in at $8.3 million, down $1 million from the year-ago quarter, because of a timing change in shipments to customers. Net losses were deeper than the year-ago quarter, coming in at $2.4 million, or 10 cents a share, up from $945,000, or 4 cents a share, in the same quarter a year ago. While the last quarter was weaker than expected, the company's overall business is improving, with net losses down 80% from last year on a slight revenue gain.

But the last time Digital Angel appeared poised on the verge of a mad cow-related breakthrough, investors who dove in were burned after fears proved short-lived and new business didn't pour in.

On May 20, an outbreak of mad cow disease was discovered in Canada, prompting U.S. officials to enact a ban on Canadian beef. In the days that followed, Digital Angel touted its RFID devices as a potential solution to tracking infected animals in a pair of press releases that were extremely similar to the ones released following the U.S. outbreak of the disease.

Investor interest in the company shares, at $2.50 when the Canadian case was revealed, grew rapidly and shares hit an intraday high of $3.10 -- a 24% gain -- on May 23. Until mad cow surfaced in the U.S. last week, that spike was the last time Digital Angel shares were above $3.

The Canadian outbreak was contained and investor interest in the shares dropped. Average daily trading volume fell from a May high of 300,000 to a low of 6,100 in September.

Interest in the company's technology is growing, but unless that interest turns into a contract, history could repeat itself.

"They have the ability to process data on millions of animals. They have the data crunching in place and now they have the microchips in place," said Talbot. "But will there be legislation this time around or will Congress duck? I think there's a strong chance Congress will act."

If Congress gets involved, or if meatpacking plants decide to turn to electronic-tracking procedures to ensure the safety of the meat supply, then Digital Angel could profit handsomely. According to Kevin Nieuwsma, president of the company's RFID division, the company charges between $2 and $7 per head of cattle, depending on the kind of microchips deployed.