FDA Boosts Drug Tracking

03/05/2004 12:00 am EST

Focus:

Tobin Smith

Founder and Chief Research Analyst, NBT Equity Group

ChangeWave Investing is about isolating social and investment waves that fundamentally change the way businesses operate. One such area is FDA guidelines to boost the use of bar-coding and radio frequency identification for drug distribution.

"From Wal-Mart to the Department of Defense, the radio frequency identification (RFID) wave just keeps getting bigger and bigger. The FDA has just asked pharmaceutical makers and distributors to adopt RFID technology within the next three years to combat drug counterfeiting. In a report released last week, the FDA promises to assist with RFID adoption throughout the drug-distribution system. In its report, the FDA anticipates drugmakers and distributors will conduct RFID feasibility studies this year and begin attaching RFID chips to pallets, cases, and packages of costly pharmaceuticals and other drugs that are popular among counterfeiters next year. The FDA expects that by the following year, all pallets, cases, and most individual packages of the drugs it regulates will be tracked using RFID. Manhattan Associates (MANH NASDAQ) and Unova (UNA NYSE) are prime beneficiaries, and both are buys now.

"In a related manner, Omnicell (OMCL NASDAQ), a healthcare information management company, is a pure play on the latest regulatory change in American healthcareFDA-mandated barcoding for pharmaceuticals. With 6,000 hospitals now in need of more than $2 billion of barcoding equipment over the next 24 months, we can get a very profitable ride in the next 12-16 months as this wave of demand rolls. The FDA issued a final rule requiring bar codes on the labels of thousands of human drugs and biological products. New medications will have to include bar codes within 60 days of their approval. Most previously approved medicines and all blood and blood products will have to comply within two years.

"Omnicell’s key technologyelectronic drug and supply systemswill undoubtedly benefit here as well. In August, Omnicell bought BCX Technologies, the absolute leader in integrating wireless handheld barcode readers. I also expect them to add a few other pieces to complete this puzzle. This barcoding act will surely be adopted overseas just as every major American IT system eventually is. That adds another 25,000 hospitals to the market. I foresee up to 50 cents in earnings in 2004 and at least $1 in 2005."

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