Ortec International, Inc. Reports Second Quarter 1998 Financial Results

Business Wire, August 14, 1998

NEW YORK--(BUSINESS WIRE)--Aug. 14, 1998--

Management Discussion and Analysis

Ortec International, Inc. (NASDAQ: Small Cap: ORTC) today reported its financial results for the second quarter ended June 30, 1998. The net loss for the second quarter was $1,517,102 or .26 per share, and $2,950,289 or .51 per share for the six months then ended. This compares to a net loss of $922,509 or .20 per share for the second quarter of 1997, and a loss of $1,801,390 or .39 per share for the six months then ended. Total revenue was $150,593 for the second quarter of 1998, and $318,486 for the six months then ended. Revenues for the comparable periods of 1997 were $73,918 and $157,779 respectively. Total expenses were $1,667,695 for the second quarter of 1998, and $3,268,775 for the six months then ended. This compares to total expenses of $996,427 and $1,959,169 for the comparable periods in 1997. The increase in expenses was related primarily to increased research and development activities, the addition of scientific and other personnel, and costs associated with clinical trials. The financial results of this quarter are consistent with management's and analysts' expectations.

During the second quarter of 1998, the Company completed patient enrollment and treatment in a trial at Rockefeller University Hospital in New York City using its Composite Cultured Skin for the treatment of chronic wounds in patients suffering from Epidermolysis Bullosa ("EB"). During the course of that clinical trial, the Company applied to the FDA for, and in April 1998 was granted, a Humanitarian Use Device designation for the use of its Composite Cultured Skin in treating EB patients. During the third quarter of 1998 the Company expects to continue to take the steps required to enable it to submit to the FDA by the first quarter of 1999 a Humanitarian Device Exemption application ("HDE") for its Composite Cultured Skin in treating EB patients. The granting of the HDE by the FDA within the time frame the Company anticipates should enable the Company to begin commercial marketing of its Composite Cultured Skin for the treatment of EB patients by the end of 1999.

During the second quarter of 1998, the Company completed the expansion of it facilities providing space for additional personnel, as well as additional laboratory facilities in which the Company's pilot manufacturing of its Composite Cultured Skin, currently in progress, will be expanded and enhanced. In addition to such enlargement and enhancement of its pilot manufacturing capability, the Company will continue to focus on the continued development of its cryopreservation technique. The Company expects to validate the use of its Composite Cultured Skin in cryopreservation form by December 1998 and use a cryopreserved product in its human clinical trials, subject to FDA approval, during the first half of 1999.

During the 2nd quarter, Ortec continued to enhance its clinical, scientific and regulatory personnel infrastructure to achieve its milestones in a timely and efficient manner. Among the personnel joining Ortec during the 2nd quarter was William D. Schaeffer, appointed as Chief Operating Officer. Mr. Schaeffer comes to Ortec after spending over 25 years at various positions within the Johnson & Johnson companies where he gained extensive experience in startup, process development, manufacturing and quality assurance of medical devices.

During the 2nd quarter, Alexander Arrow, M.D., an analyst at Wedbush Morgan Securities initiated coverage of Ortec. In July, another security analyst, Christopher Tihansky of Genesis Merchant/JW Charles also initiated coverage. During the next 12 months, management will continue to focus on obtaining additional analyst coverage and increase the investment community's awareness of Ortec.

During the third quarter, the Company expects to enroll patients in its recently announced pilot clinical trials for the use of its Composite Cultured Skin for the treatment of donor site wounds and venous ulcers. Patient enrollment in the donor site pilot trial is expected to begin during August 1998. The Company expects to initiate a multi-hospital donor site pivotal trial by the first quarter of 1999.

Patient enrollment and treatment in the venous ulcer pilot trial is expected to begin in September 1998 and to be concluded by the first quarter of 1999. The Company expects to initiate a venous ulcer pivotal trial, subject to FDA approval, by the first quarter of 2000.

Concurrently, with the addition of the donor site and venous ulcer trial, management has decided that the trial design for the partial thickness burn trial should be modified to more appropriately reflect the current trends in treatment of second degree burns. Therefore, although results to date have been consistent with expectations, patient enrollment in the current trial is being closed. Management will evaluate the current var