By Alan Sverdlik

Ortec International Inc., on the cusp of commercialization, said it completed a financing with Paul Capital Royalty Acquisition Fund for up to $25 million in non-equity capital, all but $5 million contingent on regulatory approval and milestones related to the company¿s human tissue treatments.

¿We were able to achieve this in a difficult funding environment,¿ Ron Lipstein, Ortec¿s chief financial officer, told BioWorld Today. ¿We¿ve shown we can bring a product through the approval process in two indications, and this speaks volumes to the investment community about our ability to bring it to market.¿

The company decided to pursue non-equity financing so as not to ¿excessively dilute¿ Ortec¿s stock, Lipstein said.

Some of the specifics of the transaction were divulged by Ortec, of New York, whose technology is designed to heal chronic and acute wounds by repairing and regenerating human tissue.

Ortec received $5 million when the deal closed, the company said. Another $5 million is contingent on FDA approval of Ortec¿s premarket application for its composite cultured skin product, OrCel, which passed muster with an FDA advisory panel in July for use in treatment of donor site wounds in burn victims. Company officials said approval for this indication was imminent.

An additional $5 million, at Ortec¿s sole option, would flow in upon the meeting of specified milestones, but Lipstein would not say what those were. Nor would he comment on the regulatory milestones that would account for another $10 million, with both parties¿ consent.

In return for the financing, Paul Royalty, of New York, will receive a ¿single-digit¿ percentage of royalties of North American end-user sales of OrCel through 2011, Lipstein said.

Ortec ¿cut its teeth on the smallest indication¿ of OrCel, which was approved by the FDA in February for use in hand reconstruction and for donor sites created in that procedure for epidermolysis bullosa patients, Lipstein said. It won approval under the FDA¿s humanitarian device exemption. Ortec also is pursuing FDA approval for two other OrCel indications, venous leg ulcers and diabetic foot ulcers, and has trials ongoing in both.

¿We expect to have all our products for all indications approved by the end of 2003,¿ Lipstein said.

Lipstein said the Paul Royalty financing paves the way ¿to attract another major player and another round of financing¿ as the company ¿anticipates the rollout of both OrCel indications.¿ He said the royalty agreement with Paul Royalty is ¿cost efficient enough to make room for royalties for someone else.¿ Also, he said, the company is scouting around ¿for a large distribution partner.¿

Ortec said in its second-quarter earnings report that sales of OrCel for use in treating epidermolysis bullosa should begin in the fourth quarter of 2001 and sales for the donor site indication should begin in the first quarter of 2002. Lipstein said the company was comfortable with analysts¿ projections of $1 billion in annual OrCel sales, although he wouldn¿t say when that might happen.

Ortec reported a second quarter net loss of $3.7 million, or 39 cents a share, with a cash position of $2.5 million. The company attributed the loss to the transition from development to commercialization. There were 9.7 million outstanding shares at the end of the second quarter.

Lipstein said Ortec is burning cash ¿in the area of a million a month¿ and that ¿that will accelerate¿ further with additional clinical trials.

Ortec¿s stock (NASDAQ:ORTC) closed Thursday at $7.20, down 10 cents.

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