March 26, 1999 RECOMMENDATION: BUY

Ortec International, Inc. (NASDAQ: ORTC)

Developing A Unique Wound Healing Product --Trading at Significant Discount to Peer Group; Initiating Coverage with a BUY Recommendation

Exchange Symbol.....................ORTC (NASDAQ)
Price of Common Stock (03/25/99)............$10.50
30-Day Average Trading Volume............9,000
Shares Outstanding.........................6.1 M
52-Week High/Low......................$23.00/$5.75

Address...................Audubon Business and Technology Center
...................................3960 Broadway, New York, NY 10032
Telephone................................212-740-6999
Chairman, President,  & CEO......................Steven Katz, Ph.D
Chief Financial Officer...............................Ron Lipstein

Summary Investment Considerations

Ortec International, Inc. ("ORTC") is a development-stage tissue-engineering company developing and commercializing a proprietary skin regeneration product it calls Composite Cultured Skin ("CCS"). CCS is a permeable, bi-layered matrix that stimulates a unique growth environment for both dermal and epidermal skin cells. CCS is currently in clinical trials for treatment of donor site wounds and venous skin ulcers, and has completed a clinical trial under an Investigator's IDE using CCS for the treatment of chronic dermal skin ulcers in Epidermolysis Bullosa (EB) patients. We believe CCS may have wide commercial applications for the treatment of burns and diabetic skin ulcers, as well as for reconstructive and cosmetic surgery. The Company intends to file a Humanitarian Device Exemption (HDE) and launch CCS for the Epidermolysis Bullosa this year. We are initiating coverage on ORTC with a BUY rating, and recommend purchase by investors tolerant of the risks associated with micro-cap and small-cap equity investments.

1. Unique, Patented Technology --Composite Cultured Skin ("CCS")

• CCS is a permeable, bi-layered bovine collagen sponge seeded with human skin cells. When applied to a wound, CCS produces a mix of human growth factors that stimulates the skin to regenerate itself.
• CCS has been used in over 80 patients for various indications; results have demonstrated efficacy and safety, and would indicate a shorten time-to-healing, and reduced scarring, among other clinical benefits.
• ORTC’s technology may extend into the development of other "engineered" human tissues such as tendons, ligaments, cartilage and blood vessels.

• CCS is in clinical trials for partial thickness burns, donor site wounds and venous ulcers; the US market for these indications is approximately $1.2 billion, with international markets approximately equal in size. The EB market in the US is quite small (estimated at $5 million), although expedited approval under an HDE would allow ORTC to "seed" the market and begin familiarizing clinicians with CCS.
• ORTC also plans to begin clinical trials in diabetic foot ulcers in 3Q99. The US market opportunity for this indication is estimated at $1.6 billion. CCS’s other indications, such as decubitus ulcers, skin cancers and cosmetic surgery, represent additional market opportunities.

3. Milestones Approaching --Meaningful News Flow for Investors

• Clinical --Planned presentations of clinical results at leading scientific conferences for donor site wounds, venous ulcers and the cryopreserved CCS product.
• Product Launch --Anticipated launch of CCS for the EB indication by the end of 1999.
• Corporate Development --Selection of a corporate partner to assist in commercialization of CCS in the US, and in international markets.

3. Compelling Valuation --BUY Recommendation

• We believe that ORTC trades at an excessively large discount to other public companies with competing products in various stages of commercialization;
• We have a 12- to 18-month price target of $20 to 23 per share.

Company Overview & Report Summary

We are initiating coverage of ORTC with a BUY recommendation with this abbreviated research report. We plan to publish a full-length report, with a detailed analysis of ORTC, CCS and the competitive environment (including a detailed financial model), in the near future.

Founded in 1991, ORTC is a development-stage company that has developed and is commercializing a unique, patented skin regeneration product it calls Composite Cultured Skin ("CCS"). CCS is an engineered human skin-like dressing that is produced to mimic the human skin. CCS is composed of a bi-layered bovine collagen sponge seeded with human skin cells. Human epidermal cells (keratinocytes) and dermal cells (fibroblasts) are harvested from the foreskin of neonates, and cultured into a large number of individual, identical cells. Prior to seeding the collagen sponge, these cells are tested and screened according to FDA guidelines to ensure that they are free from bacterial contaminants, viruses and other pathogens. Then, the dermal fibroblast cells are applied to a porous composite matrix (to form a dermal layer matrix), and the epidermal keratinocytes are grown on a separate, non-porous outer layer of collagen. The two layers are then incubated to allow the cells to multiply, and the fibroblasts to permeate the porous collagen matrix. The resulting bi-layered product, which can be supplied in a variety of shapes and sizes, replicates the structure of human skin, with an outer epidermal layer and an inner dermal layer that is integrated into the collagen matrix.

Results from Pilot Donor Site Wound Study: ORTC recently announced that the results of a pilot donor site trial of CCS will be presented this week at the American Burn Association (ABA) conference in Orlando, Florida. The results will be presented by Dr. Joseph Still, M.D., Director of the Burn Center at the Columbia Augusta Medical Center. Donor site wounds are created when healthy skin is taken from an undamaged part of a burn victim’s body and transplanted onto the existing wound site, thereby creating a "donor site" wound. As reflected in this week’s releases, it is anticipated that the formal presentation of results will show that the CCS product significantly accelerated wound closure in donor sites, when compared to the current standard of care.

Regulatory/Clinical Strategy: CCS has concluded a 12-patient trial for EB, and is currently in trials for donor site wounds and venous stasis ulcers. The Company intends to initiate trials for diabetic foot ulcers indications in 3Q99. With respect to the EB indication, management intends to file for a Humanitarian Device Exemption (HDE) with the FDA in the latter half of 1999, and expects to gain FDA approval and launch CCS for this indication by year-end. Although the EB market is quite small, ORTC plans to leverage this first indication into other larger indications. Results of CCS’ use in EB patients should produce additional clinical data for future FDA filings. With respect to the donor site indication, ORTC has filed an application with the FDA to initiate a 12-center pivotal donor site study, which is to enroll approximately 75 patients followed for a six-month period. The study’s primary end point is to compare time to wound closure of its CCS versus standard of care. Secondary endpoints include measurement of pain, scarring, rate of infection, time to recropping and any adverse events. ORTC believes enrollment could be completed by the end of the third quarter of 1999. Following a six-month follow-up, ORTC plans to file a pre-market approval application (PMA) with the FDA.

Relative Valuation

We believe that ORTC trades at an excessively large discount to other public companies with competing wound healing products in various stages of commercialization. For example, Organogenesis (AMEX: ORG), which currently markets a competing FDA-approved product called Apligraf, has a market capitalization of rough $360 million, compared with ORTC’s market cap of approximately $60 million. We also believe it’s an appropriate time for investors to revisit the entire tissue-engineering sector, as sales in this market are beginning to ramp, more and more clinical data is showing the efficacy and cost-effectiveness of these products, and reimbursement issues are being addressed.

Risk Considerations

This section of the document is provided to remind potential investors to undertake a prudent level of due diligence prior to making an investment in the securities of Ortec International. For a complete description of risks and uncertainties to ORTC’s business, see the "Risk Factors" section in ORTC’s SEC filings, which can be accessed directly from the SEC Edgar filings at www.SEC.gov on the Internet. Other potential risks include:

• Market risk: Investors should consider technical risks common to many small-cap or micro-cap stock investments, including liquidity levels, small float, risk of dilution, dependence upon key personnel, dependence upon single products or technologies, and the strength of competitors that may be larger, better capitalized and hold dominant market positions.
• Business risk: ORTC has limited experience in the manufacturing, marketing, and the distribution of its CCS product. Many of its products are in the early stages of development. Additionally, ORTC intends to license rights to its products to other companies. There can be no assurance that these licensing agreements will be completed, or that the market will accept any products under development.
• Regulatory risk: There is no guarantee that ORTC’s products will be approved by the US FDA or international regulatory bodies for marketing in the US or abroad.
• Competitive risk: The tissue engineering industry is extremely competitive, in particular because of its large market potential. Many companies are currently marketing products, or developing new products, for indications targeted by ORTC.

For Additional Information

Contact SmallCaps Online LLC --212-554-4158

Sources for Additional Information

The following are website addresses offering related information, and links to other sources of information.

www.SmallCapsOnline.com SmallCaps Online’s site for company information and research

www.FDA.gov US Food and Drug Administration homepage

www.WHO.int World Health Organization homepage

www.SEC.gov US Securities and Exchange Commission, with links to EDGAR filings

The information in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC has performed investment banking, consulting or other services for or may solicit investment banking, consulting or other business from, any company mentioned in this report. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while this report is in circulation or posted on the SmallCaps Online LLC website at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.