FDA Permits Ortec to Reduce Size of Pivotal Venous Ulcer Trial; Ortec Provides Financing Update.

Business Editors/Health & Medical Writers

BIOWIRE2K

NEW YORK--(BW HealthWire)--Aug. 15, 2002

Ortec International, Inc. (NASDAQ: ORTC) announced today that based on the strength of the data of its previous clinical experience, the Food and Drug Administration (FDA) has granted Ortec permission to reduce the size of its ongoing pivotal venous ulcer trial.

Under this approval, an interim analysis of 102 patients may be sufficient to file a Pre-Market Approval (PMA) application, which would be l/3 of the size that was originally contemplated.

The FDA granted Ortec permission to perform an interim analysis of the clinical data when 50% of the required patients (51 patients per OrCel and control, respectively) have completed 13 weeks of treatment and follow up. If the results at that 13-week juncture demonstrate statistical significance, Ortec would not be required to complete the balance of the patients and could file a Pre-Market Approval (PMA) application. To date, approximately 25% of the patients required to reach the interim analysis stage have been enrolled in the study with completion of enrollment expected to be achieved in September, 2002.

Steven Katz, Ph.D., Chairman and CEO, commenting on the reduction of the size of the venous ulcer trial said, "The fact that we potentially can be in a position to complete our pivotal trial with 100 patients is testimony to the strength of our clinical data. We believe the balance of the patients required will be enrolled rapidly allowing for the completion of the trial in the near-term and filing a PMA application during the 1st quarter, 2003."

In previously released data using fresh OrCel on venous ulcer patients, 53% of the patients treated with OrCel achieved 100% wound closure in 12 weeks in comparison to 26% for the control group, representing a 100% improvement over standard of care. At 24 weeks, 71% of the OrCel treated patients achieved 100% closure versus 37% for control, or 92% improvement over control. In addition, in the initial phase of Ortec's pivotal trial using the cryopreserved (frozen) version of OrCel, 69 % of the patients achieved 100% would closure in 12 weeks. The frozen version of OrCel is being used exclusively in the current pivotal trial.

Financing Update

In connection with Ortec's pending equity financing, the details of which Ortec intends to announce in the next few days, Ortec is filing with the Secretary of State of Delaware the Certificate of Designation for Series B Convertible Preferred Stock. Also, as required by Nasdaq, Ortec currently anticipates that it will seek formal shareholder approval in its upcoming proxy authorizing the issuance of shares for the pending financing which are in excess of 19.99% of its currently outstanding common shares.

In addition, Ortec today announced that it has reached an agreement in principle to a non-binding term sheet with Paul Capital Partners, L.P. modifying the terms of its existing revenue interest in Ortec, which Paul Capital acquired for a total of $10 million in 2001 and January 2002. The term sheet provides that Paul Capital would relinquish 70% of its revenue interest in exchange for $7 million in Series C Secured Participating Preferred Stock and 500,000 warrants exercisable at a nominal exercise price. Consummation of the transactions contemplated by the Paul Capital term sheet, which is contingent on satisfaction of various conditions including completion of the pending financing, would result in an increase in shareholders' equity and a corresponding reduction of $7 million in long term debt. In addition, Paul Capital will participate in the pending financing, subject to completion of the transactions contemplated by the term sheet.

Walter Flamenbaum, a General Partner at Paul Capital, commented, "Paul Capital believes that the underlying value of Ortec's OrCel technology is not currently being recognized by the market and felt that in light of the current market environment it was prudent to modify our arrangement in order to strengthen Ortec's balance sheet and to establish a meaningful equity stake in Ortec."

Upon completion of the financing, and the transactions contemplated by the term sheet, Ortec has agreed to appoint a representative of Paul Capital to its Board of Directors. Ron Lipstein, Ortec's Vice-Chairman and CFO, commented, "We look forward to the addition of a Paul Capital representative to Ortec's Board of Directors. As a major stakeholder of our company, Paul Capital's involvement in Ortec at this juncture is timely and will be helpful in our commercialization efforts."

About Ortec International, Inc.

Ortec International, Inc., (NASDAQ:ORTC), is a tissue-engineering company involved in the commercialization of a proprietary and patented technology to stimulate the repair and regeneration of human tissue. Ortec's current focus is the application of its OrCel(TM) (Bilayered Cellular Matrix) to heal chronic and acute wounds. OrCel is composed of a collagen sponge seeded with allogeneic epidermal and dermal cells. These cells secrete growth factors and cytokines normally found in acute human wounds and are believed to have a beneficial role in promoting tissue repair. In addition to having received FDA approvals during 2001 for the treatment of Epidermolysis Bullosa and donor sites in burn patients, a pivotal clinical trial is ongoing in venous ulcers and the FDA has granted Ortec approval to initiate a pivotal trial in diabetic foot ulcers. Ortec believes that its platform technology may extend to the regeneration of other human tissue such as tendons, ligaments, cartilage, bone, muscle and blood vessels. For more information, visit Ortec's website at http://www.ortecinternational.com.

Certain statements made in this news release that express the belief, potential anticipation or expectation, as well as other statements which are not historical fact, and statements relating to the clinical trials and their results, design, FDA product approvals or other marketing approvals, features, functionality and performance insofar as they may apply prospectively, are "forward looking" statements within the meaning and pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act of 1995 and involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in this news release or in other "forward looking" statements presented by management. Factors that might cause such a difference include, but are not limited to, development by the Company's competitors of new technologies or products that are more effective than the Company's, risks of failure of clinical trials, dependence on and retention of key personnel, protection of proprietary technology, compliance with U.S. Food and Drug Administration regulations, continued availability of raw material for the Company's products, availability of product liability insurance in the event of commercialization of the Company's products, ability to effect transition from pilot-scale manufacturing to large-scale commercial production of products, uncertainty as to the availability of additional capital on acceptable terms, if at all, and the demand for the Company's products, if and when commercially available.