____________________________________________________________ Osteotech Poised to Profit If sticks and stones break your bones, Osteotech (OSTE:Nasdaq) will put them together along with some handsome profits, analysts say. The New Jersey-based company produces bone tissue for patients requiring orthopedic and oral surgery graftsotransplants of tissue from one part of the body to another. Osteotech commands more than 50% of the U.S. market, estimated at about 350,000 procedures a year. While that market probably wonit growothere's no reason to expect a sudden surge in fracturesoOsteotech's competitors are small bone tissue banks scattered across the country that don't have the same technological edge, according to independent analyst Evan Sturza of Sturza's Medical Investment Letter. That view is echoed in a March research report by First Albany Corp., which did not underwrite the firm's IPO. That high-tech edge: Grafton, a bone-protein paste that surgeons can use to fill in the cracks in fractures. Grafton is made from donor tissue. The competitive advantage, coupled with the sloughing off of a cash-hemorrhaging European research-and-development division, make the shares among the most under-valued on in
the biotech market, says Sturza. He adds that the company, currently trading at about $6 1/2, will nearly double in value in 12 months' time as earnings per share surge after the company writes off the
European unit. The company will take a one-time charge of about $1.35 million for the restructuring, but the company should save $1 million a year, the company said in October, when it announced the moves. "The street hasn't noticed this company yet because the (European losses) issue has masked earnings," says Sturza. "You have a totally different story in 1997." Earnings per share, which rose from a loss to $0.02 per share in the second quarter, will rise to $0.36 per share in fiscal 1997 and $0.63 in fiscal 1998, Sturza forecasts. When traders and investors get a look at the improved numbers, the company will surge, he says. Osteotech execs say they can keep profits growing even
after the benefits of the write down. "The company is growing at 25% compounded annually," said Osteotech Vice President Michael Jefferies. He declined to reveal the company's internal earnings estimates, but said Sturza's were in the right area. To be sure, the company hasn't always been the darling of the investment community. In May, HealthCare Ventures I, Osteotech's largest shareholder at the time, sold its 15% holding at an average of $5.23 per share. The stock was
trading at between $6 and $6 1/2 at the time. HealthCare officials didnit return a call for comment.
And the company isn't on track to meet earlier analyst optimism. In March, First Albany Corp. analyst Tony Viscoliosi gave the company a buy recommendation, saying the company would be at $12 within a year's time. The closest it got was $8 3/8 in June. Still, with its commanding market share, Osteotech is poised to strengthen bonesoand portfoliosoin 1997. By Andrew Morse |
