ORTHOVITA : Reports 2011 First Quarter Financial Results

Orthovita, Inc. (NASDAQ: VITA), an orthobiologics and biosurgery company, reported financial results for the quarter ended March 31, 2011. Product sales for the first quarter of 2011 were $23.8 million compared to $24.1 million in the first quarter of 2010. Product sales for the first quarter of 2010 included $1.1 million in sales of Vitomatrix?, a bone graft material used in dental products, which sales occurred as part of an agreement to terminate our supply agreement for this product. We do not expect further sales of Vitomatrix. Excluding the Vitomatrix sale, product sales increased 3% in the first quarter of 2011 compared to the first quarter of 2010.

Sales of Vitoss? Synthetic Bone Graft Substitute products increased 7% in the first quarter of 2011 compared to the year-earlier quarter. Within the Vitoss product family, sales of Vitoss Bioactive Foam products, including Vitoss BA2X launched in February 2011, increased 17%, and sales of Vitoss morsels increased 15%. These increases were partially offset by a 12% decrease in Vitoss Foam products. Sales of Cortoss? and Aliquot?, the device used to deliver Cortoss, increased 3% in the first quarter of 2011 compared to the year-earlier quarter. Sales of the Company's biosurgery product portfolio declined 1% in the first quarter of 2011 compared to the first quarter of 2010.

Antony Koblish, President and Chief Executive Officer, said, "We are pleased to see 7% year-over-year growth in our Vitoss product portfolio during a period of challenging market conditions within the spine market. Sales of our Vitoss products also increased 3% sequentially compared to the fourth quarter of 2010. In an increasingly price-sensitive environment, the significant growth of the Vitoss Bioactive Foam products and Vitoss morsels reflects the strong value propositions of these products in their respective categories. Our successful launch of Vitoss BA2X contributed nicely to the growth of our Vitoss Bioactive products. Vitoss Foam participates in a highly competitive market segment, and our strategy with bone-graft customers is to highlight the applicable clinical benefits and cost-effectiveness of our Bioactive and Morsel products, resulting in an expected decline in Vitoss Foam products."

Gross profit for the quarter ended March 31, 2011 was $15.9 million, or 67% of product sales, compared to $16.7 million, or 69% of product sales, for the first quarter of 2010. The reduction in gross profit as a percentage of product sales was due primarily to increased manufacturing costs for Vitagel as a result of depreciation in the first quarter of 2011 on our recently approved collagen manufacturing facility and a change in product mix. First quarter 2010 product sales included $1.1 million in sales of Vitomatrix, which had higher gross profit margins than the Company's other products, and there were no Vitomatrix sales in the first quarter of 2011.

During the first quarter of 2011, Orthovita recorded an operating loss of $0.2 million compared to an operating loss of $0.4 million in the first quarter of 2010. The net loss for the first quarter of both 2011 and 2010 was $1.2 million, or $0.02 per common share. Total operating expenses during the first quarter of 2011 declined to $16.1 million compared to $17.1 million in the first quarter of 2010, but these savings were offset by the lower gross profit described above and higher interest expense.

Orthovita's earnings before interest, taxes, depreciation and amortization, stock-based compensation expense and other non-cash charges, or Adjusted EBITDA, was $1.8 million in the first quarter of 2011, or $0.02 per basic and diluted share, compared to $1.2 million, or $0.02 per basic and diluted share, in the first quarter of 2010. A reconciliation of our reported GAAP net loss to Adjusted EBITDA is included with the Summary Financial Information included with this release.

Cash, cash equivalents and short-term investments were $23.1 million at March 31, 2011, compared to $22.4 million at December 31, 2010. For the three months ended March 31, 2011, the net cash and cash equivalents provided by operating activities was $1.1 million.

Conference Call

Antony Koblish, President and Chief Executive Officer, and Nancy C. Broadbent, Senior Vice President and Chief Financial Officer of Orthovita, will host a conference call at 8:30 a.m. Eastern Time on Thursday, May 5, 2011, to review and discuss the first quarter 2011 financial results. The phone number to join the conference call from within the U.S. is [phone], and from outside the U.S. is [phone]; the conference identification number is 60306495. Listeners are advised to dial in ten minutes prior to the scheduled start time for the conference call. A replay of the conference call will be available for two weeks beginning May 5, 2011 at 11:30 a.m. Eastern Time, and ending May 19, 2011, at 11:59 p.m. Eastern Time. You may listen to the replay by dialing within the U.S. [phone] or by dialing from outside the U.S. [phone]. The replay identification number is 60306495.

About the Company

Orthovita, Inc. is a specialty spine and orthopedic company with a portfolio of orthobiologic and biosurgery products. Our products are based on novel and unique proprietary biomaterials that have innovative mechanisms of action in the body. Our orthobiologic platform offers products for the fusion, regeneration and fixation of human bone. Our biosurgery platform offers products for controlling intra-operative bleeding, also known as hemostasis. Our current fusion and regeneration products are based on our proprietary Vitoss^TM Bone Graft Substitute technology and address the non-structural bone graft market with synthetic, bioactive alternatives to patient- and cadaver-derived bone tissue. Cortoss^TM Bone Augmentation Material, an injectable, polymer composite that mimics the mechanical characteristics of human cortical bone, provides the basis for our fixation portfolio. Our hemostasis portfolio includes Vitagel^TM Surgical Hemostat, a proprietary, collagen-based matrix that controls bleeding and facilitates healing, and Vitasure? Absorbable Hemostat, a plant-based product that can be deployed quickly throughout surgery.

Disclosure Notice

This press release may contain forward-looking statements regarding Orthovita's current expectations of future events that involve risks and uncertainties, including, without limitation, the demand and market acceptance of our products, sales growth of our products, and other aspects of our business. Such statements are based on management's current expectations and are subject to a number of substantial risks and uncertainties that could cause actual results or timeliness to differ materially from those addressed in the forward-looking statements. Factors that may cause such a difference are listed from time to time in reports filed by the Company with the U.S. Securities and Exchange Commission (SEC), including but not limited to risks described in our most recently filed Form 10-K under the caption "Risk Factors." Further information about these and other relevant risks and uncertainties may be found in Orthovita's filings with the SEC, all of which are available from the SEC as well as other sources. Orthovita undertakes no obligation to publicly update any forward-looking statements.

ORTHOVITA, INC. AND SUBSIDIARIES
Summary Financial Information (Unaudited)
(In thousands except per share amounts)
Statements of Operation Data:
		Three months ended
		March 31,
						as a							as a
						percentage							percentage
			2011			of sales				2010			of sales
PRODUCT SALES		$	23,787			100	%		$	24,077			100	%
COST OF SALES			7,875			33	%			7,399			31	%
GROSS PROFIT			15,912			67	%			16,678			69	%
OPERATING EXPENSES:
General and administrative expenses			3,157			13	%			3,432			14	%
Selling and marketing expenses			11,911			50	%			12,374			51	%
Research and development expenses			1,018			4	%			1,282			5	%
Total operating expenses			16,086			68	%			17,088			71	%
OPERATING LOSS			(174	)		-1	%			(410	)		-2	%
INTEREST EXPENSE			(989	)		-4	%			(771	)		-3	%
INTEREST INCOME			12			0	%			10			0	%
LOSS BEFORE INCOME TAXES			(1,151	)		-5	%			(1,171	)		-5	%
INCOME TAXES			(14	)		0	%			(15	)		0	%
NET LOSS		$	(1,165	)		-5	%		$	(1,186	)		-5	%
NET LOSS PER COMMON SHARE, BASIC AND DILUTED		$	(0.02	)					$	(0.02	)
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS PER COMMON SHARE			76,821							76,502

ORTHOVITA, INC. AND SUBSIDIARIES

Summary Financial Information (Unaudited)

(In thousands except per share amounts)

Reconciliation of GAAP to Non-GAAP Financial Information:

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, stock-based compensation expense and other non-cash charges) for the three months ended March 31, 2011 was $1.8 million compared to $1.2 million for the same period in 2010.

Adjusted EBITDA is presented with the expectation that it will assist investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA as a factor in evaluating the effectiveness of our current and planned business strategies. A reconciliation of our reported net loss to Adjusted EBITDA in accordance with Generally Accepted Accounting Principles (GAAP) is as follows:

2011 Actual Results:
		Three months ended
		March 31,
		2011			2010
Reported GAAP Net Loss		$	(1,165)		$	(1,186)
Adjustments:
Minus: Interest income			(12)			(10)
Plus: Interest expense			989			771
Plus: Income taxes			14			15
Plus: Depreciation and amortization			1,295			889
Plus: Stock-based compensation			571			494
Plus: Inventory reserve charges			100			255
Adjusted EBITDA		$	1,792		$	1,228
Adjusted EBITDA per common share, basic		$	0.02		$	0.02
Adjusted EBITDA per common share, diluted		$	0.02		$	0.02
Shares used in computing basic Adjusted EBITDA per common share			76,821			76,502
Shares used in computing diluted Adjusted EBITDA per common share			76,965			77,241

Reconciliation of GAAP to Non-GAAP Financial Information for EBITDA (continued):
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
(1)		Adjusted EBITDA does not reflect our cash expenditures for capital expenditures or contractual commitments;
(2)		Adjusted EBITDA does not reflect changes in or cash requirements for our working capital needs;
(3)		Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest on our $35 million principal balance of outstanding notes payable;
(4)		Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for replacement of such assets;
(5)		While the inclusion of actual inventory reserve charges are noncash charges for the historical periods presented, the inclusion of such charges does not reflect cash requirements to replace assets;
(6)		Stock-based compensation is and will remain a key element of our overall long-term incentive compensation program; and
(7)		Other companies, including companies in our industry, may calculate these measures differently and as the number of differences in the way two different companies calculate these measures increases, the degree of their usefulness as comparative measures correspondingly decreases.
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We primarily rely on our GAAP results and use Adjusted EBITDA only as a supplemental analysis.

ORTHOVITA, INC. AND SUBSIDIARIES
Summary Financial Information (Unaudited)
(continued)
(Dollars in thousands)
		March 31,				December 31,
			2011				2010
Balance Sheet Data:
Cash and cash equivalents		$	8,332			$	11,059
Short-term investments			14,793				11,305
Accounts receivable, net			12,624				11,877
Inventories			23,293				22,035
Other current assets			706				631
Total current assets			59,748				56,907
Property and equipment, net			16,463				16,809
License and technology intangibles, net			9,511				9,884
Other assets			581				475
Total assets		$	86,303			$	84,075
Current liabilities			10,214				7,700
Notes payable, net of debt discount			34,500				34,415
Other long-term liabilities			396				387
Total liabilities			45,110				42,502
Total shareholders' equity			41,193				41,573
Total liabilities and shareholders' equity		$	86,303			$	84,075
Cash Flow Data:		Three months ended March 31,
			2011				2010
Net cash provided by (used in) operating activities		$	1,080			$	(3,671	)
Net cash (used in) provided by investing activities		$	(3,972	)		$	2,423
Net cash provided by financing activities		$	39			$	751

Orthovita, Inc.
Nancy C. Broadbent
Senior Vice President and Chief Financial Officer
610-640-1775 or 800-676-8482