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Orthovita (VITA) is a stock on the move as shares have gained 35% in the past two weeks and shares volume has exploded to more than 4 million weekly shares, as compared to an average of just 1.2 million in the 13 preceding weeks.

The company develops medical devices for the fusion, regeneration, and fixation of human bone, such as bone graft substitutes and bone strengthening polymers. Orthovita currently has four key commercial product platforms: Vitoss Bone Graft Substitute, Vitagel Surgical Hemostat, Cortoss Synthetic Cortical Bone, and Imbibe Delivery and Disposable Systems. It’s most promising products are most closely related to spinal surgeries.

Two factors led me to this small cap company, a technical breakout and insider buying, but the more I look into it the company appears to be a future success story.

On May 27 a SEC Form 4 filing showed that CFO Nancy Broadbent bought 100,000 shares of company stock at an average price of $3.31, upping her total stake from 0 to 100,000 just nine days after joining the firm. This $330,000+ purchase of shares is a clear indication that things are going well at Orthovita. It also alleviates concerns over the fact that insider ownership is a mere 0.5% of shares outstanding, although institutions are 60% owners with Cortina Asset Mgmt., Wellington Mgmt., Lehman Brothers, and Barclays all being 5%+ owners. The Essex Woodlands Health Venture, an expert venture capital firm in the medical field, owns a 12% stake and was actively buying in October around $2.20 per share.

As for the technical picture, Orthovita shares broke through a double top at $3.75 and the price action was convincingly confirmed by the volume. The technical implied breakout would target shares for a move to $5.50, about 25% above current prices, and right at 2004 July highs.

Orthovita is expected to turn a profit this year for the first time in company history and sales have been growing in excess of 33% on a quarter to quarter basis. Shares are priced for success, at 4X sales and 12X cash, but if high expectations for its product come to fruition, it will immediately turn Orthovita into a growth and value play.

On April 1, 2009 Orthovita submitted additional data to the FDA for the use of its CORTOSS Bone Augmentation Material, and a review is supposed to be completed by Q3 of this year. Bone cement is a market growing at a 40% a year clip, and is more than a $200 million worldwide market, with very high margins. If Orthovita’s new material is as ground-breaking as anticipated, the Company could easily be in the sights of Stryker (SYK), Smith and Nephew (SNN), or Zimmer (ZMH) as an acquisition target.

On June 4-6 the Company will present data from randomized trials regarding Lumbar Fusion.

Disclosure: Currently No Holdings, but looking to Buy

Source: Orthovita Looks to Be a Future Success Story