OrthoLogic Stands Out in Biotech

We recently added a biotech stock to our portfolio based on the expectation of positive news developments related to an Alzheimer's treatment. Another biotech name that piques our interest is OrthoLogic (OLGC Quote), which, at $6.17, is an inexpensive name with a lot of potential.

OrthoLogic's sole drug candidate, Chrysalin, is designed to quicken the healing time of bone fractures, tissue injuries and spinal fusion as well as repairing cartilage and treating cardiovascular disease. The company is far enough under the radar of Wall Street to be classified as a stealth stock -- a hidden name with a potential for soaring -- given its low-trading volumes and lack of analyst and media coverage.

We see several bright spots in OrthoLogic's future and believe the 15% decline in its stock price during the past two months was unwarranted. The pullback in OrthoLogic's stock price creates a great buying opportunity for those investors willing to ride the ups and downs inherent in biotech investing.

OrthoLogic showed up on a screen we ran looking for biotech companies that had promising phase III drug candidates. We are not taking a position in OrthoLogic because we do not want to hold two speculative biotech stocks in our Stocks Under $10 model portfolio, but we think it is a remarkable name that warrants some attention.

Since 2003, OrthoLogic has transformed itself from a company that sold growth stimulation and external fixation devices. Management decided the market potential on the pharmaceutical side, estimated to be about $15 billion, far outweighed the opportunities on the device side and sold its device operations to DJ Orthopedics (DJO Quote) for $93 million. The sale gave OrthoLogic the funding to carry it deep into the clinical trial process as a stand-alone company, and will offer greater leverage when negotiating partnerships down the road because Chrysalin will be close to market by that time.

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