Human tissue transplant processor Regeneration Technologies (NASDAQ:RTIX) cut prior Q3 earnings guidance last night and withdrew revenue and earnings forecasts for the rest of the year. The market rejected its shares after hours, pushing them down 13% from $13.52 to $11.75 after an 8.9% drop during regular trading and even lower in morning trading.

The company warned that Q3 revenues would be around $20 million, rather than the $22 million to $24 million it had previously augured, due to lower orders for spinal implants. It also pulled back its projections for $88 million to $92 million in full-year revenue and EPS of $0.25 to $0.27.

Whether $20 million or $24 million, Q3 isn't pretty. After three quarters of 88%, 30%, and 59% year-over-year sales growth, a $20 million Q3 would fall a whopping 38% below last year. It's a mystery why the shares sold for a P/E of 84 before yesterday's fall and 69 after, when even prior revenue projections for the quarter confirmed broken bones and no estimate of time for recuperation.

Regeneration specializes in tissue for allografts -- transplants of donated tissue, as opposed to autografts, or tissue from another part of the same patient. The company's BioCleanse process sterilizes tissue while maintaining its structure. Shares first traded on Aug. 9, 2000, raising $80 million at $14 a share. Sales boomed 107% in 1999 and 67% 2000, but growth then slowed, with revenues up only 15% in 2001 and off 16% last year. Management responded with cost controls and brought in earnings for the last four quarters and free cash flow for the most recent, but the shares are too richly priced without a return to bone thrilling growth.

In better shape but even more pricey are quasi-competitors Osteotech (NASDAQ:OSTE) and Wright Medical Group (NASDAQ:WMGI). On Friday, Osteotech announced 5% layoffs and said it could not evaluate Q3 until Oct. 1. It sells for over 90 times trailing-12-month earnings and 148 times free cash flow. Wright turned the corner last year after several years of losses and is growing sales between 13% and 22% a quarter, but it sells for 43 times earnings and 57 times free cash flow. The market punished another semi-competitor, Lifecell (NASDAQ:LIFC), driving its shares down 13%, but only dented Osteotech and left Wright alone.

Without revenue growth, Regeneration is not a value or a growth stock. It shouldn't supply tissue to your portfolio.

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