By Anita Dushyanth, PhD
On March 16, 2017 ViewRay (NASDAQ:VRAY) announced financial results for
the fourth quarter and fiscal year 2016.
The company reported revenue of $16 million for Q4
2016. Sale of four MRIdian systems
resulted in revenue of close to $22 million for fiscal 2016. Gross profit for Q4 2016 was negative $1.2
million, and for the full year 2016 was negative $3.6 million.
Operating expenses amounted to approximately $10 million for
the fourth quarter 2016 and about $40 million for fiscal 2016.
Net loss in Q4 2016 amounted to $11 million (EPS of -$0.25) and
~$50 million for the full year 2016 (EPS of -$1.26). VRAY exited the fourth quarter 2016 with
close to $14 million in cash and cash equivalents.
ViewRay has federal net operating loss carryforwards of ~$210
million, which will begin to expire in 2024 and ~$131 million in state net
operating loss carryforwards, which will begin to expire in 2019. The company had federal R&D tax credit
carryforwards of close to $3 million, and state carryforwards of roughly $250,000
which will expire during the year 2024.
The firm raised close to $48 million in cash in Q1 2017;
approximately $26 million from a private placement (closed on January 18, 2017)
from the sale of 8.6 million shares of common stock and warrants (exercise
price of $3.17/share and are exercisable after six months and expire seven
years from the date of issuance) and from the sale of approximately 4 million
shares of common stock (in February and March 2017) to FBR Capital Markets & Co at
an average market price of $5.64 per share, resulting in aggregate gross
proceeds of approximately $22 million.
The FDA 510(k) application to market the MRIdian Linac
system in the U.S. (submitted in August 2016) was approved end of February 2017. Since there is an enormous amount of
familiarity and efficiency associated with Linac systems and VRAY being the
first and the only firm in the industry to roll-out a commercial MRI Linac, we
think most centers will readily adopt this system. The MRIdian Linac is an MRI-guided radiotherapy
system that offers several technical advantages including improved target
localization, non-invasive motion management, and the potential to adapt
radiotherapy treatment in real-time for anatomical movements as well as
functional changes. Further, the
MRIdian-Linac upgrade maintains the footprint of the legacy system warranting
an easy upgrade since the pop-apart model allows replacing the Cobalt with the
The next generation MRIdian Linac employs the patented RF
cloaking technology that isolates the magnet from the impact of the radio
frequency waves from the Linac.
Additionally, the MRIdian Linac uses double-focused multi-leaf
collimator (MLC) technology, allowing for delivery of sharp radiation beams which
significantly reduces the possibility of a photon leaking through. Another advantage of the MRIdian Linac is its
ability to deliver superior dose to the tumor site while maintaining nominal dose
to critical structures. This is particularly
important to clinicians since they can visualize the critical structures at the
time of treatment that enables adaptive treatment planning. Applications of the MRIdian Linac in
radiotherapy include treating many different types of cancers in
difficult-to-treat sites including those of the head and neck, lung, liver,
prostate, breast and bladder. Images at
these sites are difficult to capture due to the continuous physiological motion
from breathing or swallowing and the MRIdian Linac is capable of offering
benefits in adaptive radiotherapy that supports precision medicine and
In addition to completing the development of MRIdian Linac
within the past year, VRAY obtained regulatory approvals for marketing the
device in the European Union (CE Mark) as well as the U.S. (FDA 510(k)). 2016 demonstrated a validation of VRAY’s
MRIdian technology as the backlog (23 signed contracts) and installed base
expanded (six systems) globally. The step function improvement in the
technology could foster a steep adoption rate in the radiotherapy market. On the horizon, we think ViewRay is
rolling-out a system that could potentially become the gold standard in
adaptive treatment using radiotherapy. Market
giants such as Varian are yet to introduce any such system and Elekta AB's
Atlantic System is significantly bigger than the MRIdian. Even though the company could face competition
from these established players, VRAY’s backlog of 23 signed orders as of March
17, 2017 translates to a total value of ~$133 million that provides a
significant lead to its competitors.
In the first half of 2017, the firm anticipates selling MRIdian
Cobalt systems in markets where Linac system is yet to be approved (primarily
in China). Management hopes to install
seven to eight MRIdian Linac systems in the U.S. and international markets in
the second half of 2017 from which the firm anticipates recognizing potential
revenue of around $50 million in 2017. Management
is relentlessly working on improving their productivity. Assuming a stable economic environment with no
changes to currency levels, the firm anticipates widening gross margins to 40%
in 2017. The stock price has doubled
since the beginning of this year from $3.13/share (January 3, 2017) to
$6.24/share (March 16, 2017). We think
that an expansion in gross margin, primarily driven by higher sales and
operating leverage could drive the stock price even further.
Currently, it takes roughly 100 days to complete
installation and testing a single system per site. The firm plans to bring this down to 45-60 days
shortly. If the sales continue with
favorable momentum and the firm is able to sell close to five systems per
quarter, it could potentially achieve operating profitability by 2019.
We anticipate OpEx to remain high as per management’s
guidance. As per the company’s 2016
annual report, ViewRay plans to continue investing in R&D. ViewRay does not plan to slow down but
anticipates expanding their sales team to increase marketing efforts. The report mentions that the firm will see an
increase in SG&A spend which includes expenses associated with sales,
marketing and customer support personnel, regulatory and other administrative
personnel, third-party consulting, legal, audit, accounting services, stock-based
compensation, employee benefits as well as travel expenses related to trade
shows and marketing programs.
Our financial model has been updated with 2016 annual earnings
result and as per management’s financial guidance. Starting the new year (2017) with a strong
cash position, VRAY is well poised to carry on its business strategy. We like the firm's strong balance sheet, with
an estimated cash position of over $45 million. We think 2017 could serve as a
transformational year for VRAY assuming their financial guidance is met. Our fundamentals remain strong and we
continue to believe in VRAY’s story.READ THE FULL RESEARCH REPORT HERE
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