Durham Company Sets Terms Of $69M IPO

This is source I found from another site, main source you can find in last paragraph

I believe ViewRay (NASDAQ:VRAY) is another worthless reverse merger stock carefully crafted by a regrouped team of Gottbetter associates (whose principal was imprisoned for fraud) with a horrifying track record including allegations of illegal gambling operations, ties to Organized Crime, a federal investigation and countless stock market implosions. VRAY touts their claimed backlog while investors may not know VRAY CEO Chris Raanes’s previous company settled a lawsuit for an eight figure amount claiming insiders (including Chris) dumped millions of dollars in stock while backlog was falsely overstated by >$100m. Meanwhile, VRAY backlog is already decelerating while, curiously, VRAY management just suddenly stopped providing important backlog transparency to investors. Meanwhile, key VRAY investor is aggressively selling millions in dollars of VRAY stock.

Retail shareholders clearly do not know who they are dealing with here. These people have done this before.

After suffering -$200m of net losses, VRAY now faces insurmountable issues with fundamentally flawed and obsolete technology. New competition has already launched with demonstrably superior technology and installed more MRI LINAC machines recently than VRAY has done in its entire existence.

The last independent public company to try MRI LINAC was vastly superior to VRAY, including a partnership with industry juggernaut Varian, much more revenue than VRAY, and still touted a >$100m backlog all the way into bankruptcy where the stock went to $0. The IMRIS backlog was huge right up until the company went bankrupt. Investors long VRAY for the backlog growth fail to understand that backlog claims in this industry are consistently overstated and have resulted in fraud allegations and bankruptcy.

Since this cash burning, the unviable company carries a concerning debt load, the stock is worthless as bankruptcy is expected in 2018-2019 when we expect VRAY to violate a key covenant on their $50m+ of debt. As more evidence of their financially unviable position, VRAY is already losing R&D employees while approximately 1/3 of their employees suddenly left last year, clearly very bad internal signs for a technology company which is already years behind the curve.

VRAY’s high retail ownership clearly does not understand who and what they are dealing with. Consequently, they have temporarily bid VRAY stock to an obviously unsustainable bubble valuation of $400m, which is set to collapse imminently as the stock is currently breaking down. Our near term price target is $0.24 per share for -96% downside, but longer term the stock is terminal and worth $0.00 as bankruptcy looks inevitable to us based on VRAY’s product and financials.

We will get to the team behind VRAY and the numerous questions they create given their many previous stock market implosions and legal issues. First though, for you to understand what VRAY truly is, you need to understand how and why their technology is fundamentally flawed and obsolete.

LINAC Market Background

Retail investors seem confused by this market, so some background is required for you to understand why VRAY is fundamentally flawed with obsolete technology.

The tool used in modern cancer radiation therapy is called a “LINAC”, short for “Linear Accelerator”. LINACs are incredibly precise and complex tools which produce and deliver radiation for targeted cancer treatment. Modern LINACs typically cost ~$2m, with some high-end machines listed at $4m+. The Cobalt60 technology previously used is completely different due to its different energy source than LINAC. Cobalt60 has also has been obsolete and antiquated for decades because of poor beam quality, low power, poor tissue penetration and so Co60 isn’t relevant in modern radiation therapy.

The global market for LINACs and radiation therapy (RT) equipment is (and has been) dominated by 2 players: Varian (VAR) and Elekta, with failing Accuray (ARAY) running a very distant third. VRAY isn’t even on the map.


A primary reason for this is LINACs are 10+ year equipment life decisions and, given the choice of similar products, no rational hospital will choose a smaller and financially risky supplier who may not be around in 5-10 years to service their $4m+ device. Accuray generates $350-400m+ in sales and this is still a challenge they are failing against. Secondly, it’s incredibly expensive to develop and go sell a LINAC machine so large companies just have important scale advantages that smaller plays can never compete with.

You also need to understand the LINAC market itself has been shrinking in the US for years with no expectation to grow. For years, machines have been getting faster and more efficient, meaning fewer machines are necessary for the same amount of patients, while reimbursement rates are under constant downward pressure.

Simultaneously, LINAC technology itself is slowly becoming obsolete as Proton Beam Therapy is fundamentally superior to LINAC and better for patients with estimated ½ the secondary cancer incidence vs. LINAC (among many benefits).


PT is incredibly expensive but (like solar, semiconductors, batteries, LEDs, etc) every year the price of Proton Therapy equipment falls dramatically and the technology improves ( Image Guided Proton Therapy etc) as it takes more market share from LINACs. Especially for complex cancers or to replace high-end LINACs, it is clear over the long term that LINAC technology will eventually become antiquated in many applications (like what happened to Cobalt60) as pencil beam scanning and image guided Proton Therapy are far superior. The only thing preventing wide spread adoption of Proton Therapy is cost, and that comes down every year while MRI guided Proton Therapy is in the pipeline. Today there are already proton machines which cost $20-25m which can be economic given better treatment and reimbursement rates. Give this another few years and they will be close to $10m, and then at a certain tipping point in the future, high-end LINACs become irrelevant just like Cobalt60 is today.

These factors and other dynamics mean high-end LINACs face relentless pressure from Proton Therapy while the low end is increasingly commoditized and price sensitive, all while the market is not growing rapidly.

For imaging (MRI, etc) the market is similar but there are different players as GE, Philips, Siemens and Toshiba dominate with~80% market share. The MRI trend here has been towards more powerful, higher Tesla MRI devices as they are superior and costs decline each year. To be clear, they do not compete with VRAY. Instead, they all made deliberate decisions to focus on MRI and imaging, which is a different business. None of these players are potential acquirers of VRAY because none of these players are focused on the LINAC or RT space anymore. In fact, Siemens made a deliberate effort to exit this market years ago after Varian and Elekta dominated them. Siemens could have re-entered the market by acquiring VRAY back in 2010 when they partnered, but (tellingly) Siemens instead filed to exit 100% of their VRAY stock. What drives performance in the MRI market is: MRI “Tesla” rating (also analogous to MRI horsepower), resolution, frame rate, speed, brand reputation, financial stability, cost and system/software integration with existing infrastructure.


Now I want to be clear: MRI guided LINAC will be a strong market which will improve patient care.

Unfortunately though, we think VRAY will continue to be a commercial failure, and in fact believe the stock will be worthless because research shows their technology is fundamentally flawed and obsolete.

Today, doctors currently use MRI and CT scans ahead of time to image tumor location and then use relative analysis of CT images or markers to estimate tumor location during radiation treatment. CT scans do a decent job in many situations but doesn’t image soft tissue. For many tumors, there is minimal movement so this works fairly well anyway and is cheap since some current LINAC solutions offer 0.1mm extreme precision and real time imaging with adjustments even for moving patients at a fraction of the price of MRI guided products. Even visionary inventors of MRI LINAC state that in many cases current solutions are sufficient and effective.

The next evolution for high-end LINAC treatment of complex or moving tumors (lungs, etc) though is to use MRI imaging to track and analyze the tumor while simultaneously treating it with the LINAC.

There are two key reasons why this is important. First, you can see exactly where the tumor is so the radiation beam can be applied more accurately, which should reduce radiation damage to surrounding healthy tissue. Second, the next step for the MRI LINAC market is then to actually increase the power of the radiation dose to hopefully treat/kill the tumor more effectively.

Unfortunately, as I will explain in great detail, VRAY’s product is commercially unviable and failing because it does none of the above effectively relative to vastly superior competing products entering the market now. Importantly, in addition to superior technology, the competition is also more credible, financially stronger with better reputations and dramatically better sales & marketing infrastructure.

Elekta has now launched their “Unity” MRI LINAC offering, which is superior to VRAY in essentially every way.

I remind you the engineers in the Elekta consortium have been working on this since 1999 and had working LINAC versions even back in 2012, long before VRAY announced their LINAC product. I can’t see how anyone thinks VRAY has any head start when they started developing their LINAC many years after Elekta.

Elekta also now has an estimated 6-7 working MRI LINAC machines installed, which I estimate is likely >2x more than VRAY, while Elekta will soon have 8 more installed shortly which will widen that gap. Elekta is already outselling VRAY while VRAY’s backlog also appears to already be decelerating, all before Elekta has even fully launched their product.

Let me explain why VRAY is already losing so badly and why this is only getting worse for VRAY.

VRAY Technology = Fundamentally Flawed and Being Left Behind

VRAY’s product road map and product specifications show their technology is fundamentally flawed, inferior and increasingly irrelevant to the future of MRI LINAC.

This is very important and something you must understand. I pose a simple question you have likely not heard before:

If VRAY’s fundamental technology is so amazing why would they ever waste time building and launching a product based on obsolete Cobalt60 to begin with?

To remind you, the fundamental challenge in building MRI guided RT machines is the energy interference between the LINAC and MRI. MRI imaging creates a strong magnetic field while the LINAC creates electron fields when delivering radiation. These two energy sources interfere with each other, distorting the MRI imaging and bending or scattering the LINAC beams. This dynamic is similar to what occurs if you take a powerful magnet to an old cathode TV. THIS VIDEO is a good analogy and demonstration for you to visualize this dynamic.


fundamental technological challenge in MRI guided LINAC radiation therapy is in correcting these disturbances between the LINAC and MRI energy sources. Solving this problem to make a MRI LINAC machine work means solving the interplay of the two energy sources so the MRI images display crisply and correctly, while the LINAC beam is not affected by the MRI magnetic field. That’s it. That’s the problem to solve, and it is incredibly difficult.

In my opinion, it seems obvious that attempting to launch and develop a Cobalt60 product seems like trying to dodge or avoid the fundamental challenges in MRI LINAC. This is because the fundamental issues of MRI/LINAC interference are

not similar with Cobalt60 because the Gamma Rays from Cobalt60 are unique and entirely different from the energy produced by a modern LINAC machine. So the entire beam/image disturbance relationship does not occur similarly. This means that a Cobalt60 MRI product does NOT solve the fundamental technological challenges at hand and time/money spent on Cobalt60 solutions is not spent solving the key challenges required to advance this technology.

You also need to understand that everyone knows Cobalt60 is an obsolete way to treat cancer, and trying to sell a high-end $6m+ Cobalt60 machine is like trying to sell a Ferrari with a lawnmower engine.

Also, the whole point of MRI LINAC is to have a precise and powerful beam guided with extreme accuracy. Cobalt60 is known for poor beam quality, poor tumor penetration and weak beams with low MV power. Even a LINAC set on the weaker 6MV setting produces almost 2x the MeV power of a Cobalt60 machine while most modern LINACs can go up to 18MV, which is nearly 9x more powerful than Cobalt60. Clearly, a Cobalt60 MRI machine doesn’t make sense, let alone in a high-end machine.

Unsurprisingly, and completely predictably, VRAY’s Co60 product was a total commercial failure. Over the 12 years from 2004 to 2016, I estimate VRAY installed a whopping 6 of these machines, at negative gross margins, and burned approximately $200m in the process. Commercial Failure. No company focused on building a viable business (as opposed to just raising money from investors and burning it) would do this.

If VRAY had the technology to solve the complex MRI LINAC issues, they would have launched an MRI LINAC and clearly would never have wasted time with Cobalt60, which even ViewRay admits is weak and antiquated.

LINAC is what modern medicine uses to treat cancer today because it is superior, but it carries the fundamental challenge of distorting the MRI images when used, while the MRI carries the fundamental challenge of affecting the LINAC beam. It is telling that VRAY chose to not initially launch a LINAC solution but instead launched an obviously commercially unviable Co60 product instead.

To clarify:


Meanwhile, competition also knows all of this and were not wasting time or money on Cobalt60. The engineers in the Elekta Consortium started on this LINAC issue in 1999 (years before VRAY was founded) and had a working MRI LINAC built in 2009. I point out again there is zero discussion of Elekta (or anyone else credible) working on MRI guided Cobalt60. I also point out that, because Elekta chose to not waste resources on Cobalt60, they are now years ahead of VRAY because they focused on solving the real technology issues at hand.

It is telling that only after Elekta became publicly serious about MRI LINAC in 2014 that VRAY announced this LINAC development. This shows that, at best, VRAY appears to have been working on the LINAC problem only since 2015 (vs. the Elekta team since 1999)

Second Important Question:

If VRAY’s Technology is so amazing at solving the core MRI/LINAC interference issues, why does VRAY have the weakest MRI (by a lot) of any product in this space?



Remember, the whole technology challenge is to control and correct energy interference between the MRI and the LINAC. The fact that VRAY has the weakest MRI (by a mile) is another huge technology red flag which indicates they have still not effectively solved the fundamental issues inherent in MRI LINAC. If VRAY could integrate a high quality diagnostic level MRI into their product, why have they not done so?

The inherent interference challenge of MR/LINAC gets a lot easier if you just use a super weak MRI. However, there are important reasons why no other industry players use such an old, weak MRI for these high-end machines. There is also a reason the Elekta (OTCPK:EKTAY) group forged onward in spite of immense technological challenges with the 1.5T MRI when it would have been much easier to just use an antiquated and weak 0.20T or 0.35T low-field MRI like VRAY.

This is another data point that shows VRAY’s technology is fundamentally flawed. The MRI industry standard is 1.5T, and actually evolving towards 3T machines, so if VRAY’s technology was robust enough to work with 1.5T they obviously would have done that. Tellingly, VRAY went with perhaps the lowest powered MRI machine possible with the same Tesla rating as literally the weakest MRI Siemens offers. No wonder Siemens filed to sell all their VRAY stock.

This all indicates VRAY’s underlying technology is fundamentally flawed, which renders it ill-suited for the future.

Unfortunately for VRAY, superior technology from superior companies is coming to eat VRAY’s lunch starting now. This is why, despite just recently launching the product at ESTRO, Elekta already has ~2x more MRI LINACs installed than VRAY (Elekta already has an estimated 6+ LINAC devices in operation) and Elekta has barely begun.



There is a reason Elekta’s Unity LINAC has had more success in the past 18 months than VRAY has had in 13 years. We can see that, despite Unity not even done with 501k/CE yet and still not formally launched, they’ve sold 15 of them and had >180 design plan requests with 1,118 leads. Despite US launch expected Q1 2018, Elekta expects to sell 75+ Unity’s by the end of 2019 (so sell 75 units in just 7 quarters), which is ~2-3x the number of machines VRAY has sold in its entire 10+ year history. We can analyze publicly disclosed functionality to compare the two products, and unfortunately, things are once again looking very grim for VRAY.


We will now go through every aspect of why and how VRAY’s product is obsolete, starting with the basic/easy stuff, then moving onto unfounded vault size & price claims, and finally moving into the more complex technical minutia.


There are many reasons why the extremely high image quality of “High Field MRI” is required for the future of effective MRI LINAC.

Even back in 2003, low-field MRI (0.50T) was considered so bad that even for simple diagnosis of basic torn shoulder tendons, radiologists made false diagnosis in a full 10% of cases because they could not even see the tendon tears, and in 22.5% the diagnosis was vastly improved with the additional imaging clarity of high-field 1.5T MRI. In cancer and tumors, many studies have shown that higher Tesla powered MRI machines find more cancer more effectively than lower powered MRI machines. This has been known for many years.

If low-field MRI imaging has been shown to be ineffective when diagnosing simple shoulder tendons, I can’t see how it is even an option for analyzing complex, moving cancers deep in the body.

This is why none of the other MRI LINAC players waste their time with 0.35T low-field MRI imaging. This is also the reason that 1.5T MRI machines became industry standard many years ago. Don’t take my word for it though, clinicians are already noting the “high image quality” of the Unity unit and the “disadvantage – image quality” even for 0.50T MRI machines, which are far better than VRAY’s 0.35T.


I will go through the technical specs in extreme detail but let’s just start with a simple graphic explanation. I recommend you watch this video and be sure to set it to 1080HD. This is a real time video of Viewray from September 2016. As you see below, the image quality and resolution of VRAY’s 0.35T machine is terrible, and the frames per second are also notchy and awful. Also note from the sharp, crisp text on the right that this is not a playback or video resolution issue. This is what happens when you use 20+-year old MRI technology. 0.35T MRI can sometimes be almost passable if taking stationary images, (and you take a long time) but once you get to moving video it falls flat on its face.


Image Source

For another real time display, if you go to 7:47 of this other video and blow up to full-screen HD you will again see that the soft tissue contrast, sharpness or organ edges and frame rate are all very poor.



Now compare this to the images (below on the right) from the Unity with its modern and superior 1.5T Phillips MRI setup, which itself is then also fundamentally optimized for MRI LINAC use. Look at how crisp the separation between soft tissues is, and how much sharper and more clear the edges of the tumor are relative to VRAY’s weak system above. This is true diagnostic quality MRI, which in the future may even remove some of the costly MRI/CT preceding steps taken today before RT. This is what happens when Elekta uses MRI imaging power that is many times more powerful than VRAY’s and more modern.



You can also see above that the resolution, or pixel/voxel size of Elekta’s unit is <1mm. This compares to VRAY, which at their best can only do 2.1mm and has been quoted elsewhere as even worse at 3.5mm. This means that Elekta’s unit is over twice as good as VRAY. If you are trying to delineate the edge of a cancerous tumor, especially a small and moving one surrounded by vital organs, doing so with an image pixel size of 2.1mm seems clumsy and unacceptable. In this comparison, Elekta’s product again appears >2x better than VRAY and you can see it clearly in the above images.

Another dynamic you need to understand is that higher resolution images allow more “zoom in” before image quality becomes unacceptably bad. This means that for smaller tumors (like in brain cancer), Elekta’s Unity machine will be even

more superior and important when compared to inferior VRAY.

When you’re the only product available for a period of time, some people may tolerate weak functionality, but when better products from superior, well-known companies are available, nobody will choose the worse version from an imminently bankrupt company.


We also see above that for video, Elekta’s Unity has a frame rate of >15 images per second. VRAY used to only do 4 frames per second in one plane, and if looking at 3 parallel sagittal planes the fps drops to 2 frames per second. Apparently, they have upgraded to 8fps (not clear what planes this is at) but given poor underlying imaging technology that is likely a software band-aid or at further decreased resolution, and does not address the fundamental reason their frame rate is so low (inferior, weak MRI). Either way VRAY imaging frame rate is approximately ½ Elekta’s Unity machine and the resolution is horrible, far worse than the current imaging standard for care (1.5T).

This is critical because if you are trying to hit a moving tumor (in a breathing lung, etc) or one surrounded by fragile stomach organs in 3D real time, with no margin of error, what do you think will be more effective and preferred, 2 frames per second or >15? Remember the more something is moving the worse the impact on image quality from low frames per second becomes, and much of the whole point of MRI LINAC is to be able to keep the beam on target with moving tumors. For reference of how bad 8fps is in practice look at this video of 9fps (far better than ViewRay) and notice how painful it gets once the target or camera is moving.

No doctor will prefer 2-8fps with 1980s resolution if they can have >15fps with modern 2-300% better resolution from a better company. Simultaneously this higher frame rate means Elekta’s product will just be more accurate, which is hard for me to imagine not being superior for patients.


This alone is enough to knock VRAY out of the game. I cannot imagine how much customer time has been wasted dealing with these issues, let alone potential patient danger.

VRAY’s software seems very, very bad and not even vaguely close to acceptable from what I can tell. VRAY already had one software bug that required FDA notification in 2014 and then actually appears to have had multiple FDA Class 2 Device Recalls for MRIdian. Read through some of these device recalls and then tell me this machine sounds safe. Like this one:

"the software will not prompt the user to shift the couch to the new isocenter. As a result, there is the potential to deliver dose to the initial isocenter rather than the new location.”

This sounds like VRAY’s machine can possibly deliver radiation to the wrong spot? This looks like a very serious issue to me.

Now when you read about these other issues below, consider that all issues occurred with just 5-6 VRAY machines installed globally. Given the number of issues here, how many issues per machine does this look like is common for VRAY users?

Look at the 50-100+ issues/problems in VRAY’s system from this customer software update manual. Some of these are absurdly bad and even look potentially dangerous. Just read through some of these known problems and see if you would feel comfortable being treated with toxic radiation by a machine with this many issues.

“The surface rendering of structures on the 3D view does not correctly display relative depth.”

“The system will allow a treatment to be "delivered" with all the segments closed, meaning only scatter would be delivered. The system will indicate to the user that no dose was delivered because all the leaves are closed.”

“After a system restart, the position of the couch is not detected until it is moved. This means it is possible for the UI to show the couch at HOME position erroneously.”

“In rare instances, the system will fail to start an MRI scan.”

“Occasionally, a calculation error will occur during dose optimization due to the write-out of the electron density field failing.”

“When switching into the Beams Eye View, the system may inadvertently clear the currently computed dose for the plan. If this occurs you must recalculate the dose on the Finish screen.”

Note this all the above appears to be from 2015 which is AFTER ViewRay

already had a software bug so bad in 2014 it required FDA notification!

“ in January 2014, we initiated a correction of the system at Washington University in St. Louis due to a defect we identified in an advanced software feature in the treatment planning system of MRIdian. We promptly updated our software to resolve this defect and notified the U.S. Food and Drug Administration, or FDA”


How is any medical product with this many issues considered ready for prime time? If I was a customer dealing with this stuff (after paying $6m+) I would be livid, as this looks like the kind of amateur hour you get from a company which only has 6 machines in customer's hands.

Elekta has >$1b in sales with thousands of installed machines, from a variety of MRI equipment. These kind of amateur hour software defects are not something they find acceptable, and their customers know this.

Compare this to Elekta which will be “equipped with world first Adaptive Session architecture.”





Applying real time Functional MRI or “fMRI” to radiation therapy is an absolute game changer in cancer treatment and, in many ways, the “holy grail” of MRI guided LINAC. VRAY’s inferior machine does not appear capable of competing. I am shocked this technology and product shortcoming of VRAY’s is not getting more attention.

A discussion of fMRI is beyond the scope of this report but you can research it yourself in depth. In a nutshell, it is the concept of using MRI technology to monitor and analyze the actual cellular blood flow within a tumor or organ real time.

Elekta’s Advanced fMRI Potential is an Absolute “Game Changer”


For tumor treatment, this gives information on the cellular level of activity within a tumor or vital organ. This allows custom treatment adaptation directly corresponding to how each section of a tumor is reacting to the radiation. This allows better dose painting and real time tumor response assessment for incredibly customized radiation therapy. You will notice that Elekta champions this fMRI capability with great enthusiasm but I could find zero mention on VRAY’s MRIdian product website at all about fMRI.

The problem for VRAY is that the low frame rate and poor resolution of their low-field MRI effectively means if fMRI is even possible on their machine, it is likely not functional and vastly inferior relative to Unity’s. People have tried fMRI with low-field MRI for years and it has lots of issues and widely considered ineffective unless a 1.5T+ power MRI is used. Since VRAY does not appear to me to mention fMRI on their product brochures, this leads me to believe VRAY is incapable of fMRI of comparable quality to Elekta, and possibly at all. This alone is such a big technology red flag I view VRAY as uninvestable. Without fMRI, I believe VRAY is years behind while Elekta appears to be capable of client treatment on a level that VRAY will never match.


The field strength of an MRI and machine software quality also dictates how fast it takes images at a certain image quality. This means hospitals with higher powered MRI LINAC machines can get higher throughput because comparable diagnostic images are dramatically faster.

I believe you can see this in VRAY’s low-quality software and inferior technology. I estimate as of 10/2016 the average patient throughput experience by VRAY owners is a disappointing 0.32 patients per day. We can see from this webinar that the first machine installed in 2014 and, if we move forward with the dates of each installation, we get ~2,893 total installed days across 6 VRAY machines. Then across all machines and all hospitals, only 926 patients had been treated as of 8/1/2016. With simple math, we can estimate that works out to ~0.320 patients per day. Surely there is some setup time involved and testing but even if you 5x this number, you can see the average facility seems to be getting

very bad throughput from their VRAY machine.

In contrast, Elekta states their workflow and software achieve therapy sessions of just 30-45 minutes which is roughly similar to a normal LINAC treatment. There will also surely be some setup and familiarity time for each hospital, but this means Unity should be capable of an estimated 13-15+ patients per day fairly easily.


Source: My Estimates & Analysis


The better patient setup control you have, the better you can position the patient relative to the machine. VRAY’s machine apparently only has 3 degrees of freedom which is half the 6 degrees of freedom Elekta’s machine states, which enables Elekta to have more accurate patient positioning.


Another point is that, even if you completely exclude the imaging component, Elekta seems to just build a better LINAC than VRAY. This makes sense since Elekta is a globally dominant player in LINACs with 40+ years of experience, hundreds of PhD LINAC engineers, $110m+ in R&D spending each year, and thousands of installed machines to learn from. And Elekta didn’t just have a third of the entire company’s workforce leave in one year, so that’s a thing.

This also makes sense because VRAY license LINAC componentry from outside vendors, which are typically years behind the cutting edge internal technology of industry specialists.


MLCs (short for Multi Leaf Collimators) are the part of a modern LINAC that focus and shape the radiation beam to improve accuracy when aimed at tumors to avoid hitting surrounding healthy tissue. Think of MLCs as LEGO blocks which move to block the radiation beam in order to shape the beam more precisely. Each MLC block is called a “Leaf”, and the more Leafs a machine has typically the more accuracy and more control on the shape of the beam to match tumor shape and location. The industry at this point is moving to 160 leaves for high-end LINACs, which is what Elekta’s Versa HD (what Unity appears based on) already has.

VRAY’s LINAC has a lower number of only 138 leaves in their MLC. Just this alone means that Elekta’s Unity should have an estimated 15.9% better beam resolution than VRAY. Which makes sense since VRAY appears to get their MLC technology from an outside vendor (who is RayZR anyway?), while the best LINAC manufacturers in the world would never just license their proprietary cutting edge technology to anyone who wants it. Elekta monitors MLC leaf position an astonishing 25 times each second for extreme precision and extreme response times. VRAY doesn’t disclose this data point best I can tell, and so I can’t imagine VRAY matches this either.

Fast MLC technology is also critical here as it improves patient throughput and may better help the machine conform to moving tumors as the angles shift. Elekta LINAC units from years past already had 6.5 cm/s leaf speeds and I have to think Elekta will use their best technology in their highest-end LINAC. Meanwhile, we can see VRAY literature stating they only have 4cm/s leaf speeds. This means Elekta should have at least 50%+ faster MLC leaf speeds which should translate directly into faster treatment times and more accuracy.

Lastly, Elekta Versa HD MLC (what Unity appears based on) claims to have the lowest radiation transmission of any commercial MLC available, which is the point of MR LINAC anyway, so this is another huge edge if true.


The only two things VRAY can cling to at this point are that their machine is slightly cheaper and that MRIdian can fit in a smaller LINAC bunker.

Since VRAY’s technology is obviously way behind the curve, at some point VRAY will have to improve their product even to just simply match Elekta. If VRAY is even capable of building a 1.5T MRI LINAC (we doubt it or they would have done so already), they will lose both of these arguments as their weaker MRI component alone is nearly an estimated $1m of the cost difference and it will also make the machine much larger. In other words, the cost and size of the machine “advantages” VRAY has is because their machine is inferior in technical scope and ability, making these “advantages” irrelevant.

Either way though, I will explain why neither cost nor vault size is an issue anyway, which is why Elekta is already dominating VRAY.

Two quick notes:

First, if Elekta thought there was a viable business in putting a 0.35T MRI into their device they could do so in an afternoon and instantly match VRAY’s pricing while reducing installed size dramatically. The problem of MRI LINAC is dramatically easier with a lower powered MRI and removing their 1.5T and installing a 0.35T would be piece of cake. Tellingly, Elekta is not wasting their time with this.

Second, it is clear that VRAY’s machine is currently obsolete and VRAY will have to upgrade their future units to a 1.5T MRI if they wish to compete. The moment VRAY does this they lose their price advantage and then the machine becomes much larger because higher powered MRIs are physically larger.

Let me explain though why the small current price difference doesn’t matter and why Elekta chose to not offer a budget, low power MRI in their high-end LINAC.

Unity appears to have already dropped indicated pricing before, and their latest pricing indicates Unity will be listed with a stated ASP of $8-10m. I expect Elekta will ultimately start selling these at $8-9m list price before likely dropping the price again later once the first movers adopt. Typical discount from list price for LINAC units are often 20%+ so a list price of $8.5m means a customer can likely buy it at ~$7.5m or cheaper. I would assume Elekta will sell the first 15-25 or so at a discount to that in order to rapidly build customer usage data but we will ignore this and use an actual $7.5-8m customer price.

Viewray MRIdian ASP is ~$6m, so in effect they currently have ~$1.5m lower price than Unity. The main reason for this is VRAY uses obsolete and cheap MRI machines so their component costs are cheaper. Typically low field MRI costs 2-3x less than a modern high-field 1.5T MRI, so the weaker MRI component is an estimated ~$800k-1m cost savings just from the inferior MRI component alone, let alone the LINAC modifications required to work with the stronger MRI. So if you remove VRAY’s MRI component cost differential they are roughly the same price.

I would interject to note that customers who bought VRAY’s original Co60 product got a pretty raw deal. From the last VRAY call, we know the cost to upgrade was $5.8m for 3 customers or an estimated $1.93m per customer. If they paid ~$6m for the unit and then add the ~$2m to upgrade, they could have just got the vastly superior Elekta Unity for basically the same price, while not having to deal with countless software issues. Bad deal.

This $1.5m price current difference between VRAY and Unity is just not enough to sway a hospital either way though. It can cost these health centers $150-400k+ just to evaluate, test, decide, compare and eventually make a decision on something this important, let alone purchase and install. If they are building a new bunker (which many have done with VRAY installs) then add another $500k-1m to that.

For example, see this slide from the University of Wisconsin on their decision to install a VRAY system back in 2011 (back when Viewray called it “Rennaisance”). Note that at this point the bid process hadn’t even fully been completed (this presentation is from 11/3/2010) and construction bid process started Nov/Dec 2010. They hadn’t even finished the construction bid process and they were already $450k into the project.



You also need to understand that a very nice modern TrueBeam LINAC from Varian can be had for $1.5-2m with all sorts of cutting edge functionality, which fits into a normal Varian/Elekta bunker great. Purchasing these new MRI LINAC machines are not driven by price, they are bought on technology and functionality both of which Elekta dominates VRAY at.

Also, these LINACs are a 10+ year decision as they last a long time. Any upfront cost differential, when amortized over 10-13 years, is minimal (ignoring the ownership economic differences). Elekta’s machine also appears capable of much greater throughput, likely from better software and just superior technology. If Elekta’s machine is even just 10% faster (it is likely far faster than that), then the economics of owning Elekta’s machine over 10 years will far outweigh a small price differential.

Finally, and this is speculative, but I would expect that Elekta can line up much cheaper financing through sale leaseback or other options than any financing partner would ever provide for an unproven startup hemorrhaging cash with high debt like VRAY. If you can finance a Unity at 4%, but have to pay 5% to finance a MRIdian from nearly bankrupt and unproven VRAY, that alone basically removes any cost differential just from the cheaper financing.

It is telling that in a technology driven decision for the most cutting-edge technology in the niche, VRAY is already resorting to “but we have lower pricing!”. Price is not how cutting edge, high-end products are sold. Rolex watches and Rolls Royce cars are not sold on price concerns. Ultimately, $1m is not chump change but in the grand scheme of a hospital CFO making a 10+ year financial career bet (where they can get fired if it goes badly), it is not enough to sway the decision in either direction.


I estimate that many VRAY installations had bunker construction anyway so this is not nearly as big an issue as VRAY would try and have you believe. We can show this by just looking at some VRAY installations which had bunker construction where this would not have been an issue regardless. This is fairly easy to track out because VRAY only has 6-8 installed systems of which I estimate only 2-3 are LINACs.

The University of Wisconsin, for example, was one of the first VRAY installations and they budgeted months for their necessary bunker construction.



Here is another MRIdian install done in Italy where they had to build a new bunker also. Work started in August and they took 6+ months just for construction.


I could keep going but the point is that many (most?) of these MRI LINAC installs have extensive bunker construction anyway, which is why VRAY’s own SEC filings state that a customer generally takes 9-12 months for preparation and/or construction. Installing these, even with weak and small 0.35T MRI imaging, is not a trivial process under any circumstance and you can track out all the VRAY installs to see how many required bunker construction anyway. If a new bunker is being built anyway then obviously, any bunker size sales pitch is less meaningful.

Lastly, the minute VRAY upgrades their new products to try and match Elekta’s current offering they will no longer be compact. It appears to me that the primary reason VRAY system is so small is the inferior MRI 0.35T unit. As evidence, look at Siemens MRI units and look at how much smaller a low power 0.35T MRI is compared to the industry standard 1.5T units everyone uses today.


Obsolete Low-field 0.35T MRI machine size


Industry Standard 1.5T MRI

In the end though, vault size is not nearly as important an issue for this product as VRAY would lead you to believe. Most of these installs are going to have extensive construction anyway and these are big capex investments where $500k construction cost is not going to break the decision. As evidence, you can just go and see that Elekta has more installed MRI LINACs than VRAY already. If bunker considerations were a huge issue Elekta wouldn’t be dominating VRAY so badly, and so many VRAY installs would not have had bunker construction anyway. Ultimately though I don’t think this matters as VRAY will be forced to improve their technology to match competitors and then this vault size argument will be a moot point anyway since bringing a 1.5T MRI magnet into any bunker is a large undertaking.

In closing I offer you this chart based on my own analysis, speculations and estimates:


Source: My Estimates


All of the above issues mean VRAY’s product is fundamentally flawed. Let me explain:

What is even more important than today is where the future of MRI LINAC is going. Now that Elekta has solved the fundamental technological challenges of MRI/LINAC interference with a high powered MRI, there is a clear future path for how this product segment will evolve. This progress will only leave VRAY increasingly irrelevant and left behind.

Once you have extremely high image quality, high frame rate and perfect beam accuracy, the next step in the future of MRI LINAC is in turning up the power of the LINAC. Current MRI LINAC machines are just 6MV while current standard LINACs have up to 18MV power. Once the MRI vs. LINAC electron interference issues are solved, the natural evolution of MRI LINAC is to turn up the radiation therapy past the fairly weak 6MV currently offered to improve treatment. The challenge this creates is more MRI/LINAC interference from the stronger LINAC. Cleary Elekta is superior in this regard given their experience in successfully using an MRI machine 428% more powerful (1.5T/0.35T = 428%) than VRAY’s. When this industry makes the next jump to a 12MV or 18MV LINAC beam with a 1.5T+ powered MRI, VRAY will be even further behind.

The evolution and enormous potential of “Functional MRI” means the next step in MRI LINAC is to move to a 3T MRI machine eventually too in order to gain even more beam accuracy, better fMRI and potentially even remove some of the initial diagnostic imaging steps done today before RT treatment. Again, VRAY today is far behind the curve on this without even offering a 1.5T product and their technological inferiority will only become more of an issue as competition continues to pull away with stronger MRIs. It appears Elekta already has this in the pipeline too.

Another fundamental issue with VRAY is they have no specialized skill set or experience in building either LINACs or MRI machines. In order to optimize the integration of each of these machines, we are seeing that design optimization in the fundamental magnet design and LINAC configuration are key. An independent company which simply bolts together designs made by outside contractors is fundamentally at a permanent disadvantage as this integration becomes increasingly complex. Time spent on failed Co60 products build no skill set for LINACs, and not only is VRAY’s technology fundamentally flawed but so is their entire company approach to construction.


Lastly, even if VRAY’s technology were equal to Elekta’s (it’s not) they will still lose. Hospitals globally are notoriously risk averse. If they can use a multi-billion dollar global company they already know and already use, or a small startup with too much debt and enormous cash burn, clearly they will use the established player. If a hospital CFO goes with the unproven, insolvent startup and then they have nobody in 2 years to service their $10m+ installed cost machine, that CFO would likely get fired.

This is one of the reasons why Accuray has been a perennial failure for years with their stock down so much.

Just compare these two financial statements and tell me which one YOU would rather make a $10m+ financial career bet on as a hospital CFO:



When I look at VRAY’s balance sheet and cash flows, I honestly am surprised they have sold even 1 of their machines as it looks like textbook financial death to me. I don’t know how any hospitals gained financial comfort that VRAY will even exist in 2 years let alone the 10+ year lifespan of a LINAC. Note that if/when VRAY goes bankrupt I don’t even know what happens to customers who have put down deposits for machines? Do they just lose their deposits entirely or are they forced to line up with the rest of the unsecured creditors in bankruptcy court?

Quick VRAY History Lesson – The People Behind VRAY

In order to fully understand VRAY, a quick history lesson is important so you can understand the true purpose of this company and why.

It is interesting that with these people I find a common pattern where an unviable “story” is brought into the public markets, typically via reverse merger, they get millions on stock, warrants and fees, and then ultimately the stock implodes leaving retail shareholders with tens (or hundreds) of millions of dollars in permanent losses.

For those unfamiliar with Adam Gottbetter, we suggest reading the SEC’s full complaint to better understand how Gottbetter and his company architected their frauds. Ultimately Gottbetter was fined $4.6 million and sentenced to 1.5 years in prison. With VRAY we have what appears to be the Gottbetter crew regrouped (since Gottbetter was jailed) and working together again.

Back in 2015, after burning through -$150m, VRAY was teetering on the edge of bankruptcy with an estimated 4 months of cash burn left and high debt. To try and raise cash to stave off insolvency, they attempted a$69m IPO in 2/2015. This quickly failed after they were forced to cancel the IPO, apparently from lack of investor demand.

Facing imminent bankruptcy and insolvency, VRAY’s future was grim. Rebooting a familiar pattern, the current “Gottbetter 2.0” team stepped in to create VRAY as a public entity and took millions in cash and stock warrants.

In 2015, VRAY merged with a shell owned by a 29 year old Russian woman using a gmail address and a Las Vegas phone number in VRAY’s public SEC filings (despite apparently being based in Russia?) and VRAY was birthed into the swampy world of penny stock wipeout teams. Into the picture enters Michael Silverman, Barret DiPaolo, Mark Tompkins and other associates to run the show as this old Gottbetter crew reformed for another go. Let’s see if you can spot the common pattern:

Michael Alan Silverman as MD of Katalyst Securities financing placement agent is a critical piece to the wipeout team responsible for bringing VRAY into the public markets (along with their insanely high fees and warrants) so you can now buy this VRAY stock.


Source: SEC Filings

In 2009 Michael Silverman was arrested in connection with an illegal gambling operation involving the bribing of police officers and loan sharking which was allegedly run by an Organized Crime Group.


Source: Department of Justice

It doesn’t even begin to stop there though as Silverman’s issues date back to 2006/2007, where he allegedly forged signatures of customers and then refused to cooperate with the investigation, which resulted in FINRA suspending him from the industry, and he was also suspended from his company indefinitely.


Source: FINRA Broker Check

Around this time, Silverman was working for McGinn Smith & Co., a brokerage firm that had racked up 25 regulatory disclosures and was eventually expelled by FINRA shortly after Silverman’s employment ended. Two of the firm’s brokers Timothy McGinn and David Smith were “convicted by a jury of swindling investors for more than $4.1 million in a “brazen investment scheme”. McGinn’s FINRA Broker Check shows that he was charged with mail fraud, wire fraud, and securities fraud in 2012, and was ultimately barred by SEC.

Prior to Katalyst Securities, Michael Silverman worked for Gottbetter Capital Markets which was owned by defamed and jailed stock manipulator Adam Gottbetter. It’s important to note Silverman’s employment overlaps the time frame of Gottbetter’s frauds.

So how do Michael Silverman and this group’s stocks typically work out for retail investors?

VRAY insiders involved: Mark Tompkins as financial supporter, Michael Silverman and Stephen Renaud as the financial placement agents alongside Scott Rapfogel attorney point of contact


Source: Capital IQ

VRAY insiders involved: Mark Tompkins as financial supporter and warrant holder, Michael Silverman, as placement agent’s broker alongside Stephen Renaud and Barrett DiPaolo serving as attorney point of contact


Source: Capital IQ

Or TapImmune (OTC:TPIV) where Michael Silverman and Katalyst Securities, served as broker-dealer placement agents again. TPIV has been better than most Michael Silverman stocks but has been a shareholder disaster over just about any time frame, shown below falling from $17 to $3.40 for a -79.8% decline so far.


Source: Capital IQ

There are others but you get the picture.

Another member of the old Gottbetter crew, Mark Tompkins, is an instrumental financing partner in the deal which helped VRAY temporarily avoid bankruptcy. Based on reporting done by Barrons, which we have not confirmed the accuracy of (but would not be surprised if it were true) it appears that Tompkins and Gottbetter have a very close relationship. Gottbetter apparently served as Tompkins’ lawyer, the two shared the same office space, were involved in the same stocks.

It appears the two eventually came under the spotlight of federal prosecutors who were investigating Tompkins and Gottbetter. Unfortunately for retail investors who had bought into Tompkins and Gottbetter deals, the damage had already been done, as Barrons highlights:

“The other stocks where they collaborated all collapsed after the initial pop.”

After reviewing some of the more recent stocks that Gottbetter and Tompkins were involved with, it appears that pattern is consistent. Among many others, Mark Tompkins and Gottbetter were both involved in both Cur Media, an OTC listed company that has lost nearly all of its value and wiped investors out. Tompkins was cornerstone financing partner and warrant holder alongside Gottbetter Capital Markets who made the financing happen to help Cur Media exist as a public company.


Source: Capital IQ

Mark Tompkins also coincidentally shows up involved in in WaferGen Bio-systems Inc. as financing partner again alongside Gottbetter & Partners who served as special counsel to WaferGen Bio-systems where the stock essentially went to $0 and was effectively a total wipeout:


Source: Capital IQ

The attorney who created VRAY through the reverse merger shell is also closely tied to Gottbetter and the team. Note the attorney Barrett DiPaolo’s name and fax number on the right filed in VRAY’s public SEC filings:

Source: VRAY SEC Filings

Today Barret DiPaolo claims to work at CKR but his contact information disclosed in a different healthcare penny stock (that both Gottbetter and Katalyst Securities were involved in) shows the address and fax number for the Gottbetter offices on Madison:

Source: SEC Filings

As you can see this address and phone number are the same ones used for Gottbetter


Source: SEC Filings

As is the fax number:


Source: SEC Filings


Source: SEC Filings

How do Barret DiPaolo stocks typically work out for their retail shareholders who hold onto their stock?

DiPaolo was the attorney with Gottbetter and both were involved with HK Battery Technology, Inc. (OTCPK:HKBT) together, a company that had several similarities to VRAY’s reverse merger and it turned out to be a complete failure which wiped the stock out:


Source: Capital IQ

VRAY insiders Mark Tompkins again served as financier to get it going while Michael Silverman was financing placement agent and Stephen Renaud shows up again as a shareholder, while Barrett DiPaolo serving as attorney, all of them together again in “Miramar Labs”:


Source: Capital IQ

Company: Tyme Technologies, Inc. (OTCQB:TYMI) is another interesting company that Barrett DiPaolo served as an attorney on.


Source: Capital IQ

Or how about Aramada Oil, another Gottbetter name, which apparently went bankrupt in 2015 which Barrett Dipaolo was attorney as well which went to ~$0 and was a total wipeout:


Scott Rapfogel also appears in the VRAY S-1 as an investor, who was also a listed contact person with Gottbetter & Partners before Adam Gottbetter went to jail.


Source: SEC Filings

Scott Rapfogel’s company’s curiously all seem to be disasters for retail investors also. Such as the company Bio-AMD, Inc. (OTCPK:BIAD) where Scott Rapfogel (Source) shows up as the contact person.


Source: Capital IQ

Or Scott Rapfogel showing up as contact person for Gottbetter & Partners in Betawave Corporation (OTC:BWAV)


Source: Capital IQ

Or Scott Rapfogel (Source) listed as contact person for Gottbetter at Dynastar Holdings, Inc. (OTCPK:DYNA)


Source: Capital IQ

Stephen A. Renaud is another former Gottbetter employee that is associated with Katalyst Securities and has 7 regulatory disclosures on his record with long ties to Michael Silverman who shows up as an original VRAY financing supporter in the S-1 filing.

How do stocks where Stephen Renaud shows up work out? Check out Valeritas as an example with VRAY insiders: Mark Tompkins again showing up as the key financial partner, Michael Silverman, again showing up for Katalyst Securities as financing placement agent alongside Stephen Renaud listed as warrant holder and financial partner, and Barrett DiPaolo again as the attorney.


Source: Capital IQ

More VRAY Financiers With Ties To Gottbetter:

Dinosaur Securities LLC is listed as an associated broker dealer of Gottbetter in SEC filings for the reverse merger EKSO:


Source: EKSO SEC Filing

And we can see that Dinosaur Securities also enabled the reverse merger which brought VRAY into the world


Source: VRAY SEC Filing

How do Dinosaur Securities stocks do for retail investors who hold on waiting for the story to play out?

IntelliCell BioSciences, Inc. (OTC:SVFC) was a stock where Dinosaur Securities LLC (Source) was retained for financing placement agent and we can see how that turned out:


And who can forget the “curious” huge run up and then collapse in the stock price chart of Nephros, Inc. (OTCQB:NEPH) where Dinosaur was again the financing placement agent.


Source: Capital IQ

This may seem like a harsh depiction but I challenge you to find a single public stock, any at all, where these people were all involved which turned out well for shareholders over a long time frame.

There are many other stock market wipeouts these people have been involved in but we can move on at this point as I think the point is clear.

What are VRAY Insiders Doing Here with These People?

VRAY insiders have collected and will collect, literally millions and millions of dollars in compensation regardless of VRAY failure and bankruptcy. As you can see below, VRAY insiders have already collected an estimated millions of dollars so far despite VRAY’s commercial failures and losses. Note that this is based on incomplete public documents and I expect the real number is likely much higher. Remember that VRAY has been a total commercial failure and almost went bankrupt once already. CEO Raanes alone has made nearly $5m just in the past few years.

It is important to note that the compensation increased dramatically in 2015 since VRAY partnered up with these people and birthed into this world via reverse merger.


Source: Capital IQ & Estimates

Also interesting is that despite the many millions in compensation, and Chris Raanes dumping >$1m in stock at his last company before it collapsed (Chris must be pretty wealthy), the insiders at VRAY own virtually zero VRAY stock themselves, with unsophisticated retail investors owning an estimated 12.3m shares or 14x more stock than insiders own!


Source: Capital IQ & Public Documents


Lastly, if VRAY was such an amazing company why are key employees leaving the company in droves? In 2016, a staggering 35 employees left this small company according to our estimates (based on publicly available information on LinkedIn).

In the 2015 10-K, we see that VRAY had 106 employees at year end, so the 2016 departures represent an estimated 33% of the total employees at the company. Note that many of these people were involved in critical technology development and R&D roles. Clearly, this is a staggering amount of turnover in critical employees for a supposed “growth” company, and far beyond any normal amount of turnover.

Note: SeekingAlpha prohibits us from posting these people’s names from Linkedin so we have substituted placeholders in the table below but you can easily run this same analysis yourself on LinkedIn for free to get the specific individual names.

Clearly, something is wrong here.


Source: LinkedIn

And why does VRAY have one of the worst employee ratings I have ever seen where apparently 89% of VRAY employees would not recommend this company to their friends?



These internal employee turnover issues are not what a successful technology company looks like. We see no chance that a company with this much key employee turnover, much of which occurred in high-level and mission-critical technology roles, can possibly compete especially when their technology is already years behind competitors.

Now that you are beginning to understand what VRAY truly is as a public stock market vehicle and who really benefits from this, let us go into more detail about why VRAY was unable to attract top VC firms, or really any reputable healthcare investors and why their IPO failed. Where is Sequoia? Where is Andresen Horowitz? Why did VRAY instead bring in this team who seem to leave stock market investor wipeouts in their wake?

An interesting side note is that Siemens previously worked with VRAY back in 2012, which some speculated was a natural acquirer. Instead of making any offer though (tellingly), after Siemens presumably looked deeper at VRAY, Siemens instead filed to sell 100% of their VRAY stock and effectively “passed” on this company entirely.

Key Investor Selling Millions In VRAY Stock

Given the research above it is also telling that VRAY’s key investor Impressa Management is now aggressively selling millions of dollars in VRAY stock.


Source: Public Filings & My Estimates

I estimate Impressa sold >$10m in VRAY stock so far, and at prices similar to where VRAY stock trades today. When smart, cornerstone investors are aggressively selling their stock, public shareholders with less insight would be wise to pay attention.

VRAY's Value Destruction

VRAY has been a black hole of value destruction that we believe has been foist onto the public markets via reverse merger by some very “questionable” bankers. Consequently, the VCs are trapped and are unable to exit this horrible investment, leaving unsophisticated investors holding the bag.

VRAY has already lost ~$276 million while generating minimal LTM revenue and huge operating losses.


Source: Capital IQ

Dilution, meanwhile, has been severe…


Source: Capital IQ

… and I remind you this all happens while insiders get filthy rich despite VRAY NEVER making money.

The company has barely managed to stay afloat with the help of a number of VCs that we believe are trying to cash out, leaving public markets investors holding the bag.

“Since ViewRay was founded in 2004, it has participated in 13 rounds of funding. In total, ViewRay has raised $251.3 Million. ViewRay's last funding round was on Jan 17, 2017, for a total of $26.1 Million.” - Owler

Source: Owler

VRAY’s Backlog:


Slowing and Unlikely to Convert

VRAY bulls are playing for


– a metric the company touts at every turn – but there is substantial precedent within the industry and at Chris Raanes’s last LINAC company for backlogs being overstated and collapsing, something we believe is likely to occur at VRAY.

Both of VRAY’s public comparables we found overstated their backlogs and were complete disasters with one going bankrupt, and the other declining 87% after going public, resulting in a flurry of lawsuits and an eight-figure legal settlement. Below, we review these two case studies as a window into VRAY’s backlog and then review VRAY’s own backlog problems.

VRAY Case Study 1: IMRIS A Market Darling Similar to VRAY that Quickly Went Bankrupt

Similar to VRAY, IMRIS went public with much fanfare based on a supposedly industry leading MRI machine and a later MRI LINAC partnership with Varian (one difference being that IMRS actually was a real IPO instead of a reverse merger like VRAY). Shares were quickly wiped out and went to zero after IMRS declared bankruptcy amidst falling sales and a backlog that did not convert to revenue and profits as expected.


Source: Capital IQ

Unlike VRAY, IMRS had limited debt when it went public and achieved a much larger sales base than VRAY ever had. It still went bankrupt after temporarily achieving a similar market cap to VRAY before its revenue imploded and trended down toward zero. IMRS never made a profit at the operating line, even at a revenue level ~4x VRAY’s current LTM revenue in 2010. As the backlog failed to convert from hopes and dreams to cold hard cash, the operating losses escalated dramatically in years 2011-2014 before bankruptcy occurred and IMRIS stock went to $0.


Source: Capital IQ

Importantly, unlike VRAY, IMRS had a strong, net cash balance sheet for most of its life as a public company, only taking debt for the first time in 2013 (the company declared bankruptcy two years later). VRAY is already in a much more precarious financial position than IMRS ever was, having failed to garner sufficient interest during its attempted (and failed) IPO process, having instead to settle for a sketchy reverse merger transaction with very “questionable” financing partners. Notably, despite VRAY’s sales have never meaningfully ramped, the company is already highly indebted while burning significant amounts of cash.

IMRS management was touting the company’s 9-figure backlog just months before IMRS filed for bankruptcy protection – does this sound familiar to VRAY?


Source: IMRS Filings

From 2011-2014 the backlog grew by $21m while revenue


by $41m over the same time period as customers failed to convert the backlog to actual revenue.

From the last IMRS conference call just months before bankruptcy:

“Our ability to look into our backlog and put together schedules with our customers that we have confidence in, that can be delivered on schedule. It's much higher than it's been before. We’re not perfect but

we have learned not to necessarily trust the customer schedule because as I mentioned earlier they tend to be very optimistic about how quickly they can get these systems installed.” - Jay Miller, IMRS CEO pre-bankruptcy

IMRS declared bankruptcy three months later after running a failed strategic process.

In the bankruptcy documents, a number key factors were cited that led to IMRS’ demise:

“Moreover, the imaging medical device industry is heavily competitive,

with the Company’s competitors being large medical systems suppliers that have considerably greater resources at their disposal than the Company does in terms of technology, manufacturing, product development, marketing, distribution, sales, commercialization, capital resources and human resources, with established relationships with hospitals.”

VRAY also faces a host of larger, stronger competitors, as we noted above.

“A combination of mounting losses, extensive capital expenditures

and delayed new product sales have resulted in severely constrained liquidity, which has significantly affected the Company’s liquidity and ability to pay its debts as they become due.”

Anyone following the VRAY story knows that quarter-after-quarter there are excuses about why the backlog does not convert to revenue, and that was before Elekta’s product even hit the market.

Which leads us to the part VRAY bulls really need to pay attention to:

Like VRAY, IMRS liked to tout the strength of its backlog based on having signed contracts with customers as well as deposits. It would be intuitive to most people to believe having such agreements with actual cash deposits would result in the backlog converting to revenue relatively quickly (or at all, for that matter)

but that was not the case


Specifically, from IMRS’ last 20-F:

“Bookings have been confirmed

with a purchase order or a deposit received, or are orders subject to the completion of formal documentation. Backlog is the unrecognized portion of revenues anticipated to be recorded from bookings.”

And from the 2Q14 IMRS conference call:

“The issue with 2014 is just basically two customers that have pushed their installation cycle.

They are solid booked backlog deals, we've got deposits, they want to move forward but in both cases, they are building new buildings, so just behind schedule. We are absolutely on schedule. If they pull the schedule in, we could move quickly to get the things installed, but they are behind schedule.”

– Jay Miller

But they


really on schedule, were they? Despite having a supposedly “solid” backlog with deposits IMRS was unable to convert. After a customer delays a large order for a quarter or two, that might easily be a standard implementation delay on a large order. After all, these machines are placed in custom built rooms within hospitals that require significant time and resources to construct, and hospitals are known to be bureaucratic by nature, so modest delays are not unexpected. However, when you have a

multi-year delay

in converting the backlog, that means your backlog is likely bogus: you’ve taken orders, but customers don’t actually want your product enough to convert out of the backlog.

This multi-year delay in converting the backlog is the current situation for VRAY. Reading the VRAY conference calls since inception reveals a litany of excuses and a growing backlog that simply doesn’t convert to revenue on either a meaningful scale or during a reasonable time period. Note that VRAY has already had one order canceled from the backlog too.

Like IMRS before it went bankrupt, VRAY’s revenue is declining, while its backlog is growing. It’s been YEARS since the backlog showed any material conversion to revenue – in fact, it never has. In our view, like IMRS, the backlog at VRAY is extremely dubious and should not be relied upon.

VRAY Case Study 2: Chris Raanes’s Last LINAC Company Settles Lawsuit for Backlog Overstatement while Insiders Insiders Sell Vast Quantities of Stock, Shares Decline 87% From Peak; Chris Raanes Among Large Sellers

In what is an even more instructive case for what we believe is likely occurring at VRAY we look at VRAY CEO Chris Raanes’s last LINAC company. The disastrous IPO of ARAY, another radiation therapy company where ARAY delivered a crushing blow to early investors in the company’s IPO after it came to light that the backlog was dramatically overstated and company executives were unable to convert a large portion of the backlog into timely revenue. The lawsuit alleges Chris’s company falsely overstated the backlog by $127m while insiders dumped millions in dollars of stock at inflated prices. Chris is named in the lawsuit as he allegedly personally sold ~$1.4m of stock before the backlog imploded.

It is important to note that Chris Raanes was the COO of Accuray in this timeframe. If the Chief Operational Officer of the company is not intimately familiar with the operational dynamics of his company’s backlog, then I don’t know who is.

Also eerily similar to VRAY, it appears that right before the company blew up Accuray’s management stopped providing consistent transparency into the backlog with some internal backlog accounting definitions changing right around this time.

The inability to convert the backlog into revenue in a timely manner (or at all) is a recurring theme in this industry.

Shares of ARAY declined 85% from peak, but not before insiders sold over 10 million shares.

Notably, Chris Raanes, current CEO of VRAY, was among the insiders at ARAY (he was COO at ARAY) and personally dumped a seven-figure dollar amount of stock at inflated prices as the backlog vaporized into thin air.

This is the same Chris who won’t stop promoting the VRAY backlog that doesn’t convert! Caution!

The case number for the lawsuit is 4:09-cv-03637-CW and I strongly recommend you go and read this. The case alleges several points that occurred at ARAY that we believe are eerily familiar to the current situation at VRAY:

  • ARAY insiders overstated the backlog by $127 million.
  • The backlog was a critical component of determining bonuses.
  • ARAY reported continually growing revenue and backlog, including claiming to have achieved record revenue and backlog, right before the backlog vaporized and the stock was crushed.
  • Ultimately, ARAY


    many orders from its backlog

Despite the backlog vaporizing, insiders were able to personally sell 10 million shares of ARAY for gross proceeds in excess of $209 million. Chris Raanes sold near $1.4m worth of stock at inflated prices: ARAY shares then cratered from $18 at the IPO price to a low of $3.75 soon after as shareholders were left holding the bag. ARAY stock never even came close to recovering over the next decade.

Source: ARAY Lawsuit

Shareholders had a much less profitable ride than Chris did, as ARAY’s stock price declined 87% and never came back.


Source: Capital IQ

Most shockingly, from reviewing case number 4:09-cv-03362-CW we can see that

ARAY paid an eight-figure sum to settle this securities fraud lawsuit. Directly quoting the lawsuit:

“In consideration of the terms of this Stipulation, Accuray shall pay or cause its insurers to pay the sum of $13,500,000 (the "Settlement Amount") […] No Individual Defendant shall be personally responsible for paying any portion of the Settlement Amount.”

In reading the original case, we viewed the evidence of alleged backlog fraud as overwhelming and are not surprised to see this settled quickly and quietly before going to trial. Disappointingly, insiders – those who allegedly committed the backlog fraud – were not held personally responsible, which creates an end result where ARAY shareholders were essentially on the hook for the settlement fee in addition to being the ones who were originally bagged based on the severely overstated backlog.

Weirdly, Chris is on record suggesting he hopes VRAY becomes the next ARAY as if that is a good thing. ARAY has been a horrendously bad investment with numerous fundamental issues and consistently huge losses. Since 2004 (as far back as data is available), ARAY has only made money in one year. This is an atrocious track record. In fact, ARAY’s retained earnings deficit is a shockingly bad -$445 million (the company has lost almost half a billion dollars since inception!) as the share count has ballooned from 11.7m shares to a whopping 83m, a greater than 7-fold increase. Investors have been diluted into oblivion.


Source: Capital IQ

Despite these horrendous results, ARAY has never been able to profitably take market share with its products. ARAY equity is a “walking zero” in the stock market given the price decline and rampant dilution – early investors have effectively been wiped out. We believe VRAY’s early investors will ultimately experience an even worse fate.

Here’s the thing for VRAY bulls: ARAY spent much of its early life as a public company promoting deposits and customer contracts as well, and yet the backlog was allegedly fraudulent by a 9-figure amount while Chris was Chief Officer of Operations.

What does that tell you about VRAY’s CEO and backlog?

Case #3: Viewray – The Curious Case of the Backlog…..

Let’s start with our quick analysis of the numbers that VRAY has made publicly available, focusing specifically on the bolded sections – total backlog, total revenue, and the conversion rate, which we define as total revenue / total backlog within the same period.


Source: Publicly Available VRAY Data and My Estimates

Key Point #1: The Backlog Conversion Rate Is Poor

The first thing to notice is that the conversion rate is pathetically low, with an estimated range of ~12-17% annually. In other words, only about $0.12-0.17 on the dollar for the much-touted backlog appear to have actually converted to revenue historically. Worse, the incremental conversion in the backlog between FY15 and the most recent period shows disappointing acceleration: Backlog increased from $84.4m to 144.9m (+$60.5m) while the revenue converted was a meager ~$13m, for a conversion rate of approximately 21%. You don’t have to be a math major to realize that it would take about 5 years at that run rate to fully convert the backlog (though we suspect remedial math courses would be helpful to some VRAY longs). Keep in mind, these figures cover a 5-quarter time period:

what is taking so long?

Key Point #2: The Backlog Definitions are Subjective

A few quotes directly from the VRAY 10-K regarding the backlog:

  • We define backlog as the accumulation of all orders for which revenue has not been recognized and

    we consider valid.

  • Orders may be revised or cancelled

    according to their terms or upon mutual agreement between the parties.
  • Therefore, it is difficult to predict with certainty the amount of backlog that will ultimately result in revenue.

  • The determination of backlog includes an objective and

    subjective judgment

    about the likelihood of an order contract becoming revenue.
  • For removal of an order from our backlog, the following criteria are considered: changes in customer or distributor plans or financial conditions;

    the customer’s or distributor’s continued intent

    and ability to fulfill the order contract; changes to regulatory requirements; the status of regulatory approval required in the customer’s jurisdiction, if any; and

    other reasons for potential cancellation of order contracts


VRAY has announced loudly and clearly that the backlog is subjective and that orders are cancellable based on customer intent or for “other reasons” (whatever that means). In fact, VRAY goes so far as to say that it is difficult to predict “with certainty” the amount of the backlog that will even convert to revenue.

So why do they spend so much time talking about the backlog? Presumably, because it’s better than talking about the company’s paltry revenue amount and continuing significant cash burn.

Further, there is a growing sense even among sell side touts that the backlog is stale and has consistently disappointed.

From the 2Q16 VRAY conference call:

Suraj Kalia(Northland Securities Tout / Banker)

“For backlog, what specifically is the time duration after which you'll say, ‘you know what, we’ve got to remove this order from backlog.’ I know others use some amount like 30 months and what not. How do you define for backlog?”

Ajay Bansal(VRAY CFO)

“Yeah. Suraj, we look at our backlog where orders are valid and we're expecting to deliver and where we have a signed contract.

We are not assessing it from the lens of a time duration that if it’s not going to be installed in two years, it will not be a part of the backlog.”

Even the sell-side banker is questioning the backlog as being stale!

What customer in their right mind would pay ~$6m plus ongoing maintenance costs for a machine that is inferior to a competitor’s product being released in just a few months? The question answers itself.

Key Point #3: Why Did Chris and VRAY Management Stop Providing Backlog Transparency? VRAY’s Backlog Growth is Already Slowing

In my experience, it is never a good sign when management stops providing transparency into a key operating metric, like the number of units in a company’s backlog. Just this quarter, for the first time, VRAY has stopped providing shareholders with transparency into the number of units in the backlog or the number of units ordered. Why would they do this? They certainly made this decision for a reason so what gives?

Starting with this quarterly report, we will refer to orders, backlog and installation

by their total dollar value only


The only reason I can think of that this makes sense is either the backlog is slowing or VRAY is about to cut prices big time, which would accelerate their impending bankruptcy.

While VRAY cutting prices would be even better for the shorts, from what I can estimate it appears that VRAY’s backlog is



Remember that there is no real recurring revenue in VRAY’s business model. Once they install a machine they need to put another one in the backlog or the business is fundamentally shrinking. That is why the fact that VRAY’s backlog is already decelerating, before Elekta has even finished 501k/CE mark, should be very concerning.

We don’t know for sure what’s going on with VRAY’s backlog numbers and current clients swapping out their Co60 systems for the LINAC setup because VRAY did not answer our calls. So we are forced to estimate.

We know from the Q&A that VRAY booked $5.8m of customer Cobalt60 system, and it seems logical to us that these would be put in the backlog with other customer orders. If that is true then sequentially we can see that VRAY’s backlog increased by a total of $11.7m. If we estimate that $5.8m of that was from conversions then VRAY only booked $5.9m of the new unit backlog. Given average ASP for VRAY has been ~$5.7m this means VRAY only added an estimated one new unit to their backlog.


Source: My Estimates

This is the lowest backlog unit growth since VRAY became public and a HUGE deceleration from the 4 units they claim to have added in the previous quarter.

Even if for some reason management did not put the $5.8m of current customer conversions in the backlog that would still mean VRAY only added ~2 new units to their backlog, which is still a -50% slowdown from previous quarters.

No matter how you cut it, VRAY is clearly already feeling the pressure and their business is already slowing. For a company with a $400m valuation without material revenue and a lot of debt, this is a serious issue and I believe the only reason VRAY stock did not gap down on that quarter was because of the unsophisticated retail shareholder base that hasn’t yet done the math

Key Point #4: 50% of the Backlog is Supplier Based

This leaves VRAY very vulnerable as they do not have internal transparency or direct connection with their customers so almost impossible for VRAY management to have any real insight into how solid their backlog ultimately is because they are not as close to their customers when sales are done by outside people.

Key Point #5: Competitors Are Launching Superior Products Imminently; No Reason for Customers to Take Bankruptcy Risk with VRAY

We’ve already shown how superior competitors are in the process of launching superior products in the very near future. We pose the important question everyone should be asking: Why take the risk of a company teetering on the edge of insolvency when making a multi-million dollar purchase that will last for the next decade? Will VRAY even be around to service the machines they install? Better go with Elekta.


We believe it is abundantly clear that VRAY will never consistently generate profits or positive free cash flow, so we can’t value the shares on traditional valuation metrics. And as we saw with ARAY, unprofitable revenue might actually have a negative value as the company continues to lose money and dilute shareholders while destroying economic value, so we can’t value VRAY on sales, either.

Given these challenges, we value VRAY with a blended probability-adjusted approach. The downside scenario is based on a probable long-term bankruptcy for VRAY, and we assign a 75% probability to this scenario given VRAY’s impaired balance sheet, continually mounting losses, and obsolete technology, and apparent inability to access traditional equity capital via the traditional IPO process. In this case, shares are worth $0.

The second approach is to value VRAY based on its historic cumulative R&D spend since 2012, even though much of the spending happened before the LINAC machine was being developed, and then we very generously assume that a strategic acquirer would be willing to pay 100 cents on the dollar for this R&D spend instead of just acquiring VRAY out of bankruptcy. We then subtract the current net debt on VRAY’s last reported balance sheet to arrive at VRAY’s upside equity value per share. Note that our valuation math may be overly generous as we have not baked in the continued cash burn rate that VRAY is experiencing daily.

We assign a 25% probability to this upside scenario, which again may be overly generous. Readers should note that IMRS spent $69m on R&D between 2006 – 2014 but was acquired out of bankruptcy for a mere $9.5m from one of its debt holders. Shareholders were wiped out. We think it’s extremely unlikely that anyone would pay face value for VRAY’s R&D spending, but we’re intellectually honest and recognize that the bulls need something to play for, even if it doesn’t make sense.

VRAY’s cumulative lifetime R&D going back through 2012 (as far as we have public data) is $51m.


My Estimates & Public Filings

Source: My Estimates

Bulls should take solace that the upside scenario for VRAY appears to be marginally better than the downside scenario.

Alternately, IMRIS was eventually bought out of bankruptcy by their lender for$9.5m or 0.39x revenue which would put a valuation of $19.5m for VRAY based on that same 0.39x multiple applied to VRAY management’s guidance for $50m in 2017 revenue. This seems very generous to us since that revenue guidance appears beyond unlikely in our view and the 0.39x ev/sales multiple comes from the IMRIS sale, and we already established how IMRIS was a superior company relative to VRAY in virtually every way. Given VRAY’s $45m+ of debt, this generous $19.5m valuation leaves VRAY equity deeply out of the money and worth <$0.

Management Response

We called the company multiple times and were unable to reach management during any of the calls.


Now that you understand why and how VRAY has lost -$275m while insiders have been allowed to collect millions, you also need to understand the onerous debt terms VRAY was forced into in order to keep this going. Since we believe there is effectively 0% chance VRAY sustains >$110m in run rate revenue, this means VRAY will be forced into bankruptcy in 2018-2019. At that point, VRAY will be in financial violation of the terms of their debt and they will be pushed into bankruptcy as cash burn accelerates.

There are many financial terms in this debt agreement you need to understand because the simple fact is VRAY is extremely leveraged with lots of debt and hemorrhaging cash, with a fundamentally unviable business. I don’t see the updated full term loan agreement after the latest round of covenant amendments, so we are forced to estimate from the documents we do have.

Ultimately though I believe the most important covenant for VRAY is this one on page 61 of their term loan agreement which requires VRAY get to >$110m in run rate sales or be in violation of their debt terms:


Note that VRAY has already been forced to modify the $80m debt covenant down to $60m or VRAY would already be in noncompliance today, so VRAY revenue is already coming in -25% weaker than expected in the original debt agreement.

Since VRAY’s product is clearly inferior and VRAY’s backlog already appears to be decelerating, I believe there is essentially zero chance VRAY ever sustains the necessary revenue numbers above.

As customers prefer the better technology from the financially stable competitor, much of VRAY’s backlog will likely disappear and have to be restated as happened to bankrupt IMRIS and VRAY CEO Chris Raanes’s last company Accuray. If VRAY even does $40m in 2017 revenue (and consequently burns off $40m of backlog) then they need to do $70m+ in 2018 revenue to avoid a debt default and then continue to follow that up in 2019 and then again in 2020. No way!

When their only product continues to flop in 2018 the backlog will come unwound and revenue will continue to disappoint, VRAY’s stock will implode from the temporary and unsustainable $400m+ valuation while cash burn will accelerate. This will leave VRAY unable to cure the debt default and the equity will be worthless.

No matter what happens just look at this debt repayment schedule from VRAY’s 10k. The simple fact is VRAY is not a viable commercial business and will never generate cash flow to repay this large amount of debt. VRAY can PIK or amend all they want, but in the end, they are just digging themselves a deeper hole they will never get out of.


Don’t forget that operating leases are financial obligations which can result in bankruptcy the same as debt, so you can add these on top of debt payments:


I wish there were a better outcome to realistically expect here but because VRAY is so heavily indebted and their product fundamentally flawed and behind the curve, the equity is likely to be worthless as any value will end up owned by the debt holders, like what happened with superior peer company IMRIS.

*please be sure to review full disclaimer in Mako Research profile

Disclosure: I am/we are short VRAY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This is source I found from another site, main source you can find in last paragraph

Source : https://seekingalpha.com/article/4089011-viewray-initiate-strong-sell-questionable-backlog-product-inferiority-bankruptcy-concerns



ViewRay: Initiate Strong Sell On Questionable Backlog, Product Inferiority, And Bankruptcy Concerns
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