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Why ViewRay Inc. Shares Are Rallying Today

A nurse stands beside a MRIdian system.

What happened

After the company updated investors on its progress marketing its MRIdian Linac System, shares in ViewRay, Inc. (NASDAQ: VRAY) were up 11% as of 1:16 p.m. EDT today.

So what

ViewRay markets systems that provide doctors with greater insight when treating cancer patients with radiation. Specifically, the company has developed the MRIdian Linac system, the first system to combine MRI imagery with linear accelerator (LINAC) technology.

A nurse stands beside a MRIdian system.

Image source: ViewRay.

Linac technology can currently be paired up with X-ray and CT imagery to assist doctors in targeting radiation, however, X-ray and CT imagery can't differentiate between soft tissue as clearly as a MRI. Historically, linac couldn't be used alongside MRI because linac creates radiofrequency interference for MRIs, and an MRI's magnetic field interferes with linac.

ViewRay's MRIdian Linac overcomes those challenges, and it won FDA approval in February.

In the second quarter, the company received $37.3 million in orders, up from $17.1 million in the same quarter last year. Those orders increased the company's backlog to $182.1 million from $100.7 million in June 2016.

The company hopes to install seven to eight systems this year, and it will report revenue when those installations are complete. As a result, Q2 sales were just $0.7 million, and its net loss in the quarter was $8.4 million, or $0.15 per share.

Now what

Linac is used to treat the majority of cancer patients who receive radiation, so there is arguably a big opportunity to win business from treatment centers as they upgrade their existing linac systems. According to ViewRay's annual report , two-thirds of all cancer patients receive radiation, and 97% of those patients are treated using linac.

Currently, there are 11,000 linacs installed globally at over 7,500 treatment centers, according to IAEA Human Health Campus. Management believes the addressable market for linac systems is 1,100 per year, the majority of which are replacement units.

It remains to be seen how many of these orders turn into sales, but ViewRay estimates that the sale of seven to eight systems will translate into full-year revenue of between $45 million to $50 million.

Overall, ViewRay is an intriguing investment, but customers can cancel orders, and there's a long sales cycle, as well as a lengthy period of time between ordering and installation. Although studies are ongoing that could demonstrate MRIdian Linac is statistically superior to existing linac, that evidence isn't yet available. ViewRay's system does offer advantages, however, that could make it a valuable tool -- especially in complex cases. For this reason, I think this company's stock is worth watching.

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Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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