Plymouth Cnty. Ret. Ass'n v. ViewRay, Inc.

Decision Date25 August 2021
Docket NumberCase No. 1:19-cv-2115
Citation556 F.Supp.3d 772
Parties PLYMOUTH COUNTY RETIREMENT ASSOCIATION, et al., Plaintiffs, v. VIEWRAY, INC., et al., Defendants.
CourtU.S. District Court — Northern District of Ohio

Donald A. Broggi, Max R. Schwartz, Randy Moonan, Rhiana L. Swartz, Thomas L. Laughlin, IV, Scott & Scott, New York, NY, Geoffrey M. Johnson, Scott & Scott - Chagrin Falls, Cleveland Heights, OH, for Plaintiff Plymouth County Retirement Association.

Allison K. Kostecka, Monica K. Loseman, Gibson, Dunn & Crutcher, Denver, CO, Michael D. Meuti, Benesch, Friedlander, Coplan & Aronoff, Cleveland, OH, for Defendants ViewRay, Inc., Scott Drake, Ajay Bansal, James F. Dempsey.

Monica K. Loseman, Gibson Dunn & Crutcher, Denver, CO, for Defendants Chris A. Raanes, Shahriar Matin.


J. Philip Calabrese, United States District Judge Defendant ViewRay, Inc., is a small medical device company that manufactures MRI-guided radiation systems used to locate, target, and treat cancer

. Plaintiff Plymouth County Retirement Association purchased ViewRay common stock on the NASDAQ stock exchange. After ViewRay's stock price dropped in late 2019, Plaintiff sued ViewRay and various current and former executives for securities fraud. Defendants move to dismiss (ECF No. 59) the second amended complaint (ECF No. 55). For the reasons discussed below, the Court GRANTS Defendants’ motion and DISMISSES the second amended complaint.


Taking the facts alleged in the second amended complaint as true and construing them in favor of the non-moving party, Plaintiff bases its claims in this putative class action on the following facts.

A. ViewRay's Business and Products

ViewRay manufactures and markets the Linac MRIdian, which uses magnetic resonance imaging

technology paired with a radiation beam to image and treat cancer at the same time. (ECF No. 55, ¶ 30, PageID #1262.) This product represents an upgrade over an earlier first-generation product and uses a more advanced linear accelerator, which irradiates cancer cells with less collateral damage. (Id. ) Various overseas regulatory authorities approved the MRIdian device between 2016 and 2018, and the Food and Drug Administration approved it for use in the United States in February 2017. (Id. ) Nearly all of ViewRay's revenue relates to the sale of MRIdian systems. (Id. , ¶ 31.)

An MRIdian system costs approximately $6 million and is substantially more expensive than some competing systems that provide radiation therapy without the MRI feature that distinguishes ViewRay's product. (Id. , ¶ 32, PageID #1262–63.) By the same token, however, a comparable competitive product that combines radiation therapy and MRI sells for about the same price. (Id. ) Typically, a customer needs between nine and fifteen months to prepare its facility to house an MRIdian system—a concept referred to as vault readiness. (Id. , ¶ 36, PageID #1264.) Installation and calibration take an additional sixty to ninety days. (Id. , PageID #1265.) For ViewRay, the time between placement of an order to completion of installation, at which point the company recognizes revenue from the transaction for accounting purposes, takes between twelve and eighteen months. (See id. ; id. , ¶¶ 37 & 38.)

In July 2015, ViewRay went public through a reverse merger and private placement and trades on the NASDAQ under the symbol "VRAY." (ECF No. 55, ¶¶ 2, 19, 28, PageID #1253, 1259, 1262.) Since going public, ViewRay sought to raise capital on several different occasions through various private, semi-private, and public offerings of common stock. (See id. , ¶¶ 33–33e.) In July, November, and December 2019, Plymouth purchased ViewRay common stock on the open market at prices ranging from $9.46 per share (on July 19, 2019) to $3.13 (on December 4, 2019). (See ECF No. 28, PageID #426.)

B. ViewRay's Officers and Directors

The second amended complaint names the following ViewRay officers and directors as Defendants:

President and CEO. Since June 24, 2018, Scott Drake has served as ViewRay's President and Chief Executive Officer and holds a seat on its board of directors. (ECF No. 55, ¶ 21, PageID #1259.)

Chief Financial Officer. From June 8, 2016, until his departure from the company on September 30, 2019, Ajay Bansal was ViewRay's Chief Financial Officer. (Id. at ¶ 22, PageID #1259–60.)

Chief Scientific Officer. James Dempsey founded ViewRay and serves as the company's Chief Scientific Officer; he also sits on its board. (Id. at ¶ 23, PageID #1260.)

Chief Operating Officer. Since June 24, 2018, Shahriar Matin has been ViewRay's Chief Operating Officer. (Id. , ¶ 25, PageID #1261.)

Former President and CEO. From February 4, 2013, until July 22, 2018, Chris Raanes served as ViewRay's President and Chief Executive Officer and as a member of the board. (Id. at ¶ 24, PageID #1260.)

C. The Allegedly Fraudulent Scheme

According to the second amended complaint, ViewRay, as an early-stage company struggling to generate revenue and turn a profit, touted to the market a large number of MRIdian orders—the backlog—that promised a stream of revenue in the foreseeable future. (Id. , ¶¶ 3, 40, PageID #1254, 1266.) Plaintiff alleges that ViewRay emphasized its backlog as "the true marker of the Company's success," and notes that several analysts identified the backlog of orders as a critical focus for investors. (Id. , ¶¶ 40 & 41–42, PageID #1266–67.)

In their filings with the Securities and Exchange Commission and on earnings calls with analysts throughout the class period, ViewRay often discussed the backlog. For example, Mr. Drake said during the 1Q18 earnings call that "orders is a big [measure of progress] and we're shining a bright light on that internally ... and with investors" and that "the most import[ant] metric to me in 2019 is orders is because that's what we can impact." (Id. , ¶ 40, PageID #1266.) ViewRay repeatedly stated it was "scaling up [its] ability to secure new orders and install more systems simultaneously," while also reducing installation time from sixty-to-ninety days down to thirty or forty. (Id. , ¶ 72, PageID #1278.) By March 31, 2018, ViewRay valued its backlog at roughly $195 million, a nearly $50 million increase from the same time the previous year. (Id. , ¶¶ 71–72, PageID #1277–78.)

According to ViewRay's 1Q18 Form 10-Q, the company kept its backlog up to date by performing a "quarterly review of backlog to verify that outstanding orders in backlog remain valid" and by removing "orders that are no longer expected to result in revenue." (Id. , ¶ 73, PageID #1278–79.) Notwithstanding these reported efforts to update the backlog and remove "aging and some of the nonprogress" orders, for the most part the backlog was "fairly current" and "fairly sticky," meaning that the orders were likely to turn into completed sales. (Id. , ¶ 78, PageID #1280.)

By September 30, 2018, ViewRay valued its backlog at approximately $200 million. (Id. , ¶ 84, PageID #1282 (quoting 3Q18 Form 10-Q).) And on January 7, 2019, ViewRay reported its "backlog grew to $212 million," even after it removed three systems from the backlog following its quarterly review. (Id. , ¶ 86, PageID #1282–83.) As for revenue, at a JPMorgan Global Healthcare Conference in January 2019, Mr. Drake stated that he had "confidence that [the company] would be able to install what's forthcoming in 2019 and recognize revenue." (Id. , ¶ 87, PageID #1283–84.) On March 14, 2019, in its FY18 Form 8-K, ViewRay predicted revenue for FY19 would be "in the range of $111—$124 million." (Id. , ¶¶ 89, 90, PageID #1284.)

On July 19, 2019, Plymouth made its first purchase of ViewRay stock, buying 19,877 shares for $9.46 per share; less than two weeks later it bought 8,905 more shares for $9.08 per share. (ECF No. 28, PageID #426.)

D. ViewRay Revises Its 2019 Financial Guidance

A few days after Plymouth's second stock acquisition, ViewRay began to temper revenue expectations. (ECF No. 55, ¶ 105, PageID #1288–89.) A short time later, ViewRay reported a $30.8 million loss, while simultaneously adding only three new orders to the backlog. (Id. ) It also cut its revenue target from the previous range of $111 million to $124 million, down to between $80 million and $95 million. (Id. ) Despite this revision, ViewRay reported its backlog was holding at $219.3 million. (Id. , ¶ 106, PageID #1289.) During a press conference later that same day, ViewRay disclosed to analysts that it had removed two orders from an overseas distributor from the backlog. (Id. , ¶ 107, PageID #1289.) The following trading day, ViewRay's stock price slid 54%, closing at $3.10 per share. (Id. , ¶ 111, PageID #1291.) Analysts then began revising and lowering their earnings-per-share targets for the company. (See id. , ¶¶ 112–112(g), PageID #1292–93).

On November 12, 2019, ViewRay filed its 3Q19 Form 8-K, reporting total revenue of $20.9 million, but losses of $20.8 million, resulting in profits of just $0.21 per share. (Id. , ¶ 113, PageID #1293.) ViewRay continued to maintain, however, that the backlog was both stable and increasing, growing to $230.7 million as of September 30, 2019—a $30 million increase from the same time the year before. (Id. , ¶ 114, PageID #1293.)

A week later, on November 19, 2019, Plymouth made its single largest acquisition of ViewRay stock, purchasing 34,116 shares at a price of $2.88 per share. (ECF No. 28, PageID #426.) It bought another 11,364 shares on December 3, 2019 at $4.51 per share and, in its final acquisition, 3,636 shares on December 4, 2019 at $3.13 per share. (Id. ) In total, Plymouth purchased 77,898 shares of ViewRay stock at a total price of just under $430,000 at prices per share ranging from a low of $2.88 to a high of $9.46. (Id. )

On January 13, 2020, ViewRay released 4Q19 and FY19 results, disclosing that it had generated less than $17 million in revenue and received only four new orders. (Id. , ¶ 119, PageID #1294–95.) Analysts were again disappointed. (See ...

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