SEC Filings

10-Q
ARRAY BIOPHARMA INC filed this Form 10-Q on 05/10/2017
Entire Document
 

 
 
 
Fair Value Measurement as of March 31, 2017
 
($ in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
   Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury securities
 
$
122,714

 
$

 
$

 
$
122,714

 
Mutual fund securities
 
$
282

 
$

 
$

 
$
282

 
   Long-term Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual fund securities
 
$
647

 
$

 
$

 
$
647

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 

 
 
 

 
 
 

 
 
 

 
Notes payable, at fair value
 
$

 
$

 
$
12,100

 
$
12,100

 

The table below provides a rollforward of the changes in fair value of Level 3 financial instruments for the nine months ended March 31, 2017, comprising the Redmile Notes described below: 
 
($ in thousands)
 
Notes Payable at Fair Value
Balance at June 30, 2016
 
$

Additions during the period
 
10,000

Change in fair value
 
2,100

Balance at March 31, 2017
 
$
12,100


Redmile Notes

To measure the fair value of the principal amount on the Notes issued to Redmile, the Company was required to determine the fair value of the principal amount on the Notes and the conversion feature of the Notes. The Company utilized a Monte Carlo simulation to determine the method of payment of the principal amount by potential outcome and scenario, and applied the income approach to determine the fair value of the Notes, discounting the principal amount due under the Notes by market interest rates under potential scenarios. The Monte Carlo simulation utilized the following assumptions: (i) expected term; (ii) common stock price; (iii) risk-free interest rate; and (iv) expected volatility. The assumptions the Company used in the simulation were based on factors the Company believed that participants would use in pricing the liability components, including market interest rates, credit standing, yield curves, volatilities, and risk-free rates, all of which are defined as Level 3 observable inputs.

To measure the fair value of the conversion feature of the Notes issued to Redmile, the Company performed an analysis to estimate the pre-money value of the 797 Subsidiary. The Company then applied the pre-money value of the 797 Subsidiary to the conversion scenarios under the Notes to determine the fair value of the conversion feature.

The Company incorporated the estimated volatilities and the risk-free rates on the principal amount of the Notes into the Monte Carlo simulation under each potential scenario and weighted volatility and rates based on the probability of each scenario occurring. Subsequently, the estimated implied interest rates were applied to the principal amount of these Notes under potential scenarios and were weighted based on the probability of each scenario occurring. 

The fair value of the Notes was impacted by certain unobservable inputs, most significantly management's assumptions regarding the discount rates used, the probabilities of certain scenarios occurring, expected volatility, share price performance, and expected scenario timing. Significant changes to these inputs in isolation or in the aggregate could result in a significantly different fair value measurement.

NOTE 6 – STOCKHOLDERS’ DEFICIT

Common Stock Offering

20