ACHN 2017 Annual Report

Achillion Pharmaceuticals, Inc. Notes to Financial Statements—(Continued) (in thousands, except per share amounts) all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. Under the terms of the Collaboration and License Agreement between the Company and Janssen Pharmaceuticals, Inc. (“Janssen”) dated May 19, 2015, as amended (the “Janssen Agreement”), the Company had granted Janssen exclusive worldwide rights to develop and commercialize products that contained one or more of the Company’s drug candidates for the treatment of chronic hepatitis C virus, (“HCV”), namely odalasvir, a second-generation NS5A inhibitor, ACH-3422, a NS5B HCV polymerase inhibitor, and sovaprevir, a NS3/4A HCV protease inhibitor. In May 2015, the Company also entered into a parallel transaction with Janssen’s affiliate, JJDC, Inc. (“JJDC”) pursuant to which JJDC purchased 18,367 shares (the “Shares”) of the Company’s common stock at a price of $12.25 per share, for an aggregate purchase price of $225,000 pursuant to a stock purchase agreement (the “JJDC Stock Purchase Agreement”). In connection with the purchase of the Shares, the Company and JJDC also entered into an investor agreement (the “Investor Agreement”) on July 1, 2015 governing specified rights and obligations of JJDC with respect to its ownership of the Shares. Pursuant to the terms of the Janssen Agreement, the Company was required to provide technology transfer services related to the chemistry, manufacturing and know-how to Janssen for up to 180 days after the effective date of the agreement. In accordance with ASC 605-25, which provides guidance on accounting for multiple- element arrangements, including the determination of the units of accounting and allocation of total arrangement consideration, the Company identified all of the obligations at the inception of the Janssen Agreement. The significant obligations were determined to be the license and the technology transfer services. The Company determined that license and technology transfer services represented a single unit of accounting because they were not viewed to have standalone value. The Janssen Agreement entered into by the Company and Janssen, and the JJDC Stock Purchase Agreement and the Investor Agreement, which were entered into by the Company and Janssen’s affiliate, were entered into in contemplation of each other. The only upfront amount received by the Company in exchange for the license and technology transfer services and the issuance of the Shares was the $225,000. The Company determined that the amount received in excess of the fair value of the Shares upon issuance of $66,122 was attributed to the license and technology services. The Company also determined that there was no discernable pattern in which the technology services would be provided during the 180 day period after the effective date. In accordance with ASC 605-10, the Company determined that straight-line attribution of the license and technology services revenues would be used to recognize revenue. As such, revenue of $66,122 was recorded during the year ended December 31, 2015 associated with this transaction. Under the terms of the Janssen Agreement, the Company earned a $15,000 clinical milestone payment in December 2016 and would have been eligible to receive additional milestones in the future. The Company elected to apply the guidance in ASC 605-28 to the milestones. These milestones, if achieved, were substantive as they would relate solely to past performance and were commensurate with estimated enhancement of value associated with the achievement of each milestone as a result of the Company’s performance. On September 9, 2017, the Company received notice from Janssen of Janssen’s termination, effective as of November 8, 2017, of the Janssen Agreement. In November 2017, JJDC sold all of the Shares of the Company’s common stock it acquired under the JJDC Stock Purchase Agreement. Stock-Based Compensation—Employee Stock-Based Awards The Company applies the provisions of ASC 718, Stock Compensation, which requires measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including F-10