ACHN 2017 Annual Report

Achillion Pharmaceuticals, Inc. Notes to Financial Statements—(Continued) (in thousands, except per share amounts) 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. In accordance with ASC 605-25, “Revenue Recognition—Multiple-element arrangements,” 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 only upfront amount received by the Company in exchange for the license and technology transfer services and the issuance of the Company’s common stock was the $225,000. The Company determined that the amount received in excess of the fair value of the Company’s common stock 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, “Revenue Recognition—Overall,” 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. Pursuant to the terms of the Investor Agreement, which remained in effect following the termination of the Janssen Agreement, the Shares were subject to a lock-up restriction, voting covenants and a standstill agreement, each of which expired on July 1, 2016. In February 2017, the Company entered into an agreement with JJDC (the “Lock-Up Agreement”) pursuant to which the Shares became subject to a new lock-up restriction, which expired on the earlier of January 31, 2018, or the date that was sixty days after the first public announcement of top-line clinical results from Janssen’s phase IIb OMEGA-1 clinical trial of JNJ-4178, a three drug combination for the treatment of HCV which contained odalasvir, one of the HCV drug candidates the Company had licensed to Janssen under the Janssen Agreement. On November 15, 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Goldman Sachs & Co. LLC and Leerink Partners LLC, acting as representatives of the underwriters named therein, and JJDC, as selling stockholder, relating to an underwritten public offering (the “Offering”) of the Shares of the Company’s common stock, held by JJDC. The Shares were offered pursuant to a shelf registration that was declared effective on April 28, 2017. In connection with the Offering, the Company entered into a letter agreement (the “Letter Agreement”), dated November 14, 2017, with JJDC pursuant to which the Company and JJDC agreed, that effective upon execution and delivery of the Underwriting Agreement: (1) the Company agreed to release the restrictions on the disposition of the Shares by JJDC, which JJDC previously agreed to in the Lock-Up Agreement in connection with the filing of the shelf registration statement referred to above; (2) the Company and JJDC agreed to amend the investor agreement (the “Investor Agreement”) that the Company and JJDC entered into on July 1, 2015 in connection with JJDC’s acquisition of the Shares to provide that the Company would pay $2,900 of the aggregate underwriting discounts and commissions of the Offering, which was determined based on a calculation set forth in the Letter Agreement; and (3) the Company and JJDC agreed that, following the closing of the Offering, the Investor Agreement would terminate and be of no further force or effect. Other Arrangements. The Company also has license agreements with GCA Therapeutics, Ltd (“GCAT”), for elvucitabine, its nucleoside reverse transcriptase inhibitor for the treatment of both hepatitis B infection and human immunodeficiency virus infection and with Ora, Inc. (“ORA”), for the development and commercialization of ACH-702 delivered topically or locally. The Company does not believe that the milestones specified under these agreements are substantive as achievement of the milestones is based solely on the performance of GCAT and F-17