ACHN 2017 Annual Report

Achillion Pharmaceuticals, Inc. Notes to Financial Statements—(Continued) (in thousands, except per share amounts) Stock-Based Compensation Under the provisions of ASC 718, stock-based compensation cost is based on the fair value of the portion of stock-based awards that is ultimately expected to vest during the period. The Company utilizes the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of the stock-based awards. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options, the expected volatility of our stock and expected dividends. The Company also estimates forfeitures at the grant date and recognizes compensation costs for only those awards that are expected to vest. Judgment is required in estimating the number of stock-based awards that are expected to be forfeited. The Company bases its estimate of the expected term on historical data for similar stock option grants, and calculates volatility based on actual volatility for the expected term of the option. The assumptions used to value options granted are as follows: For the Years Ended December 31, 2017 2016 2015 Expected term of option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.0 years 6.0 – 6.25 years 6.25 years Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82% – 83% 81% – 84% 84% – 91% Risk free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04 – 2.27% 1.15 – 2.09% 1.54 – 1.93% Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0% 0% 0% Total compensation expense recorded in the accompanying statements of comprehensive loss associated with option grants made to employees for the years ended December 31, 2017, 2016 and 2015 was $10,479, $10,900 and $9,887, respectively. Total compensation expense recorded in the accompanying statements of comprehensive loss associated with option grants made to consultants for the years ended December 31, 2017, 2016 and 2015 was $0, $5 and $25, respectively. The Company recorded no tax benefit related to these options as the Company is currently in a net operating loss position and maintains a full valuation allowance. As of December 31, 2017, the total compensation cost related to options not yet recognized in the financial statements is approximately $12,312, net of estimated forfeitures, and the weighted average period over which it is expected to be recognized is 2.3 years. Compensation expense related to option grants made to employees and consultants is included in research and development and general and administrative expense as follows: For the Years Ended December 31, 2017 2016 2015 Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,408 $ 4,601 $4,346 General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,071 6,304 5,567 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,479 $10,905 $9,913 2006 Employee Stock Purchase Plan The Company established an Employee Stock Purchase Plan effective December 1, 2006 (the “2006 ESPP Plan”). Eligible employees can purchase common stock pursuant to payroll deductions at a price equal to 85% of F-23