ACHN 2017 Annual Report

technology services would be provided during the 180 day period after the effective date. In accordance with ASC 605-10, we determined that straight-line attribution of the license and technology services revenues would be used to recognize revenue. As such, revenue of $66.1 million was recorded during the year ended December 31, 2015 associated with this transaction. Under the terms of the Janssen Agreement, we earned a $15.0 million clinical milestone payment in December 2016 and would have been eligible to receive additional milestones in the future. We 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 our performance. On September 9, 2017, we received notice from Janssen of Janssen’s termination, effective as of November 8, 2017, of the Janssen Agreement. As a result of the termination of the Janssen Agreement, we will not receive any future milestone-based or royalty payments under that agreement, and Janssen will not bear the future costs of developing and commercializing our HCV portfolio. Stock-Based Compensation—Employee Stock-Based Awards We apply ASC 718, Stock Compensation, which requires measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options under our stock incentive plans and employee stock purchases under our 2006 ESPP Plan, based on estimated fair values. We primarily grant stock options for a fixed number of shares to employees with an exercise price equal to the market value of the shares at the date of grant. Under the fair value recognition provisions, stock-based compensation cost is based on the value of the portion of stock-based awards that is ultimately expected to vest. We utilize 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. We base our estimate of the expected term on historical data for similar stock option grants and we calculate volatility based on actual volatility for the expected term of the option. We estimate forfeitures at the grant date and recognize compensation costs for only those awards that are expected to vest. If factors change and we employ different assumptions in future periods, or if we experience significant fluctuations in our stock price, the compensation expense that we record may differ significantly from what we have recorded in the current period. Therefore, we believe it is important for investors to be aware of the degree of subjectivity involved when using option pricing models to estimate stock-based compensation. There is risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may differ from the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future. Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that is significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. Although the fair value of employee share-based awards is determined using an option pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. Accrued Expenses As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves identifying services which have been performed on our behalf and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. 83