Collaboration Arrangements

12 Months Ended

Dec. 31, 2018

Collaboration Arrangements

5. Collaboration Arrangements

Janssen Pharmaceuticals, Inc.

On September 9, 2017, the Company received notice from Janssen of its termination, effective as of November 8, 2017, of the Collaboration and License Agreement between the Company and Janssen dated May 19, 2015, as amended (the “Janssen Agreement”).

Under the terms of the Janssen Agreement, the Company 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, 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. 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. 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 milestone payments and royalties had the Janssen Agreement not been terminated.

Janssen terminated the Janssen Agreement under section 14.6 of the Janssen Agreement, which allowed for unilateral termination at Janssen’s discretion upon 60 days’ written notice to the Company at any time prior to the submission of the first application for marketing approval for a licensed product in any of the major market countries specified in the Janssen Agreement. Pursuant to its notice of termination, Janssen informed the Company that with an increasing number of effective therapies addressing medical need in hepatitis C, Janssen had made a strategic decision to discontinue the development of JNJ-4178, a three-drug combination regimen that contained one of the Company’s HCV product candidates that it licensed to Janssen under the Janssen Agreement. Following the termination, all licenses granted by either party to the other under the Janssen Agreement terminated, except to the extent necessary to allow either party to perform any obligations or exercise rights that survive the termination.

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 provided guidance on accounting for multiple-element arrangements prior to January 1, 2018, 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.

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. The Shares were offered pursuant to a shelf registration statement that was previously 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. Because the Company has no performance obligations under these agreements, it intends to recognize revenue related to any milestone payment upon achievement of a milestone by GCAT or Ora. The Company does not believe it is probable that any milestone will be achieved in the next twelve months under these arrangements.