Esperion Therapeutics, Inc.

The Company reviews all arrangements to determine if the contract contains a lease or an embedded lease using the criteria in ASC 842. If a lease is identified, the Company reviews the consideration in the contract and separates the lease components from the nonlease components. In addition, the Company reviews the classification of the lease between operating and finance leases. According to ASC 842, lessees should discount lease payments at the lease commencement date using the rate implicit in the lease. If the rate implicit in the lease is not readily determinable, a lessee must use its incremental borrowing rate for purposes of classifying the lease and measuring the right-of-use asset and liability. To the extent the rate is not implicit in the lease, the Company uses the incremental borrowing rate it would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.

The Company has entered into an agreement related to its activities to develop, manufacture, and commercialize its product candidates. The Company earns collaboration revenue in connection with a collaboration agreement to develop and/or commercialize product candidates where the Company deems the collaborator to be the customer. The Company has adopted ASC 606, Revenue from Contracts with Customers, and under the terms of the standard, revenue is measured as the amount of consideration expected to be entitled to in exchange for transferring promised goods or providing services to a customer. Revenue is recognized when (or as) the Company satisfies performance obligations under the terms of a contract. Depending on the terms of the arrangement, the Company may defer the recognition of all or a portion of the consideration received as the performance obligations are satisfied.

The Company considered the guidance under ASC 606 and concluded that the agreement was in the scope of ASC 606. The Company concluded that the upfront payment of $150 million should be included in the transaction price and related to the following performance obligations under the agreement: 1) the license to the Company’s intellectual property and 2) the obligation to provide ongoing regulatory and development activities. The Company used the adjusted market assessment approach in determining the standalone selling price of the Company’s intellectual property and the expected cost plus margin approach in determining the standalone selling price of the Company’s obligation to provide ongoing regulatory and development activities. Accordingly, for the three months ended March 31, 2019, the Company recognized $145.4 million of collaboration revenue related to the $150 million upfront payment. The $145.4 million relates to the performance obligations for the license to the Company’s intellectual property and a portion of ongoing regulatory and development activities conducted during the period ended March 31, 2019, in the amounts of $144.4 million and $1.0, respectively. The remaining $4.6 million of the upfront payment was deferred as of March 31, 2019 due to an on-going performance obligation related to the ongoing regulatory efforts related to the MAA in the DSE Territory. This deferred revenue will be recognized ratably over the period leading up to the approval of the MAA acceptance by the EMA.

The Company has operating leases primarily related to the Company’s principal executive office and other IT related equipment. The lease for the principal executive office has a lease term of 5 years and the IT equipment primarily has a term of 3 years. During the three months ended March 31, 2019, the Company recognized $0.1 million of operating lease costs, recognized on the Condensed Statements of Operations, and paid cash for the amounts included in the measurement of lease liabilities of $0.1 million, which were included in operating cash flows on the Condensed Statements of Cash Flows. At March 31, 2019, the weighted-average remaining lease term of operating leases was 4.5 years and the weighted average discount rate was 8.6%. There were no right of use assets obtained in exchange for lease obligations in the three months ended March 31, 2019. The Company had no additional operating and finance leases that have not yet commenced as of March 31, 2019.

We have entered into an agreement related to our activities to develop, manufacture, and commercialize our product candidates. We earn collaboration revenue in connection with a collaboration agreement to develop and/or commercialize product candidates where we deem the collaborator to be our customer. We have adopted ASC 606, Revenue from Contracts with Customers, and under the terms of the standard, revenue is measured as the amount of consideration we expect to be entitled to in exchange for transferring promised goods or providing services to a customer. Revenue is recognized when (or as) we satisfy performance obligations under the terms of a contract. Depending on the terms of the arrangement, we may defer the recognition of all or a portion of the consideration received as the performance obligations are satisfied.