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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-36152
 
Aerie Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 20-3109565
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification Number)
4301 Emperor Boulevard, Suite 400
Durham, North Carolina 27703
(919) 237-5300
(Address of principal executive offices, zip code and telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareAERINasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:      No:  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes:      No:  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer 
  Accelerated filer
Non-accelerated filer 
  Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 29, 2022, there were 48,622,987 shares of the registrant’s common stock, par value $0.001 per share, outstanding.


TABLE OF CONTENTS
 
  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Unless otherwise indicated or the context requires, the terms “Aerie,” “Company,” “we,” “us” and “our” refer to Aerie Pharmaceuticals, Inc. and its subsidiaries. References to “products” mean products approved by the U.S. Food and Drug Administration (“FDA”) or other regulatory authorities; references to “product candidates” mean products that are in development but not yet approved by the FDA or other regulatory authorities; and references to “future product candidates” mean products that have not yet been developed.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may, in some cases, use terms such as “predicts,” “believes,” “potential,” “proposed,” “continue,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “would,” “could,” “might,” “will,” “should,” “exploring,” “pursuing” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.
Forward-looking statements appear in a number of places throughout this report and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things:
the broad impact of the coronavirus (“COVID-19”) pandemic on our business;
the sales of Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”) or of Rocklatan® (netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan®”), in the United States, and the potential future sales in the United States of any product candidates or future product candidates, if approved;
the potential future sales in jurisdictions outside of the United States of Rhopressa®, named Rhokiinsa® (netarsudil ophthalmic solution) 0.02% (“Rhokiinsa®”) in Europe, or Rocklatan®, named Roclanda® (netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“Roclanda®”) in Europe, or their equivalents, and those of any product candidates or future product candidates;
our commercialization, marketing, manufacturing and supply management capabilities and strategies in and outside of the United States;
third-party payer coverage and reimbursement for our products, product candidates and any future product candidates, if approved;
the glaucoma patient market size and the rate and degree of market adoption of our products, product candidates and any future product candidates, if approved, by eye-care professionals and patients;
the timing, cost or other aspects of the commercial launch of our products, product candidates and any future product candidates, if approved;
the success, timing and cost of our ongoing and anticipated preclinical studies and clinical trials for our product candidates and any future product candidates, including statements regarding the timing of initiation and completion of the studies and trials;
our expectations regarding the effectiveness of our products, product candidates and any future product candidates and our expectations regarding the results of any clinical trials and preclinical studies;
the timing of and our ability to request, obtain and maintain FDA or other regulatory authority approval of, or other action with respect to our products, product candidates and any future product candidates in the United States, Europe, Japan and elsewhere, including the expected timing of, and regulatory and/or other review of, filings for such products, product candidates and any future product candidates;
our expectations related to the use of proceeds from our financing activities;
our estimates regarding anticipated operating expenses and capital requirements and our needs for additional financing;
ii

our plans to pursue development of additional product candidates and technologies in ophthalmology, including development of our products or product candidates for additional indications, and our preclinical retinal programs and other therapeutic opportunities;
the potential advantages of our products, product candidates and any future product candidates;
our ability to protect our proprietary technology and enforce our intellectual property rights; and
our expectations regarding existing and future collaborations, licensing, acquisitions and strategic operations, including our ability to in-license or acquire additional ophthalmic products, product candidates or technologies.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, industry changes and other factors beyond our control, and depend on regulatory approvals and economic and other environmental circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022, and other documents we have filed or furnished with the SEC.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods.
In particular, FDA and European Medicines Agency (“EMA”) approval of Rhopressa® and Rocklatan®, and Medicines and Healthcare products Regulatory Agency (“MHRA”) authorization of Roclanda® does not guarantee regulatory approval of Rhopressa®, Rocklatan® or Roclanda® in other jurisdictions, and there can be no assurance that we will receive regulatory approval for Rhopressa®, Rocklatan® or Roclanda® in such other jurisdictions. In addition, FDA approval of Rhopressa® and Rocklatan® does not guarantee FDA approval of our product candidates or any future product candidates and there can be no assurance that we will receive FDA approval for our product candidates or any future product candidates. Furthermore, the acceptance of the Investigational New Drug Applications by the FDA for our product candidates does not guarantee FDA approval of such product candidates and the outcomes of later clinical trials for our product candidates may not be sufficient to submit a New Drug Application (“NDA”) with the FDA or to receive FDA approval. In addition, the clinical trials discussed in this report are preliminary and the outcome of such clinical trials may not be predictive of the outcome of later clinical trials. Any future clinical trial results may not demonstrate safety and efficacy sufficient to obtain regulatory approval related to the clinical trials findings discussed in this report, and we may suspend or discontinue research programs at any time for any reason.
Any forward-looking statements that we make in this report speak only as of the date of this report. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether the result of new information, future events or otherwise, after the date of this report.
iii

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
MARCH 31, 2022DECEMBER 31, 2021
Assets
Current assets
Cash and cash equivalents$56,441 $37,187 
Short-term investments138,807 102,614 
Accounts receivable, net63,617 68,828 
Inventory40,190 40,410 
Licensing receivable 90,000 
Prepaid expenses and other current assets17,911 16,611 
Total current assets316,966 355,650 
Long-term investments3,985  
Property, plant and equipment, net51,226 51,472 
Operating lease right-of-use assets21,916 22,669 
Other assets1,453 1,600 
Total assets$395,546 $431,391 
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities
Accounts payable$7,877 $8,285 
Accrued expenses and other current liabilities102,950 112,341 
Operating lease liabilities4,464 4,365 
Total current liabilities115,291 124,991 
Convertible notes, net311,678 234,527 
Deferred revenue, non-current70,000 64,315 
Operating lease liabilities, non-current21,033 21,751 
Other non-current liabilities3,256 3,140 
Total liabilities521,258 448,724 
Commitments and contingencies (Note 12)
Stockholders’ deficit
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of March 31, 2022 and December 31, 2021; none issued and outstanding
  
Common stock, $0.001 par value; 150,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 48,635,700 and 48,444,473 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
48 48 
Additional paid-in capital1,016,510 1,136,656 
Accumulated other comprehensive loss(430)(126)
Accumulated deficit(1,141,840)(1,153,911)
Total stockholders’ deficit(125,712)(17,333)
Total liabilities and stockholders’ deficit$395,546 $431,391 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1


AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
 
 THREE MONTHS ENDED MARCH 31,
 20222021
Product revenues, net$29,835 $22,970 
Total revenues, net29,835 22,970 
Costs and expenses:
Cost of goods sold6,780 6,700 
Selling, general and administrative31,524 32,598 
Research and development25,174 17,891 
Total costs and expenses63,478 57,189 
Loss from operations(33,643)(34,219)
Other expense, net(1,555)(7,714)
Loss before income taxes(35,198)(41,933)
Income tax expense693 31 
Net loss$(35,891)$(41,964)
Net loss per common share—basic and diluted$(0.76)$(0.91)
Weighted average number of common shares
 outstanding—basic and diluted
47,520,045 46,109,080 
Net loss$(35,891)$(41,964)
Unrealized loss on available-for-sale investments, net(304)(12)
Comprehensive loss$(36,195)$(41,976)
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
(Unaudited)
(in thousands, except share data)

 
 COMMON STOCKADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED OTHER
COMPREHENSIVE LOSS
ACCUMULATED
DEFICIT
TOTAL
 SHARESAMOUNT
Balances at December 31, 2020
46,821,644 $47 $1,103,074 $(52)$(1,079,101)$23,968 
Issuance of common stock upon exercise of stock options and warrants62,016 — 26 — — 26 
Issuance of common stock for restricted stock awards, net10,162 — (1,127)— — (1,127)
Stock-based compensation— — 8,741 — — 8,741 
Other comprehensive loss— — — (12)— (12)
Net loss— — — — (41,964)(41,964)
Balances at March 31, 202146,893,822 $47 $1,110,714 $(64)$(1,121,065)$(10,368)
 COMMON STOCKADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED OTHER
COMPREHENSIVE LOSS
ACCUMULATED
DEFICIT
TOTAL
 SHARESAMOUNT
Balances at December 31, 2021
48,444,473 $48 $1,136,656 $(126)$(1,153,911)$(17,333)
Cumulative effect adjustment from adoption of ASU 2020-06— — (124,666)— 47,962 (76,704)
Issuance of common stock for restricted stock awards, net191,227 — (358)— — (358)
Stock-based compensation— — 4,878 — — 4,878 
Other comprehensive loss— — — (304)— (304)
Net loss— — — — (35,891)(35,891)
Balances at March 31, 202248,635,700 $48 $1,016,510 $(430)$(1,141,840)$(125,712)
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands) 
 THREE MONTHS ENDED 
MARCH 31,
 20222021
Cash flows from operating activities
Net loss$(35,891)$(41,964)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation1,604 1,499 
Amortization and accretion2,007 7,408 
Stock-based compensation4,632 8,749 
Other non-cash(50)1,116 
Changes in operating assets and liabilities
Accounts receivable, net5,211 9,872 
Inventory538 (1,052)
Prepaid, current and other assets(1,211)(4,286)
Licensing receivable90,000  
Accounts payable, accrued expenses and other current liabilities(9,517)(10,297)
Operating lease liabilities(1,097)(1,846)
Deferred revenue5,685 747 
Net cash provided by (used in) operating activities
61,911 (30,054)
Cash flows from investing activities
Purchase of available-for-sale investments(70,308)(25,236)
Proceeds from sales and maturities of investments29,605 28,288 
Purchase of property, plant and equipment(1,597)(772)
Net cash (used in) provided by investing activities
(42,300)2,280 
Cash flows from financing activities
Payments related to issuance of stock for stock-based compensation arrangements, net(357)(1,101)
Net cash used in financing activities
(357)(1,101)
Net change in cash and cash equivalents19,254 (28,875)
Cash and cash equivalents, at beginning of period37,187 151,570 
Cash and cash equivalents, at end of period$56,441 $122,695 
Non-cash investing and financing activities
Purchase of property, plant and equipment in accounts payable and accrued expenses and other current liabilities$742 $182 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

AERIE PHARMACEUTICALS, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. The Company
Aerie Pharmaceuticals, Inc. (“Aerie”), with its wholly-owned subsidiaries, Aerie Distribution, Inc., Aerie Pharmaceuticals Limited, Aerie Pharmaceuticals Ireland Limited and Avizorex Pharma S.L. (“Aerie Distribution,” “Aerie Limited,” “Aerie Ireland Limited” and “Avizorex,” respectively, together with Aerie, the “Company”), is a pharmaceutical company focused on the discovery, development and commercialization of first-in-class ophthalmic therapies for the treatment of patients with eye diseases and conditions including open-angle glaucoma, dry eye, diabetic macular edema (“DME”) and wet age-related macular degeneration (“AMD”). The Company has its principal executive offices in Durham, North Carolina, and operates as one business segment.
U.S. Commercialization of the Glaucoma Franchise
The Company has developed and commercialized two U.S. Food and Drug Administration (“FDA”) approved products, Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”) and Rocklatan® (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan®”), which are sold in the United States and comprise its glaucoma franchise. Rhopressa® is a once-daily eye drop designed to reduce elevated intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension. Rocklatan® is a once-daily fixed-dose combination of Rhopressa® and latanoprost, a commonly prescribed drug for the treatment of patients with open-angle glaucoma or ocular hypertension. The Company is commercializing Rhopressa®, which was launched in the United States in April 2018, and Rocklatan®, which was launched in the United States in May 2019.
In March 2022, the Company commenced a Phase 4 program that was designed to further demonstrate that Rocklatan® is a highly effective single bottle, once daily therapy.
Efforts Outside the United States
In addition to actively promoting Rhopressa® and Rocklatan® in the United States, the Company is also developing business opportunities outside of the United States and has made progress in its efforts to commercialize Rhopressa® and Rocklatan® in Europe, Japan and other regions of the world.
The Company partnered and has collaboration agreements in place with Santen Pharmaceuticals Co., Ltd. (“Santen Pharmaceuticals”) and Santen SA (“Santen SA” and, together with Santen Pharmaceuticals, “Santen”) to develop and commercialize its products in Japan and South Korea, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Taiwan (collectively, “East Asia”), as well as Europe, China, India, the Middle East, Commonwealth of Independent States (“CIS”), Africa, parts of Latin America and the Oceania countries. The initial Collaboration and License Agreement with Santen was executed in October 2020 (the “First Santen Agreement”) to advance the Company’s clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan and East Asia. The second Collaboration and License Agreement with Santen (the “Second Santen Agreement” and, together with the First Santen Agreement, the “Santen Agreements”) was executed in December 2021 to develop and commercialize Rhopressa® and Rocklatan® in Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries. See Note 3 for additional information. In Europe, Rhopressa® and Rocklatan® will be marketed under the names Rhokiinsa® and Roclanda®, respectively.
Rhokiinsa® and Roclanda® were granted a Centralised Marketing Authorisation (“Centralised MA”) by the European Commission (“EC”) in November 2019 and January 2021, respectively. In April 2021, Roclanda® received marketing authorisation from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in Great Britain.
In Japan, in October 2021, the Company reported positive topline results for its Phase 3 clinical trial of netarsudil ophthalmic solution 0.02% (“netarsudil 0.02%”), the first of three expected Phase 3 clinical trials in Japan. A second, confirmatory Phase 3 study, required for approval in Japan, is currently underway. Santen is taking the lead on next steps in preparation for registration in Japan under the terms of the First Santen Agreement. Clinical trials for Rocklatan® in Japan have not yet begun.
Glaucoma Product Manufacturing
The Company has a sterile fill manufacturing facility in Athlone, Ireland (“Athlone plant”), for the production of its FDA approved products and clinical supplies. In addition, the Athlone plant has also manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan as well as registration batches to support product approval in Japan.
5

Product Candidates in Development
The Company is furthering the development of its product candidates focused on dry eye and retinal diseases as described below.
Dry Eye Program
The Company is developing AR-15512 ophthalmic solution for the treatment of patients with dry eye disease. The active ingredient in AR-15512 is a potent and selective agonist of the TRPM8 ion channel, a cold sensor and osmolarity sensor that regulates tear production and blink rate. In addition, activating the TRPM8 receptor may reduce ocular discomfort by promoting a cooling sensation.
In September 2021, the Company reported topline results of its Phase 2b clinical study, named COMET-1, for AR-15512. The Company completed a dose ranging study evaluating two concentrations of AR-15512 (0.0014% and 0.003%) in a 90-day trial with 369 subjects. The COMET-1 clinical study achieved statistical significance for multiple pre-specified and validated signs and symptoms. The greatest efficacy was demonstrated with the higher concentration 0.003% formulation, which the Company plans to advance to Phase 3 studies. The study did not achieve statistical significance at the pre-determined primary endpoints at Day 28. The Company gained alignment with the FDA in the first quarter of 2022 on the results of the Phase 2b clinical trial and confirmed the design of the Phase 3 registrational trials.
Retina Program
The Company is currently developing two sustained-release implants focused on retinal diseases, AR-1105 and AR-14034 SR. For AR-1105, a dexamethasone steroid implant, the Company completed a Phase 2 clinical trial for patients with macular edema due to retinal vein occlusion (“RVO”) in July 2020 and reported topline results indicating sustained efficacy of up to six months.
The preclinical sustained-release implant AR-14034 SR is being designed to deliver the active ingredient axitinib, a potent small molecule pan vascular endothelial growth factor (“VEGF”) receptor inhibitor. AR-14034 SR has the potential to provide a duration of effect of approximately one year with a once per-year injection. It may potentially be used to treat DME, wet AMD and related diseases of the retina.
Liquidity
The Company’s activities prior to the commercial launch of Rhopressa® had primarily consisted of developing product candidates, raising capital and performing research and development activities. The Company has incurred losses and experienced negative operating cash flows since inception. The Company had previously funded its operations primarily through the sale of equity securities and issuance of convertible notes prior to generating product revenues. In September 2019, the Company issued an aggregate principal amount of $316.25 million of 1.50% convertible senior notes due October 2024 (the “Convertible Notes”). See Note 10 for additional information. Further, the Company entered into the First Santen Agreement and Second Santen Agreement in October 2020 and December 2021, respectively, pursuant to which Santen made upfront payments of $50.0 million and $88.0 million, respectively. In December 2021, the Company also earned a $2.0 million supplemental upfront payment associated with the Second Santen Agreement. Total aggregate upfront payments of $90.0 million associated with the Second Santen Agreement (the “Second Santen Agreement Upfront Payment”) were received in January 2022. See Note 3 for additional information. As of March 31, 2022, the Company had $199.2 million in cash, cash equivalents and investments. The Company believes that its cash, cash equivalents and investments and projected cash flows from revenues, will provide sufficient resources to support its operations, including interest payments for its Convertible Notes, through at least the next twelve months from the date of this filing.
The Company expects to incur ongoing operating losses until such a time when Rhopressa® or Rocklatan® or any current or future product candidates, if approved, generate sufficient cash flows for the Company to achieve profitability. Accordingly, the Company may be required to obtain further funding through debt or equity offerings or other sources. In addition, the Company continues to evaluate collaboration and licensing opportunities related to its product candidates in development. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.
6

2. Significant Accounting Policies
Basis of Presentation
The Company’s interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022. The results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of Aerie and its wholly-owned subsidiaries. All intercompany accounts, transactions and profits have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, leases, acquisitions, stock-based compensation and fair value measurements. On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a pandemic. The COVID-19 pandemic continues to evolve, which the Company considered in its critical and significant accounting estimates as future developments continue to be uncertain, including as a result of new information that may emerge concerning COVID-19 and its variants and the actions taken to contain or treat it, as well as the economic impact on eye-care professionals, patients, third parties and markets. Actual results could differ from the Company’s estimates.
Adoption of New Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). This ASU simplifies the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and the derivative scope exception for contracts in an entity’s own equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument, such as the Convertible Notes, will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments and requires additional disclosures. The guidance became effective for the Company beginning on January 1, 2022, and was applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date. As such, financial results reported in prior periods were not adjusted. The impact of adopting ASU 2020-06 on January 1, 2022, was comprised of a $124.7 million decrease to additional paid-in capital, a $76.7 million increase to convertible notes, net to reduce debt discounts and a $48.0 million decrease to accumulated deficit. Upon adoption of ASU 2020-06, the Company’s interest expense, recognized as a component of other expense, net in its condensed consolidated statements of operations and comprehensive loss, will decrease which primarily relates to no longer recognizing non-cash interest expense from the discount amortization, partially offset by an increase in amortization of debt issuance costs. See Note 10 for additional information.
Recently Issued Accounting Standards
There have been no new accounting pronouncements issued since the filing of the Annual Report on Form 10-K for the year ended December 31, 2021 that are expected to materially impact the Company’s consolidated financial statements.
7

Net Loss per Common Share
Basic net loss per common share (“Basic EPS”) is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share (“Diluted EPS”) gives effect to all dilutive potential shares of common stock outstanding during this period. For Diluted EPS, net loss used in calculating Basic EPS may be adjusted for certain items related to the dilutive securities.
For all periods presented, Aerie’s potential common stock equivalents have been excluded from the computation of Diluted EPS as their inclusion would have had an anti-dilutive effect.
The potential common stock equivalents that have been excluded from the computation of Diluted EPS consist of the following:
 THREE MONTHS ENDED 
MARCH 31,
 20222021
Convertible Notes (1)
12,662,650  
Outstanding stock options6,711,485 8,720,368 
Non-vested restricted stock awards 1,077,745 714,005 
Non-vested restricted stock units151,282 95,238 
Total20,603,162 9,529,611 
(1)     Upon adoption of ASU 2020-06 on January 1, 2022, the if-converted method is applied to the Convertible Notes in the calculation of earnings per share. Prior to the adoption of ASU 2020-06, the Company did not include the conversion value of the Convertible Notes in the diluted earnings per share computation.
3. Revenue Recognition
Product Revenues
Net product revenues for the three months ended March 31, 2022 and 2021 were generated from sales of Rhopressa® and Rocklatan®, the Company’s glaucoma franchise products, which were commercially launched in the United States in April 2018 and May 2019, respectively. Aerie’s customers include a limited number of national and select regional wholesalers (the “distributors”). For the three months ended March 31, 2022, three distributors accounted for 38%, 35% and 26% of total revenues, respectively. For the three months ended March 31, 2021, three distributors accounted for 36%, 30% and 33% of total revenues, respectively. Product affordability for the patient drives consumer acceptance, and this is generally managed through coverage by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and such product may be subject to rebates and discounts payable directly to those Third-party Payers.
Product revenues are recorded net of trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives in the condensed consolidated statements of operations and comprehensive loss, discussed below. These reserves are classified as either reductions of accounts receivable or as current liabilities in the condensed consolidated balance sheets. Amounts billed or invoiced are included in accounts receivable, net on the condensed consolidated balance sheets. The Company did not have any contract assets (unbilled receivables) as of March 31, 2022 or December 31, 2021, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract liabilities as of March 31, 2022 or December 31, 2021, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers. The Company calculates its net product revenues based on the wholesale acquisition cost that the Company charges its distributors for Rhopressa® and Rocklatan® less provisions for (i) trade discounts and allowances, such as discounts for prompt payment and distributor fees, (ii) estimated rebates to Third-party Payers, estimated payments for Medicare Part D prescription drug program coverage gap (commonly called the “donut hole”), patient co-pay program coupon utilization, chargebacks and other discount programs and (iii) reserves for expected product returns. Provisions for revenue reserves reduced product revenues by $63.8 million and $50.8 million in aggregate for the three months ended March 31, 2022 and 2021, respectively, a significant portion of which related to commercial and Medicare Part D rebates.
Trade Discounts and Allowances: The Company generally provides discounts on sales of Rhopressa® and Rocklatan® to its distributors for prompt payment and pays fees for distribution services and for certain data that distributors provide to the Company. The Company expects its distributors to earn these discounts and fees, and accordingly deducts the full amount of these discounts and fees from its gross product revenues at the time such revenues are recognized.
8

Rebates, Chargebacks and Other Discounts: The Company contracts with Third-party Payers for coverage and reimbursement of Rhopressa® and Rocklatan®. The Company estimates the rebates, donut hole and chargebacks it expects to be obligated to provide to Third-party Payers and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates, donut hole and chargebacks that it expects to be obligated to provide to Third-party Payers based upon (i) the Company's contracts and applicable negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa® and Rocklatan® based on utilization of both third-party and the Company’s historical data, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.
Product Returns: The Company estimates the amount of Rhopressa® and Rocklatan® that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The Company currently estimates product returns based on historical information regarding returns of Rhopressa® and Rocklatan® as well as historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa® and Rocklatan® shipped to distributors, and contractual agreements with the Company's distributors intended to limit the amount of inventory they maintain. Reporting from the distributors includes distributor sales and inventory held by distributors, which provides the Company with visibility into the distribution channel to determine when the product would be eligible to be returned.
Santen Collaboration and License Agreements
Second Santen Agreement
In December 2021, Aerie Ireland Limited entered into the Second Santen Agreement with Santen which expands the scope of the First Santen Agreement, entered into in October 2020. Pursuant to the Second Santen Agreement, Aerie Ireland Limited granted to Santen the exclusive right to develop and commercialize Rhopressa® and Rocklatan® (the “Licensed Products”) in Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries (such jurisdictions collectively, the “Expanded Territories”). The Company is the sole manufacturer of the Licensed Products for Santen and Santen may manufacture, in certain circumstances, upon mutual agreement of both parties. In addition, Aerie Ireland Limited granted Santen a first right of refusal to commercialize the Licensed Products in Canada.
Under the agreement, Santen made the Second Santen Agreement Upfront payment in January 2022 to Aerie Ireland Limited which was comprised of an $88.0 million upfront payment and a $2.0 million supplemental upfront payment that was earned based on the achievement of an event that occurred in December 2021. Upon the achievement of certain events, Aerie Ireland Limited will earn various development milestones of up to $15.5 million and sales milestones of up to $60.0 million. In addition, Santen will pay Aerie Ireland Limited a royalty in excess of 25% of the Licensed Products’ net sales in the Expanded Territories, excluding China and India (and in excess of 20% of the Licensed Products’ net sales in China and India), such consideration consisting of the cost of products supplied to Santen from Aerie Ireland Limited and a royalty for the Company’s intellectual property. While the royalty rate decreases when the Licensed Products are manufactured by or on behalf of Santen, there is a guaranteed minimum percentage.
The term of the Second Santen Agreement continues on a country-by-country and product-by-product basis until the expiration of the obligation to make payments under the Second Santen Agreement with respect to each Licensed Product in each country or region. The Second Santen Agreement may be terminated by either Aerie Ireland Limited or Santen upon the other party’s material breach, bankruptcy or insolvency. Aerie Ireland Limited may also terminate the agreement upon a patent challenge by Santen or on a country-by-country basis upon a breach by Santen of its obligation to develop, obtain marketing approval of and commercialize the Licensed Products in certain of the Expanded Territories. Santen may terminate the Second Santen Agreement in its discretion if Santen reasonably determines that the Licensed Products are not commercially viable in the Expanded Territory (effective upon 180 days’ prior written notice). In addition, in the event that patents are issued that may prevent the commercialization of the Licensed Products during the three-year period following marketing authorization of Rhopressa® in China, Santen would have the right to terminate the agreement with respect to China only and require Aerie Ireland Limited to repay $8.0 million of the Second Santen Agreement Upfront Payment. In the event of termination, the Licensed Products in the applicable Expanded Territories will revert to Aerie Ireland Limited.
9

The Company recognized deferred revenue, non-current as of March 31, 2022 and December 31, 2021 as follows:
(in thousands)MARCH 31, 2022DECEMBER 31, 2021
First Santen Agreement:
Upfront payment (1)
$50,000 $50,000 
Developmental milestones (2)
6,000  
Santen’s portion of shared costs (3)
6,000 6,315 
Second Santen Agreement:
Upfront payment (4)
8,000 8,000 
Total$70,000 $64,315 
(1)While the Company determined that the license was a right to use the Company’s intellectual property and as of the effective date of the First Santen Agreement, the Company had provided all necessary information to Santen to benefit from the license and the license term had begun, revenue was not recognized upon satisfaction of the performance obligation due to the uncertainty around potential termination in the event that patents are issued that may prevent the commercialization of the Licensed Products.
The Company will recognize the $50.0 million upfront payment received under the First Santen Agreement, and any other current and potential future development milestones and sales milestones, when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
(2)In March 2022, Santen made a $6.0 million developmental milestone payment in connection with the First Santen Agreement.
(3)This item represents Santen’s portion of shared costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan, which commenced in the fourth quarter of 2020, as described above.
(4)As of March 31, 2022 and December 31, 2021, the Company recognized $8.0 million of the Second Santen Agreement Upfront Payment as deferred revenue, non-current in its consolidated balance sheet due to the uncertainty around potential termination in China in the event that patents are issued that may prevent the commercialization of the Licensed Products.
4. Investments
Cash, cash equivalents and investments as of March 31, 2022 included the following:
GROSSGROSS
AMORTIZEDUNREALIZEDUNREALIZEDFAIR
(in thousands)COSTGAINSLOSSESVALUE
Cash and cash equivalents:
Cash and cash equivalents$56,441 $ $ $56,441 
Total cash and cash equivalents$56,441 $ $ $56,441 
Investments:
Certificates of deposit (due within 1 year)$9,044 $ $(14)$9,030 
Commercial paper (due within 1 year)54,456  (186)54,270 
Corporate bonds (due within 1 year)41,747  (178)41,569 
Corporate bonds (due within 2 years)4,020  (35)3,985 
U.S. Government and government agencies (due within 1 year)33,955  (17)33,938 
Total investments$143,222 $ $(430)$142,792 
Total cash, cash equivalents and investments$199,663 $ $(430)$199,233 

10

Cash, cash equivalents and investments as of December 31, 2021 included the following:
GROSSGROSS
AMORTIZEDUNREALIZEDUNREALIZEDFAIR
(in thousands)COSTGAINSLOSSESVALUE
Cash and cash equivalents:
Cash and cash equivalents$37,187 $ $ $37,187 
Total cash and cash equivalents$37,187 $ $ $37,187 
Investments:
Certificates of deposit (due within 1 year)$9,047 $ $(9)$9,038 
Commercial paper (due within 1 year)50,975  (55)50,920 
Corporate bonds (due within 1 year)42,718  (62)42,656 
Total investments$102,740 $ $(126)$102,614 
Total cash, cash equivalents and investments$139,927 $ $(126)$139,801 
Interest income earned on the Company’s cash, cash equivalents and investments was $0.1 million in each of the three months ended March 31, 2022 and 2021, respectively. Realized gains or losses were immaterial during the three months ended March 31, 2022 and 2021.
As of March 31, 2022 and December 31, 2021, the Company did not hold any equity securities.
5. Fair Value Measurements
The following tables summarize the fair value of financial assets and liabilities that are measured at fair value and the classification by level of input within the fair value hierarchy:
FAIR VALUE MEASUREMENTS AS OF
MARCH 31, 2022
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and cash equivalents$56,441 $ $ $56,441 
Total cash and cash equivalents:$56,441 $ $ $56,441 
Investments:
Certificates of deposit$ $9,030 $ $9,030 
Commercial paper 54,270  54,270 
Corporate bonds 45,554  45,554 
U.S. Government and government agencies 33,938  33,938 
Total investments$ $142,792 $ $142,792 
Total cash, cash equivalents and investments:$56,441 $142,792 $ $199,233 
11

FAIR VALUE MEASUREMENTS AS OF
DECEMBER 31, 2021
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and cash equivalents$37,187 $ $ $37,187 
Total cash and cash equivalents:$37,187 $ $ $37,187 
Investments:
Certificates of deposit$ $9,038 $ $9,038 
Commercial paper 50,920  50,920 
Corporate bonds 42,656  42,656 
Total investments$ $102,614 $ $102,614 
Total cash, cash equivalents and investments:$37,187 $102,614 $ $139,801 
The fair value of the Convertible Notes, which differs from their carrying value, is influenced by interest rates, stock price and stock price volatility and is determined by prices observed in market trading. The market for trading of the Convertible Notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs. The estimated fair value of the Convertible Notes was $284.8 million and $270.4 million at March 31, 2022 and December 31, 2021, respectively.
There were no transfers between the different levels of the fair value hierarchy during the three months ended March 31, 2022 and 2021.
6. Inventory
Inventory consists of the following:
(in thousands)MARCH 31, 2022DECEMBER 31, 2021
Raw materials$4,968 $5,368 
Work-in-process30,480 30,989 
Finished goods4,742 4,053 
Total inventory$40,190 $40,410 
For the three months ended March 31, 2022 and 2021, $3.9 million and $4.4 million, respectively, of production costs associated with underutilized capacity at the Company’s Athlone plant were recorded to costs of goods sold. The underutilization results from the manufacturing plant having not yet reached full capacity as it commenced operations in early 2020.
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7. Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
(in thousands)MARCH 31, 2022DECEMBER 31, 2021
Manufacturing equipment$22,485 $22,464 
Laboratory equipment9,509 9,182 
Furniture and fixtures1,612 1,569 
Software, computer and other equipment7,857 7,779 
Leasehold improvements31,452 31,175 
Construction-in-progress2,703 2,037 
 Property, plant and equipment75,618 74,206 
Less: Accumulated depreciation(24,392)(22,734)
Property, plant and equipment, net$51,226 $51,472 
8. Leases
The Company has operating leases for corporate offices, research and development facilities and a fleet of vehicles. The properties primarily relate to the Company’s principal executive office and research facility located in Durham, North Carolina, regulatory, commercial support and other administrative activities located in Irvine, California, and clinical, finance and legal operations located in Bedminster, New Jersey. The Durham, North Carolina, facility consists of approximately 61,000 square feet of laboratory and office space under a lease that was renewed in the third quarter of 2021 and expires in June 2029. The Irvine, California, location consists of approximately 27,000 square feet of office space under a lease that was renewed in the third quarter of 2021 and expires in October 2027. The Bedminster, New Jersey, location consists of approximately 34,000 square feet of office space under a lease that expires in October 2029. There are also small offices in Ireland, the United Kingdom and Japan.
The Company is leasing approximately 30,000 square feet of interior floor space for its manufacturing plant in Athlone, Ireland. The Company is reasonably certain it will remain in the lease through the end of its lease term in 2037, however, the Company is permitted to terminate the lease as early as September 2027.
The Company’s operating leases have remaining lease terms of approximately 1 year to 15 years, some of which include options to extend the leases.
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)MARCH 31, 2022DECEMBER 31, 2021
Accrued expenses and other current liabilities:
Accrued compensation and benefits $11,855 $15,881 
Accrued consulting and professional fees3,976 5,007 
Accrued research and development (1)
3,089 2,262 
Accrued revenue reserves (2)
79,213 85,381 
Accrued other (3)
4,817 3,810 
Total accrued expenses and other current liabilities$102,950 $112,341 
(1)Comprised primarily of accruals related to fees for investigative sites, contract research organizations and other service providers that assist in conducting preclinical research studies and clinical trials.
(2)Comprised primarily of accruals related to commercial and government rebates as well as returns.
(3)Comprised primarily of accruals related to interest payable as well as other business-related expenses.
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10. Debt
Convertible Notes
In September 2019, the Company issued an aggregate principal amount of $316.25 million of Convertible Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The Convertible Notes, governed by an indenture between the Company and a trustee, are senior, unsecured obligations and do not include financial and operating covenants nor any restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by Aerie or any of its subsidiaries. Interest on the Convertible Notes is payable semi-annually in cash in arrears at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020. The Convertible Notes will mature on October 1, 2024 unless they are redeemed, repurchased or converted prior to such date. Prior to April 1, 2024, the Convertible Notes will be convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. On and after April 1, 2024, the Convertible Notes will be convertible at the option of the holders any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes may be settled in shares of Aerie common stock, cash or a combination, thereof, at the Company's election. The Company intends to pay cash upon conversion of the Convertible Notes. See Note 2 for additional information.
The Convertible Notes have an initial conversion rate of 40.04 shares of Aerie common stock per $1,000 principal amount of the Convertible Notes, which will be subject to customary anti-dilution adjustments in certain circumstances. This represents an initial effective conversion price of approximately $24.98 per share, which represents a premium of approximately 35% to the $18.50 per share closing price of Aerie common stock on September 4, 2019, the date the Company priced the offering.
The Company may redeem all or any portion of the Convertible Notes, at its option, on or after October 3, 2022, at a cash redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price of Aerie common stock exceeds 130% of the conversion price of $24.98, which amounts to $32.47, then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately before the date the Company provides written notice of redemption; and the trading day immediately before the notice is sent.
Holders of Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
During the three months ended March 31, 2022, the conditions allowing holders of the Convertible Notes to elect to convert had not been met. As of March 31, 2022, the if-converted value of the Convertible Notes did not exceed the principal amount of the Convertible Notes.
The estimated fair value of the liability component of the Convertible Notes at the time of issuance was $187.9 million, and was determined based on a discounted cash flow analysis and a binomial lattice model. The valuation required the use of Level 3 unobservable inputs and subjective assumptions, including but not limited to the stock price volatility and bond yield. The effective interest rate on the liability component was 10.5% for the period from the date of issuance through March 31, 2021. The equity component of the Convertible Notes was recognized at issuance and represents the difference between the principal amount of the Convertible Notes and the fair value of the liability component of the Convertible Notes at issuance. The equity component was approximately $128.4 million at the time of issuance and its fair value is not remeasured as long as it continues to meet the conditions for equity classification.
In connection with the issuance of the Convertible Notes, the Company incurred debt issuance costs of $9.2 million for the three months ended December 31, 2019. In accordance with ASC Topic 470, Debt, these costs were allocated to debt and equity components in proportion to the allocation of proceeds. Issuance costs of $5.5 million were recorded as debt issuance costs in the net carrying value of Convertible Notes. The debt issuance costs are amortized on an effective interest basis over the term of the Convertible Notes. The remaining issuance costs of $3.7 million were recorded as additional paid-in capital, net with the equity component and such amounts are not subject to amortization.
Upon the Company’s adoption of ASU 2020-06 on January 1, 2022, as further discussed in Note 2, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, the Convertible Notes will be accounted for as a single liability measured at its amortized cost. The effective interest rate was 2.1% for the three months ended March 31, 2022.
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The following table summarizes the carrying value of the Convertible Notes:
(in thousands)MARCH 31, 2022DECEMBER 31, 2021
Gross proceeds$316,250 $316,250 
Unamortized debt discount (78,395)
Unamortized issuance costs(4,572)(3,328)
Carrying value$311,678 $234,527 
The following table summarizes the interest expense recognized related to the Convertible Notes:
THREE MONTHS ENDED 
MARCH 31,
(in thousands)20222021
Stated interest$1,186 $1,186 
Amortized debt discount 5,482 
Amortized issuance costs447 232 
Interest expense$1,633 $6,900 
Separately, in September 2019, the Company entered into privately negotiated capped call options with financial institutions. The capped call options cover, subject to customary anti-dilution adjustments, the number of shares of Aerie common stock that initially underlie the Convertible Notes. The cap price of the capped call options is $37.00 per share of Aerie common stock, representing a premium of 100% above the closing price of $18.50 per share of Aerie common stock on September 4, 2019, and is subject to certain adjustments under the terms of the capped call options. The capped call options are generally intended to reduce or offset potential dilution to Aerie common stock upon conversion of the Convertible Notes with such reduction and/ or offset, as the case may be, subject to a cap based on the cap price. The Company paid a total of $32.9 million in premiums for the capped call options, which was recorded as additional paid-in capital, using a portion of the gross proceeds from the issuance and sale of the Convertible Notes. The capped call options are excluded from diluted earnings per share because the impact would be anti-dilutive.
11. Stock-Based Compensation
Stock-based compensation expense for options granted, restricted stock awards (“RSAs”), RSAs with non-market performance and service conditions (“PSAs”), restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) is reflected in the condensed consolidated statements of operations and comprehensive loss as follows:
 THREE MONTHS ENDED 
MARCH 31,
(in thousands)20222021
Cost of goods sold$162 $507 
Selling, general and administrative3,134 6,255 
Research and development1,336 1,987 
Total$4,632 $8,749 
Equity Plans
The Company maintains three equity compensation plans: the 2005 Aerie Pharmaceutical Stock Plan (the “2005 Plan”), the 2013 Omnibus Incentive Plan (the “2013 Equity Plan”), which was amended and restated as the Aerie Pharmaceuticals, Inc. Second Amended and Restated Omnibus Incentive Plan (the “Second Amended and Restated Equity Plan”), as described below, and the Aerie Pharmaceuticals, Inc. Inducement Award Plan (the “Inducement Award Plan”), which was amended and restated as the Aerie Pharmaceuticals, Inc. Second Amended and Restated Inducement Award Plan (the “Second Amended and Restated Inducement Award Plan”), as described below. The 2005 Plan, the Second Amended and Restated Equity Plan and the Second Amended and Restated Inducement Award Plan are referred to collectively as the “Plans.” The 2005 Plan was frozen in 2013 and no additional awards have been or will be made under the 2005 Plan.
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In 2018, Aerie’s stockholders approved the adoption of the Second Amended and Restated Equity Plan to increase the number of shares issuable under the Plan by 4,500,000. The Second Amended and Restated Equity Plan provides for the granting of up to 10,229,068 equity awards in respect of common stock of Aerie, including equity awards that were previously available for issuance under the 2013 Equity Plan.
In 2016, Aerie’s Board of Directors approved the Inducement Award Plan which provides for the granting of up to 418,000 equity awards in respect of common stock of Aerie and subsequently amended and restated the Inducement Award Plan twice in 2017 to increase the equity awards that may be issued by a total of an additional 874,500 shares. In 2019, the Second Amended and Restated Inducement Award Plan was further amended by Aerie’s Board of Directors to increase the number of shares issuable under the plan by 100,000 shares. On December 9, 2021, Aerie’s Board of Directors approved an increase to the number of shares issuable under the plan for grants made to the Company’s new Chief Executive Officer in connection with his hiring, including 602,952 shares for grants made in December 2021 and additional shares for grants made in the first quarter of 2022. On March 11, 2022, Aerie’s Board of Directors approved an amendment to the Second Amended and Restated Inducement Award Plan to increase the number of shares that may be issued under the plan to 4,092,500 shares, which includes the 602,952 shares granted to our Chief Executive Officer in December 2021 as well as an additional 2,097,048 shares to cover his previously approved March 2022 grant and other new hire grant projections. Awards granted under the Second Amended and Restated Inducement Award Plan, as amended from time to time are intended to qualify as employment inducement awards under NASDAQ Listing Rule 5635(c)(4).
Options to Purchase Common Stock
The following table summarizes the stock option activity under the Plans:
NUMBER OF
SHARES
WEIGHTED
 AVERAGE EXERCISE PRICE
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)
AGGREGATE
INTRINSIC
VALUE
(000’s)
Options outstanding at December 31, 2021
6,550,610 $26.87 
Granted673,888 8.73 
Canceled(513,013)23.91 
Options outstanding at March 31, 2022
6,711,485 $25.27 6.4$2,354 
Options exercisable at March 31, 2022
4,569,275 $30.42 5.1$1,716 
As of March 31, 2022, the Company had $18.0 million of unrecognized compensation expense related to options granted under its equity plans. This expense is expected to be recognized over a weighted average period of 2.5 years as of March 31, 2022.
Restricted Stock Awards
The following table summarizes the RSA, including PSA, activity under the Plans:
NUMBER OF
SHARES
WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Non-vested RSAs at December 31, 2021
977,244 $18.32 
Granted347,814 8.80 
Vested(132,905)34.07 
Canceled(114,408)19.43 
Non-vested RSAs at March 31, 2022
1,077,745 13.21 
As of March 31, 2022, the Company had $12.0 million of unrecognized compensation expense related to unvested RSAs, including PSAs. This expense is expected to be recognized over the weighted average period of 2.8 years as of March 31, 2022.
The vesting of the RSAs is time and service based with terms of 1 to 4 years. In 2017, the Company granted 98,817 PSAs that vested in 2020 upon the satisfaction of certain performance and service conditions. During the three months ended March 31, 2022, the Company granted 218,418 PSAs which vest upon the satisfaction of certain performance and service conditions, none of which have vested.
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Restricted Stock Units
The following table summarizes the RSU activity under the Plans:
NUMBER OF
SHARES
WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Non-vested RSUs at December 31, 2021
156,873 $14.88 
Granted1,989 6.88 
Vested(7,143)7.00 
Canceled(437)16.22 
Non-vested RSUs at March 31, 2022
151,282 15.14 
As of March 31, 2022, the associated unrecognized compensation expense totaled $2.8 million. This expense is expected to be recognized over the weighted average period of 2.8 years as of March 31, 2022.
Stock Appreciation Rights
The following table summarizes the SARs activity under the Plans:
NUMBER OF
SHARES
WEIGHTED 
AVERAGE
EXERCISE PRICE
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)
AGGREGATE
INTRINSIC
VALUE
(000’s)
SARs outstanding at December 31, 2021
238,349 $27.67 
Granted3,000 6.97 
Canceled(13,434)28.02 
SARs outstanding at March 31, 2022
227,915 $27.37 2.8$7 
SARs exercisable at March 31, 2022
96,106 $39.26 1.9$ 
Holders of the SARs are entitled under the terms of the Plans to receive cash payments calculated based on the excess of Aerie’s common stock price over the exercise price in their award; consequently, these awards are accounted for as liability-classified awards and the Company measures compensation cost based on their estimated fair value at each reporting date, net of actual forfeitures, if any.
12. Commitments and Contingencies
Milestone Payments
In the first quarter of 2022, the Company gained alignment with the FDA on the results of its Phase 2b clinical trial for AR-15512 and confirmed the design of the Phase 3 trials, which the Company currently expects to initiate in the second quarter of 2022. This resulted in the achievement of a regulatory milestone in which the Company paid the former shareholders of Avizorex $8.0 million in the first quarter of 2022.
Litigation
The Company may periodically become subject to legal proceedings and claims arising in connection with its business. As of March 31, 2022, the Company is not a party to any material pending legal or administrative proceedings and, to its knowledge, no such proceedings are threatened or contemplated. The Company does not have contingency reserves established for any litigation liabilities as of March 31, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this report and with our audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 25, 2022 (“2021 Form 10-K”). This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements and see “Risk Factors” in our 2021 Form 10-K and other documents we have filed or furnished with the SEC for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods.
Overview
We are a pharmaceutical company focused on the discovery, development and commercialization of first-in-class ophthalmic therapies for the treatment of patients with eye diseases and conditions including open-angle glaucoma, dry eye, DME and wet AMD.
U.S. Commercialization of the Glaucoma Franchise
Our strategy is to grow the market share of our FDA approved glaucoma franchise products, Rhopressa® and Rocklatan® in the United States. Both Rhopressa® and Rocklatan® are being sold to national and regional U.S. pharmaceutical distributors, and patients have access to them through pharmacies across the United States. We have obtained broad formulary coverage for Rhopressa® and Rocklatan® for the lives covered under commercial plans and Medicare Part D plans. Our commercial team responsible for sales of Rhopressa® and Rocklatan® is targeting select eye-care professionals who treat glaucoma throughout the United States.
In March 2022, we commenced a Phase 4 program that was designed to further demonstrate that Rocklatan® is a highly effective single bottle, once daily therapy. We expect topline data for this Phase 4 Multi-center Open-label Rocklatan® Evaluation (“MORE”) study to be available in the first half of 2023.
aeri-20220331_g1.jpg
Rhopressa® is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension. Rhopressa® is taken in the evening and has shown in preclinical and clinical trials to be effective in reducing IOP, with a favorable safety profile.

The active ingredient in Rhopressa®, netarsudil, is an Aerie-owned Rho kinase (“ROCK”) inhibitor. Rhopressa® increases the outflow of aqueous humor through the trabecular meshwork (“TM”), which accounts for approximately 80% of fluid drainage from the healthy eye and is the diseased tissue responsible for elevated IOP in glaucoma. Using this mechanism of action (“MOA”), we believe that Rhopressa® represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years.
aeri-20220331_g2.jpg
Rocklatan® is a once-daily fixed-dose combination of Rhopressa® and latanoprost, a commonly prescribed drug for the treatment of patients with open-angle glaucoma or ocular hypertension. Rocklatan® is also taken in the evening, and similar to Rhopressa®, has shown in preclinical and clinical trials to be highly effective in reducing IOP, with a favorable safety profile.
 
Based on our clinical data, we believe that Rocklatan® has the potential to provide a greater IOP-reducing effect than any glaucoma medication currently marketed in the United States.
Efforts Outside the United States
In addition to growing the market share of Rhopressa® and Rocklatan