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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, 2020
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
Shares of 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. 


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Large accelerated filer 
  Accelerated filer
Non-accelerated filer 
(Do not check if a smaller reporting company)
  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 May 1, 2020, there were 46,468,255 shares of the registrant’s common stock, par value $0.001, outstanding.



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  Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



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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 “approved products” means products approved by the U.S. Food and Drug Administration (“FDA”) or other regulatory authorities; references to “product candidates” means products that are in development but not yet approved by the FDA or other regulatory authorities; references to “future product candidates” means 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 approved products and product candidates and any future product candidates, if approved;
the glaucoma patient market size and the rate and degree of market adoption of our approved products and 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 approved products and 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 approved 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 approved 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 approved 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;
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our plans to pursue development of additional product candidates and technologies in ophthalmology, including development of our approved products or product candidates for additional indications, and our preclinical retinal programs and other therapeutic opportunities;
the potential advantages of our approved 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 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 change 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, 2019, as filed with the Securities and Exchange Commission (“SEC”) on February 24, 2020, and other documents we have filed or furnished with the SEC, including the risk factor associated with the COVID-19 pandemic included herein.
In particular, FDA approval of Rhopressa® and Rocklatan® do not constitute FDA approval of our product candidates or any future product candidates in the United States, and there can be no assurance that we will receive FDA approval for our product candidates or any future product candidates. In addition, neither the European Commission (“EC”) grant of a centralised marketing authorisation for Rhokiinsa® nor the European Medicines Agency (“EMA”) acceptance of the Marketing Authorisation Application (“MAA”) for Roclanda® constitutes an EC grant of a centralised marketing authorisation for Roclanda® and there can be no assurance that Roclanda® will receive approval by the EMA. FDA approval of Rhopressa® and Rocklatan® do not constitute regulatory approval of these products in jurisdictions outside of the United States and there is no assurance that we will receive regulatory approval for Rhopressa® and Rocklatan® in such jurisdictions. In addition, the preclinical research discussed in this report is preliminary and the outcome of such preclinical studies 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 preclinical research findings discussed in this report, and we may suspend or discontinue research programs at any time for any reason.
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.
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

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
 
MARCH 31, 2020DECEMBER 31, 2019
Assets
Current assets
Cash and cash equivalents$134,179  $143,940  
Short-term investments130,552  165,250  
Accounts receivable, net42,941  38,354  
Inventory20,225  21,054  
Prepaid expenses and other current assets10,540  7,744  
Total current assets338,437  376,342  
Property, plant and equipment, net57,223  58,147  
Operating lease right-of-use assets15,465  16,523  
Other assets1,152  1,596  
Total assets$412,277  $452,608  
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$9,208  $12,770  
Accrued expenses and other current liabilities64,323  65,376  
Operating lease liabilities5,614  5,502  
Total current liabilities79,145  83,648  
Convertible notes, net193,833  188,651  
Long-term operating lease liabilities10,829  12,102  
Other non-current liabilities1,261  1,257  
Total liabilities285,068  285,658  
Commitments and contingencies (Note 12)
Stockholders’ equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of March 31, 2020 and December 31, 2019; none issued and outstanding
    
Common stock, $0.001 par value; 150,000,000 shares authorized as of March 31, 2020 and December 31, 2019; 46,476,185 and 46,464,669 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
46  46  
Additional paid-in capital1,072,412  1,062,996  
Accumulated other comprehensive loss(120) (92) 
Accumulated deficit(945,129) (896,000) 
Total stockholders’ equity127,209  166,950  
Total liabilities and stockholders’ equity $412,277  $452,608  
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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,
 20202019
Product revenues, net$20,341  $10,852  
Total revenues, net20,341  10,852  
Costs and expenses:
Cost of goods sold6,092  381  
Selling, general and administrative36,902  36,282  
Pre-approval commercial manufacturing2,114  4,457  
Research and development19,173  17,884  
Total costs and expenses64,281  59,004  
Loss from operations(43,940) (48,152) 
Other (expense) income, net(5,222) 111  
Loss before income taxes(49,162) (48,041) 
Income tax (benefit) expense (33) (90) 
Net loss$(49,129) $(47,951) 
Net loss per common share—basic and diluted$(1.07) $(1.06) 
Weighted average number of common shares
outstanding—basic and diluted
45,792,504  45,270,660  
Net loss$(49,129) $(47,951) 
Unrealized (loss) gain on available-for-sale investments(28)   
Comprehensive loss$(49,157) $(47,951) 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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AERIE PHARMACEUTICALS, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
 
 COMMON STOCKADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED OTHER COMPREHENSIVE (LOSS) GAINACCUMULATED
DEFICIT
TOTAL
 SHARESAMOUNT
Balances at December 31, 201845,478,883  $45  $924,180  $  $(696,419) $227,806  
Issuance of common stock upon exercise of stock options and warrants141,245  —  1,879  —  —  1,879  
Issuance of common stock for restricted stock awards, net301,848  1  (2,093) —  —  (2,092) 
Stock-based compensation—  —  12,508  —  —  12,508  
Net loss—  —  —  —  (47,951) (47,951) 
Balances at March 31, 201945,921,976  $46  $936,474  $  $(744,370) $192,150  

 COMMON STOCKADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED OTHER COMPREHENSIVE LOSSACCUMULATED
DEFICIT
TOTAL
 SHARESAMOUNT
Balances at December 31, 201946,464,669  $46  $1,062,996  $(92) $(896,000) $166,950  
Issuance of common stock upon exercise of stock options and warrants5,811  44  44  
Issuance of common stock for restricted stock awards, net5,705  (1,466) (1,466) 
Stock-based compensation10,838  10,838  
Other comprehensive income(28) (28) 
Net loss(49,129) (49,129) 
Balances at March 31, 202046,476,185  $46  $1,072,412  $(120) $(945,129) $127,209  
The accompanying notes are an integral part of these condensed consolidated financial statements.

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AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands) 

 THREE MONTHS ENDED 
MARCH 31,
 20202019
Cash flows from operating activities
Net loss$(49,129) $(47,951) 
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation1,591  564  
Amortization and accretion6,585  2,105  
Stock-based compensation10,529  12,620  
Other non-cash(39) (186) 
Changes in operating assets and liabilities
Accounts receivable, net(4,587) (12,043) 
Inventory1,048  33  
Prepaid, current and other assets(2,410) (1,391) 
Accounts payable, accrued expenses and other current liabilities(3,952) (1,267) 
Operating lease liabilities(1,458) (1,123) 
Net cash used in operating activities(41,822) (48,639) 
Cash flows from investing activities
Purchase of available-for-sale investments(15,834)   
Proceeds from sales and maturities of investments50,557    
Purchase of property, plant and equipment(1,240) (4,939) 
Net cash provided by (used in) investing activities33,483  (4,939) 
Cash flows from financing activities
Payments related to issuance of stock for stock-based compensation arrangements, net
(1,422) (599) 
Proceeds from exercise of warrants  375  
Other financing  (148) 
Net cash used in financing activities(1,422) (372) 
Net change in cash and cash equivalents(9,761) (53,950) 
Cash and cash equivalents, at beginning of period143,940  202,818  
Cash and cash equivalents, at end of period$134,179  $148,868  
Non-cash investing and financing activities
Purchase of property, plant and equipment$254  $1,608  
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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 an ophthalmic pharmaceutical company focused on the discovery, development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma, dry eye, retinal diseases and potentially other diseases of the eye. The Company has its principal executive offices in Durham, North Carolina, and operates as one business segment.
The Company has two U.S. Food and Drug Administration (“FDA”) approved products, Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”) and Rocklatan® (netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan®”). 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, the most widely-prescribed drug for the treatment of patients with open-angle glaucoma. 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 November 2019, the Company released topline data from its Phase 4 Multi-center Open-label Study (“MOST”), which observed Rhopressa® efficacy in various real-world clinical settings, including as an adjunctive product and monotherapy. The results indicated positive IOP reduction in all settings, along with a favorable tolerability profile. In addition to actively promoting the products in the United States, the Company is pursuing its strategy to obtain regulatory approval for Rhopressa® and Rocklatan® in Europe and Japan. Rhopressa® and, if approved, Rocklatan® will be marketed under the names Rhokiinsa® and Roclanda®, respectively, in Europe.
In Europe, Rhokiinsa® was granted a centralised marketing authorisation by the European Commission (“EC”) in November 2019 and the Marketing Authorisation Application (“MAA”) for Roclanda® was accepted by the European Medicines Agency (“EMA”) in December 2019. The Phase 3 registration trial for Roclanda®, named Mercury 3, is a six-month efficacy and safety trial designed to compare Roclanda® to Ganfort®, a fixed-dose combination product marketed in Europe of bimatoprost (a prostaglandin analog), and timolol (a beta blocker). If successful, Mercury 3 is expected to improve the commercialization prospects of Roclanda® in Europe; it is not required for regulatory approval. The Mercury 3 results are expected to be an important determinant as the Company evaluates the commercialization and profitability potential of Rhokiinsa®, and particularly Roclanda®, in Europe. The Company currently expects to read out topline 90-day efficacy data for Mercury 3 potentially in late 2020.
In Japan, with respect to the clinical progress of Rhopressa®, the Company completed a Phase 1 clinical trial, a successful pilot Phase 2 clinical study in the United States on Japanese and Japanese-American subjects, as well as a Phase 2 clinical trial conducted in Japan. These studies were designed to meet the requirements of Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) for potential regulatory submission of Rhopressa® in Japan. Topline results of the Phase 2 trial indicated positive efficacy and tolerability results in the patient set. Clinical trials for Rocklatan® have not yet begun. The Company held a meeting with the Japanese PMDA in April 2020 to discuss Phase 3 trial designs for Rhopressa®, while continuing to prepare for the trials. The Company expects to initiate a Rhopressa® Phase 3 clinical trial in Japan, potentially commencing in the second half of 2020. The Company will continue to explore collaboration with a potential partner in Japan to advance the Company’s clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan, and will continue to explore other potential opportunities elsewhere in Eastern Asia.
The Company is furthering the development of its product candidates focused on dry eye and retinal diseases, particularly AR-15512 (previously named AVX-012), AR-1105 and AR-13503 SR, described below. The Company acquired Avizorex, a Spanish ophthalmic pharmaceutical company, developing therapeutics for the treatment of 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 ocular surface wetness and blink rate. Toxicology studies are underway as part of the evaluation of different concentrations and the Company is planning to initiate a large Phase 2b study in late 2020.
The Company is developing two sustained-release implants focused on retinal diseases, AR-1105 and AR-13503 SR. AR-1105 is a dexamethasone steroid implant, for which the Company has completed enrollment in a Phase 2 clinical trial in patients with macular edema due to retinal vein occlusion (“RVO”) and a readout is currently expected in the second half of 2020. The Company is also developing AR-13503, a ROCK and Protein kinase C inhibitor that is the active ingredient in the AR-13503
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sustained-release implant. The Investigational New Drug application (“IND”) for AR-13503 SR became effective in April 2019, allowing the Company to initiate human studies in the treatment of neovascular age-related macular degeneration (“nAMD”) and diabetic macular edema (“DME”). The Company initiated a first-in-human clinical study for AR-13503 SR in the third quarter of 2019 and currently expects to commence the enrollment of the Phase 2 clinical trial in the second half of 2020, with a readout expected in 2021.
The Company completed the build-out of its own manufacturing plant in Athlone, Ireland, for additional commercial production of Rhopressa® and Rocklatan® in the second quarter of 2019. In January 2020, the Company received FDA approval to produce Rocklatan® at the Athlone plant for commercial distribution in the United States. The manufacturing plant began production of commercial supplies of Rocklatan® during the first quarter of 2020. The Company expects FDA approval to produce Rhopressa® at the Athlone plant by the end of 2020.
The Company commenced generating product revenues related to sales in the United States of Rhopressa® in the second quarter of 2018 and Rocklatan® in the second quarter of 2019. 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 2024 (the “Convertible Notes”). See Note 10 for additional information.
If the Company does not successfully commercialize Rhopressa® and Rocklatan® or any product candidates or future product candidates, if approved, it may not generate sufficient cash flows and may be unable to achieve profitability. Accordingly, the Company may be required to obtain further funding through debt or equity offerings or other sources. Adequate additional funding may not be available to the Company on acceptable terms, or at all. Conditions in the financial and credit markets may limit the availability of additional liquidity or increase the costs of such liquidity. 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.
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 presentation 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, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2020. The results for the three months ended March 31, 2020 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, stock-based compensation and fair value measurements. On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a pandemic. The full extent to which COVID-19 will directly or indirectly impact our business, results of operations and financial condition, including net product revenue, cost and expenses, reserves and allowances, manufacturing and clinical trials, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 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.
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Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment.
Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments. The Company’s cash and cash equivalents, which include short-term highly liquid investments with original maturities of three months or less, are held at several financial institutions. The Company’s investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, money market instruments, and certain qualifying money market mutual funds, and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments to the extent recorded on the condensed consolidated balance sheets.
The Company relies on its third-party manufacturers to produce the active pharmaceutical ingredient (“API”) and final drug product for Rhopressa® and Rocklatan® and may rely on third-party manufacturers for its current and future product candidates. In addition to the current contract manufacturers, the Company obtained FDA approval for an additional Rocklatan® drug product contract manufacturer in January 2020, which began to supply commercial product in the first quarter of 2020.
In addition, the Company has established its own manufacturing plant in Athlone, Ireland, for future commercial production of Rocklatan® and Rhopressa®, if approved, and thereafter, potentially Rhokiinsa® and, if approved, Roclanda®. In January 2020, the Company received FDA approval to produce Rocklatan® at the Athlone plant for commercial distribution in the United States. The manufacturing plant began production of commercial supplies of Rocklatan® during the first quarter of 2020. The Company expects FDA approval to produce Rhopressa® at the Athlone plant by the end of 2020. The Company currently expects to continue to use product sourced from its contract manufacturers in addition to the Athlone plant.
Revenue Recognition
The Company accounts for its revenue transactions under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product for an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied.
Aerie’s customers include a limited number of national and select regional wholesalers (the “distributors”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. The Company evaluates the creditworthiness of each of its distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.
The Company’s net product revenues through March 31, 2020 were generated through sales of Rhopressa®, which was commercially launched in the United States in April 2018, and sales of Rocklatan®, which was commercially launched in the United States in May 2019. Product revenue is recorded net of trade discounts, allowances, commercial and government rebates, co-pay program coupons, chargebacks, U.S. government funding requirements for the coverage gap (commonly called
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the “donut hole”) portion of the Medicare Part D program and estimated returns and other incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data, forecasted customer mix and lagged claims. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See Note 3 for additional information.
Credit Losses
Trade accounts receivable: The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, creditworthiness of its customers, the age of the accounts receivable balances and current economic conditions that may affect a customer’s ability to pay.
Available-for-sale debt securities: The Company’s investments can consist of U.S. federal government and federal agency securities, corporate bonds or commercial paper, money market instruments and certain qualifying money market mutual funds. The investments are short-term in nature and are rated investment grade by at least one bond credit rating service.
Inventories
Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out (“FIFO”) method. The Company analyzes its inventory levels at least quarterly and writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. The determination of whether inventory costs will be realizable requires estimates by management of future expected inventory requirements based on sales forecasts. If actual net realizable value is less than the estimated amount or if actual market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required. Charges for inventory write-downs are not reversed if it is later determined that the product is saleable. Production costs related to idle or underutilized capacity at the manufacturing plant in Athlone, Ireland, are not included in the cost of inventory but are charged directly to cost of goods sold on the condensed consolidated statements of operations and comprehensive loss in the period incurred.
Prior to the date the Company obtains regulatory approval for its product candidates or its manufacturing facilities such as its manufacturing plant in Athlone, Ireland, manufacturing costs related to commercial production are expensed as pre-approval commercial manufacturing expense on the condensed consolidated statements of operations and comprehensive loss. Once regulatory approval is obtained, the Company capitalizes such costs as inventory on the condensed consolidated balance sheets.
Property, Plant and Equipment, Net
Property, plant and equipment is recorded at historical cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Construction-in-progress reflects amounts incurred for property, plant or equipment construction or improvements that have not yet been placed in service and are not depreciated or amortized. Repairs and maintenance are expensed when incurred. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of net loss.
Estimated useful lives by major asset category are as follows:
Manufacturing equipment10 years
Laboratory equipment7 years
Furniture and fixtures5 years
Software, computer and other equipment3 years
Leasehold improvementsLower of estimated useful life or term of lease
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Leases
The Company determines if an arrangement is a lease at inception. For each lease, the lease term is determined at the commencement date and includes renewal options and termination options when it is reasonably certain that the Company will exercise that option. Operating leases with lease terms greater than one year are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities in the Company’s condensed consolidated balance sheets.
Operating lease ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term using an estimated rate of interest the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The operating lease ROU assets are based on the liability adjusted for any prepaid or deferred rent and lease incentives. The incremental borrowing rate was utilized to discount lease payments over the expected term given that the Company’s operating leases do not provide an implicit rate. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the date of adoption or the lease commencement date. Rent expense for the operating lease is recognized on a straight-line basis over the lease term.
The Company’s lease agreements have lease and non-lease components, which are generally accounted for as a single lease component. Non-lease components include lease operating expenses, which are variable costs under the Company’s current leases. For vehicle leases, the Company accounts for the lease and non-lease components as a single lease component and applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase. The Company’s investments are comprised of commercial paper and corporate bonds that are classified as available-for-sale in accordance with the ASC Topic 320, Investments-Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its condensed consolidated balance sheets. Investments are classified as long-term assets on the condensed consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year.
Available-for-sale investments in debt securities are recorded at fair value, with unrealized gains or losses included in comprehensive loss on the condensed consolidated statements of operations and comprehensive loss and in accumulated other comprehensive loss on the condensed consolidated balance sheets.
Realized gains and losses, interest income earned on the Company’s cash, cash equivalents and investments, and amortization or accretion of discounts and premiums on investments are included within other (expense) income, net. Interest income was $1.1 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively. Realized gains and losses are determined using the specific identification method and are included as a component of other income (expense), net. Realized gains or losses were immaterial during the three months ended March 31, 2020 and 2019.
Fair Value Measurements
The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.
Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.
Level 2—Other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company’s cash equivalents are carried at fair value according to the fair value hierarchy described above. The Company’s investments were valued utilizing Level 2 inputs and the Convertible Notes were valued utilizing Level 2 inputs as of
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March 31, 2020. There were no transfers between the different levels of the fair value hierarchy during the three months ended March 31, 2020 and 2019.
Stock-Based Compensation
The estimated fair value of options to purchase common stock is determined on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”), including restricted stock awards with non-market performance and service conditions (“PSAs”) are based on the market value of Aerie’s common stock on the date of grant. Stock-based compensation expense related to time-based stock options, RSAs and RSUs is expensed on a straight-line basis over the vesting period. For RSAs with non-market performance conditions, the Company evaluates the criteria for each grant to determine the probability that the performance condition will be achieved. Compensation expense for RSAs with non-market performance conditions is recognized over the respective service period when it is deemed probable that the performance condition will be satisfied. Upon issuance and at each reporting period, the fair value of each stock appreciation rights (“SARs”) award is estimated using the Black-Scholes option pricing model and is marked to market through stock-based compensation expense. SARs are liability-based awards as they may only be settled in cash.
Convertible Notes Transaction
The Company separately accounts for the liability and equity components of convertible notes transactions that can be settled in cash by allocating the proceeds from issuance between the liability component and the embedded conversion option in accordance with accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The value of the equity component is calculated by first measuring the fair value of the liability component, using the interest rate of a similar liability that does not have a conversion feature, as of the issuance date. The difference between the proceeds from the convertible debt issuance and the amount measured as the liability component is recorded as the equity component with a corresponding discount recorded on the debt. The Company recognizes amortization of the resulting discount using the effective interest method as interest expense on the condensed consolidated statements of operations and comprehensive loss. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The Company allocates issuance costs incurred to the liability and equity components. Issuance costs attributable to the liability component are amortized to expense over the respective term of the convertible notes, and issuance costs attributable to the equity component are netted with the respective equity component in additional paid-in capital.
In September 2019, the Company purchased capped call options from financial institutions to minimize the impact of potential dilution of the Aerie’s common stock upon conversion of the Convertible Notes. The capped call options meet the definition of a derivative in accordance with ASC 815, Derivatives and Hedging (“ASC 815”), however, qualify for derivative scope exception under ASC 815 for instruments indexed to a company’s own stock. Accordingly, the premiums for the capped call options were recorded as additional paid-in capital on the Company’s condensed consolidated balance sheets as the options are settleable in Aerie common stock at the election of the Company. See Note 10 for additional information.
Adoption of New Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820-10): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC Topic 820. Under this ASU, certain disclosure requirements for fair value measurements are eliminated, amended or added. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance became effective for the Company beginning on January 1, 2020 and prescribes different transition methods for the various provisions. The adoption of ASU 2018-13 did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Currently, U.S. GAAP delays recognition of the full amount of credit losses until the likelihood of the loss occurring is probable. Under this ASU, the income statement will reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses will be based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down of the security. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-19”), which clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. Further, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326), Targeted Transition Relief (“ASU 2019-05”), which provides transition relief and allows entities to elect the fair value option on certain financial instrument. The guidance became effective
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for the Company beginning on January 1, 2020. The new guidance prescribes different transition methods for the various provisions. The adoption of ASU 2016-13, ASU 2018-19 or ASU 2019-05 did not have a material impact on the Company’s condensed consolidated financial statements and disclosures.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance is effective for the Company beginning on January 1, 2021 and prescribes different transition methods for the various provisions. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and disclosures.
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 with the exception of warrants for common stock with a $0.05 exercise price, which are exercisable for nominal consideration and are therefore included in the calculation of the weighted average number of shares of common stock as common stock equivalents. 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,
 20202019
Outstanding stock options8,701,163  7,444,736  
Stock purchase warrants4,500  79,500  
Non-vested restricted stock awards and performance share units633,865  781,903  
Non-vested restricted stock units30,938    
Total9,370,466  8,306,139  

3. Revenue Recognition
Net product revenues for the three months ended March 31, 2020 were generated from sales of Rhopressa®, which was commercially launched in the United States in April 2018, and Rocklatan®, which was commercially launched in the United States in May 2019. Net product revenues for the three months ended March 31, 2019 were solely generated from sales of Rhopressa® in the United States. For the three months ended March 31, 2020, three distributors accounted for 37%, 33% and 28% of total revenues, respectively. For the three months ended March 31, 2019, three distributors accounted for 36%, 34% and 27% 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 revenue is recorded net of trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, discussed below. These reserves are classified as either reductions of accounts receivable or as current liabilities. 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) at March 31, 2020 or December 31, 2019, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract liabilities at March 31, 2020 or December 31, 2019, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers. The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges
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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 $43.6 million and $16.2 million for the three months ended March 31, 2020 and 2019, 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.
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 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 and chargebacks that it expects to be obligated to provide to Third-party Payers based upon (i) the Company's contracts and negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa® and Rocklatan® based on third-party data and utilization, (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 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 product would be eligible to be returned.
4. Investments
Cash, cash equivalents and investments as of March 31, 2020 included the following:
(in thousands)AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
Cash and cash equivalents:
Cash and cash equivalents$134,168  $11  $  $134,179  
Total cash and cash equivalents$134,168  $11  $  $134,179  
Investments:
Commercial paper (due within 1 year)$44,751  $16  $(28) $44,739  
Corporate bonds (due within 1 year)55,904  13  (188) 55,729  
U.S. Government and government agencies (due within 1 year)30,028  56    30,084  
Total investments$130,683  $85  $(216) $130,552  
Total cash, cash equivalents and investments$264,851  $96  $(216) $264,731  
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Cash, cash equivalents and investments as of December 31, 2019 included the following:
GROSSGROSS
AMORTIZEDUNREALIZEDUNREALIZEDFAIR
(in thousands)COSTGAINSLOSSESVALUE
Cash and cash equivalents:
Cash and money market funds$143,940  $  $  $143,940  
Total cash and cash equivalents$143,940  $  $  $143,940  
Investments:
Commercial paper (due within 1 year)64,629    (7) 64,622  
Corporate bonds (due within 1 year)60,640    (76) 60,564  
U.S. Government and government agencies (due within 1 year)40,073    (9) 40,064  
Total investments$165,342  $  $(92) $165,250  
Total cash, cash equivalents and investments$309,282  $  $(92) $309,190  

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, 2020
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and cash equivalents$114,179  $20,000  $  $134,179  
Total cash and cash equivalents:$114,179  $20,000  $  $134,179  
Investments:
Commercial paper$  $44,739  $  44,739  
Corporate bonds  55,729    55,729  
U.S. Government and government agencies  30,084    30,084  
Total investments$  $130,552  $  $130,552  
Total cash, cash equivalents and investments:$114,179  $150,552  $  $264,731  

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FAIR VALUE MEASUREMENTS AS OF
December 31, 2019
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and money market funds$133,931  $10,009  $  $143,940  
Total cash and cash equivalents:$133,931  $10,009  $  $143,940  
Investments:
Commercial paper$  $64,622  $  $64,622  
Corporate bonds  60,564    60,564  
U.S. Government and government agencies  40,064    40,064  
Total investments$  $165,250  $  $165,250  
Total cash, cash equivalents and investments:$133,931  $175,259  $  $309,190  
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 $280.8 million at March 31, 2020.
6. Inventory
Inventory consists of the following:
(in thousands)MARCH 31, 2020DECEMBER 31, 2019
Raw materials$1,878  $1,400  
Work-in-process14,190  13,414  
Finished goods4,157  6,240  
Total inventory$20,225  $21,054  
For the three months ended March 31, 2020, $3.5 million of idle capacity cost associated with our Athlone manufacturing plant was recorded to costs of goods sold.
7. Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
(in thousands)MARCH 31, 2020DECEMBER 31, 2019
Manufacturing equipment  $21,475  $18,073  
Laboratory equipment7,734  7,525  
Furniture and fixtures  1,663  1,648  
Software, computer and other equipment7,985  7,772  
Leasehold improvements  29,832  29,720  
Construction-in-progress663  3,892  
 Property, plant and equipment  69,352  68,630  
Less: Accumulated depreciation(12,129) (10,483) 
Property, plant and equipment, net  $57,223  $58,147  
Manufacturing Plant Build-Out
In the second quarter of 2019, the Company completed the build-out on its own manufacturing plant in Athlone, Ireland, for which it leases approximately 30,000 square feet of interior floor space and as such is not the legal owner of the space. However, in accordance with ASC Topic 842, the Company was deemed to be the owner of the leased space prior to
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completion of construction. Upon completion, the Company performed a sale-leaseback analysis and accounted for the transaction as a sale. The Company therefore derecognized the build-to-suit asset and the corresponding build-to-suit facility lease obligation of approximately $4.4 million as of the completion date. No gain or loss arose from the derecognition. The Company concurrently recognized an operating lease ROU asset and a corresponding operating lease liability related to the leaseback of the facility. See Note 8 for additional information.
Also, upon completion of the build-out in the second quarter of 2019, amounts previously classified as construction-in-progress related to the manufacturing plant placed into service have been transferred to leasehold improvements and manufacturing equipment and are being amortized in accordance with the Company’s policy. See Note 2 for additional information.
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 leases that expire between June 2020 and June 2024 and the Irvine, California, location consists of approximately 37,300 square feet of office space under a lease that expires in January 2022. The Company terminated its previous lease and entered into a lease for its new Bedminster, New Jersey, location, which consists of approximately 34,000 square feet of office space under a lease that expires in October 2029. There are also small offices in Malta, Ireland, the United Kingdom and Japan.
The Company is leasing approximately 30,000 square feet of interior floor space in Athlone, Ireland, for its manufacturing plant in Athlone, Ireland, which the Company has concluded is an operating lease upon completion of the build-out in the second quarter of 2019. As a result, the Company concurrently recognized an operating lease ROU asset and a corresponding operating lease liability related to the leaseback of the facility of approximately $2.4 million upon completion of the build-out. 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 17 years, some of which include options to extend the leases.
Balance sheet information related to leases was as follows:
(in thousands)MARCH 31, 2020DECEMBER 31, 2019
Operating Leases
Operating lease right-of-use assets$15,465  $16,523  
Operating lease liabilities$5,614  $5,502  
Long-term operating lease liabilities10,829  12,102  
Total operating lease liabilities$16,443  $17,604  

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9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)MARCH 31, 2020DECEMBER 31, 2019
Accrued expenses and other current liabilities:
Accrued compensation and benefits $7,444  $11,169  
Accrued consulting and professional fees3,640  3,810