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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 September 30, 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 October 30, 2020, there were 46,814,793 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” 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; 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 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;
ii

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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 for review by the Marketing Authorisation Application (“MAA”) for Roclanda® constitutes the Committee for Medicinal Products in Human Use (“CHMP”) adopting a positive opinion recommending approval of the MAA for Roclanda® or 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, any 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)
 
SEPTEMBER 30, 2020DECEMBER 31, 2019
Assets
Current assets
Cash and cash equivalents$129,787 $143,940 
Short-term investments88,645 165,250 
Accounts receivable, net46,848 38,354 
Inventory20,842 21,054 
Prepaid expenses and other current assets9,091 7,744 
Total current assets295,213 376,342 
Property, plant and equipment, net55,293 58,147 
Operating lease right-of-use assets15,041 16,523 
Other assets1,139 1,596 
Total assets$366,686 $452,608 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$4,536 $12,770 
Accrued expenses and other current liabilities78,806 65,376 
Operating lease liabilities5,303 5,502 
Total current liabilities88,645 83,648 
Convertible notes, net204,688 188,651 
Long-term operating lease liabilities10,759 12,102 
Other non-current liabilities2,497 1,257 
Total liabilities306,589 285,658 
Commitments and contingencies (Note 12)
Stockholders’ equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of September 30, 2020 and December 31, 2019; none issued and outstanding
  
Common stock, $0.001 par value; 150,000,000 shares authorized as of September 30, 2020 and December 31, 2019; 46,828,333 and 46,464,669 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
47 46 
Additional paid-in capital1,093,026 1,062,996 
Accumulated other comprehensive (loss) income (12)(92)
Accumulated deficit(1,032,964)(896,000)
Total stockholders’ equity60,097 166,950 
Total liabilities and stockholders’ equity $366,686 $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 SEPTEMBER 30,NINE MONTHS ENDED SEPTEMBER 30,
 2020201920202019
Product revenues, net$20,081 $18,544 $58,455 $45,231 
Total revenues, net20,081 18,544 58,455 45,231 
Costs and expenses:
Cost of goods sold5,381 2,063 18,799 3,149 
Selling, general and administrative32,029 32,171 102,168 102,935 
Pre-approval commercial manufacturing110 5,841 2,304 16,117 
Research and development16,165 21,796 55,281 60,584 
Total costs and expenses53,685 61,871 178,552 182,785 
Loss from operations(33,604)(43,327)(120,097)(137,554)
Other (expense) income, net(6,044)(6,075)(16,900)(7,053)
Loss before income taxes(39,648)(49,402)(136,997)(144,607)
Income tax benefit  (33)(90)
Net loss$(39,648)$(49,402)$(136,964)$(144,517)
Net loss per common share—basic and diluted$(0.86)$(1.09)$(2.99)$(3.19)
Weighted average number of common shares
outstanding—basic and diluted
45,945,745 45,448,190 45,871,723 45,372,608 
Net loss$(39,648)$(49,402)$(136,964)$(144,517)
Unrealized (loss) gain on available-for-sale investments, net(129)(158)80 (158)
Comprehensive loss$(39,777)$(49,560)$(136,884)$(144,675)
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 
Issuance of common stock upon exercise of stock purchase rights22,648 — 569 — — 569 
Issuance of common stock upon exercise of stock options and warrants10,480 — 71 — — 71 
Issuance of common stock for restricted stock awards, net(5,686)— (891)— — (891)
Stock-based compensation— — 11,023 — — 11,023 
Net loss— — — — (47,164)(47,164)
Balances at June 30, 201945,949,418 $46 $947,246 $ $(791,534)$155,758 
Issuance of common stock upon exercise of stock options 15,000 — 159 — — 159 
Issuance of common stock for restricted stock awards, net34,538 — 267 — — 267 
Stock-based compensation— — 10,804 — — 10,804 
Equity component of Convertible Notes, net of issuance costs of $3,725
— — 124,666 — — 124,666 
Payment for capped call share options— — (32,890)— — (32,890)
Other comprehensive (loss) gain— — — (158)— (158)
Net loss— — — — (49,402)(49,402)
Balances at September 30, 201945,998,956 $46 $1,050,252 $(158)$(840,936)$209,204 
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) INCOMEACCUMULATED
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 compensation— — 10,838 — — 10,838 
Other comprehensive (loss) 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 
Issuance of common stock upon exercise of stock purchase rights23,494 — 295 — — 295 
Issuance of common stock upon exercise of stock options31,615 1 118 — — 119 
Issuance of common stock for restricted stock awards, net(17,945)— (150)— — (150)
Stock-based compensation— — 10,289 — — 10,289 
Other comprehensive income (loss)— — — 237 — 237 
Net loss— — — — (48,187)(48,187)
Balances at June 30, 202046,513,349 $47 $1,082,964 $117 $(993,316)$89,812 
Issuance of common stock upon exercise of stock options13,907 — 9 — — 9 
Issuance of common stock for restricted stock awards, net301,077 — (104)— — (104)
Stock-based compensation— — 10,157 — — 10,157 
Other comprehensive (loss) income— — — (129)— (129)
Net loss— — — — (39,648)(39,648)
Balances at September 30, 202046,828,333 $47 $1,093,026 $(12)$(1,032,964)$60,097 
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) 

 NINE MONTHS ENDED 
SEPTEMBER 30,
 20202019
Cash flows from operating activities
Net loss$(136,964)$(144,517)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation4,741 3,610 
Amortization and accretion20,446 6,335 
Stock-based compensation30,505 33,921 
Other non-cash(369)(252)
Changes in operating assets and liabilities
Accounts receivable, net(8,494)(30,563)
Inventory915 (4,080)
Prepaid, current and other assets(371)(2,715)
Accounts payable, accrued expenses and other current liabilities6,884 18,576 
Operating lease liabilities(4,345)(3,621)
Net cash used in operating activities(87,052)(123,306)
Cash flows from investing activities
Purchase of available-for-sale investments(84,111)(97,268)
Proceeds from sales and maturities of investments160,769  
Purchase of property, plant and equipment(2,504)(7,911)
Net cash provided by (used in) investing activities74,154 (105,179)
Cash flows from financing activities
Proceeds from loan8,274  
Repayment of loan(8,274) 
Proceeds from convertible notes, net of issuance costs 308,349 
Payment for capped call options (32,890)
Payments related to issuance of stock for stock-based compensation arrangements, net
(1,255)(597)
Payments of debt issuance costs (532)
Proceeds from exercise of warrants 375 
Other financing (336)
Net cash (used in) provided by financing activities(1,255)274,369 
Net change in cash and cash equivalents(14,153)45,884 
Cash and cash equivalents, at beginning of period143,940 202,818 
Cash and cash equivalents, at end of period$129,787 $248,702 
Non-cash investing and financing activities
Purchase of property, plant and equipment$321 $1,389 
Debt issuance costs included in accrued expense and other current liabilities$ $1,275 
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, ocular surface diseases and retinal diseases. 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 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, if ultimately commercialized 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 for review by the European Medicines Agency (“EMA”) in December 2019. An opinion from the Committee for Medicinal Products in Human Use (“CHMP”) for the MAA for Roclanda® is expected in the fourth quarter of 2020 and the final decision by the EC to grant a centralised marketing authorisation for Roclanda® is expected in late 2020 or early 2021. In September 2020, the Company read out interim topline 90-day efficacy data for its Phase 3b trial for Roclanda®, named Mercury 3, 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). The results indicated Roclanda® met the overall trial objective by demonstrating non-inferiority to Ganfort® across nine of nine timepoints over 90 days. Roclanda® also demonstrated consistent IOP reduction throughout the day, with the IOP reductions observed in Mercury 3 exceeding those from both Mercury 1 and Mercury 2. The Company currently expects to read out topline six-month results for Mercury 3 in early 2021. Mercury 3 is not required for regulatory approval; it is designed to gauge the commercialization prospects of Roclanda® in Europe. The Company deemed the Mercury 3 results as an important determinant as the Company evaluated the commercialization and profitability potential of Rhokiinsa®, and particularly Roclanda®, in Europe.
As a result of the positive Mercury 3 results, third parties have expressed interest in a commercialization partnership in Europe. Some third parties have also stated potential interest in a commercialization partnership beyond just Europe. While there remains some uncertainty regarding the stance of the U.S. government on how pricing in Europe may impact pricing in the United States, if at all, the Company plans to commence collaboration discussions later in 2020. According to IQVIA, it is estimated that the European glaucoma market represented approximately $1 billion in sales with 105 million units in 2019, compared to approximately 55 million units in the United States.
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 population. 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 in the fourth quarter of 2020. The Company expects to have three Phase 3 trials, two of which will be 28-day trials and one of which will be a 12-month safety trial. Further, in October 2020, the Company entered into a Collaboration and License Agreement with Santen Pharmaceuticals Co., Ltd. to advance its clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan and other countries in Asia. See Note 13 for additional information.
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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 tear production and blink rate. In addition, activating the TRPM8 receptor may reduce ocular discomfort by promoting a cooling sensation. The Investigational New Drug Application (“IND”) for AR-15512 eye drop for dry eye became effective in September 2020, allowing Aerie to initiate clinical studies in the treatment of dry eye. The Company is planning to test two concentrations of AR-15512 in a 90-day Phase 2b clinical trial with 360 subjects, which could potentially be considered pivotal. The Company initiated this clinical trial, named COMET-1, in October 2020 and a topline readout is expected in the third quarter of 2021.
The Company is developing two sustained-release implants focused on retinal diseases, AR-1105 and AR-13503 SR. In July 2020, the Company completed a Phase 2 clinical trial for AR-1105, a dexamethasone steroid implant, in patients with macular edema due to retinal vein occlusion (“RVO”). In July 2020, the Company reported topline results of the Phase 2 clinical trial for AR-1105 indicating sustained efficacy of up to six months, an important achievement in validating the capabilities of Aerie’s sustained release platform.
With respect to future plans for AR-1105, the Company is currently evaluating next steps regarding clinical advancement along with commercialization prospects in both Europe and the United States. According to IQVIA, the market for retinal diseases therapeutics totals nearly $7 billion in the United States and $4 billion in Europe, yet the injected steroid market component is in fact currently higher in Europe than in the United States. The closest competitive product currently generates approximately $100 million in annual net sales in the United States and $300 million in Europe and is generally in practice injected once every two to three months.
The Company is also developing AR-13503, a ROCK and Protein kinase C inhibitor that is the active ingredient in the AR-13503 sustained-release implant. The 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 safety study for AR-13503 SR in the third quarter of 2019.
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 filed a Prior Approval Supplement with the FDA in the second quarter of 2020 and received FDA approval to produce Rhopressa® at the Athlone plant in September 2020. Shipments of commercial supply of Rocklatan® from the Athlone plant to the United States commenced in the third quarter of 2020. The Athlone plant has manufactured clinical supplies of Rhopressa® for the upcoming Phase 3 trials in Japan and is expected to commence shipping commercial supply of Rhopressa® to the United States later this year.
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 has historically 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.
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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 and nine months ended September 30, 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.
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 commercial production of Rocklatan® and Rhopressa® and 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. In September 2020, the Company received FDA approval to produce Rhopressa® at the Athlone plant. The Company currently expects to continue to use product sourced from its contract manufacturers in addition to the Athlone plant.
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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 September 30, 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 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 investments: The Company’s investments in debt securities 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
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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. The idle capacity results from the manufacturing plant having commenced operations earlier in 2020 and not reaching full capacity.
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

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 debt securities, including 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 the condensed consolidated balance sheets.
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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.
The Company’s investments also includes equity securities, which in accordance with the fair value hierarchy described below are recorded at fair value using Level l inputs on the condensed consolidated balance sheets and the subsequent changes in fair values are recorded in other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. As of September 30, 2020, the fair value of the equity securities held at the end of the period was $0.6 million. For the three and nine months ended September 30, 2020, the Company had $0.6 million of unrealized investments gains on equity securities held at the end of the period.
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 $0.3 million and $1.9 million for the three and nine months ended September 30, 2020, respectively, and $0.5 million and $1.8 million for the three and nine months ended September 30, 2019. 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 and nine months ended September 30, 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 in debt securities and the Convertible Notes were valued utilizing Level 2 inputs as of September 30, 2020. There were no transfers between the different levels of the fair value hierarchy during the nine months ended September 30, 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
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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 Accounting Standards Updated (“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 ASU 2018-13, 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 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 August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to address the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. This ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity. ASU 2020-06 also simplifies the accounting for convertible instruments, which includes eliminating the cash conversion accounting model for convertible instruments. Additionally, ASU 2020-06 will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The guidance is effective for the Company beginning on January 1, 2022, with early adoption permitted, and prescribes different transition methods for the various provisions. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and disclosures.
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
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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 
SEPTEMBER 30,
NINE MONTHS ENDED 
SEPTEMBER 30,
 2020201920202019
Outstanding stock options8,790,185 8,535,266 8,790,185 8,535,266 
Stock purchase warrants 79,500  79,500 
Non-vested restricted stock awards and performance share units858,147 755,179 858,147 755,179 
Non-vested restricted stock units113,368 43,071 113,368 43,071 
Total9,761,700 9,413,016 9,761,700 9,413,016 

3. Revenue Recognition
Net product revenues for the three and nine months ended September 30, 2020 and 2019 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. For the nine months ended September 30, 2020, three distributors accounted for 36%, 34% and 29% of total revenues, respectively. For the nine months ended September 30, 2019, three distributors accounted for 37%, 31% and 30% 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 September 30, 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 September 30, 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 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 $52.1 million and $141.9 million for the three and nine months ended September 30, 2020, respectively, a significant portion of which related to commercial and Medicare Part D rebates. Provisions for revenue reserves for the three and nine months ended September 30, 2019 were $31.0 million and $73.8 million, respectively.
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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 September 30, 2020 included the following:
(in thousands)AMORTIZED
COST
GROSS
UNREALIZED
GAINS
GROSS
UNREALIZED
LOSSES
FAIR
VALUE
Cash and cash equivalents:
Cash and cash equivalents$129,787 $ $ $129,787 
Total cash and cash equivalents$129,787 $ $ $129,787 
Investments:
Commercial paper (due within 1 year)$44,792 $32 $(9)$44,815 
Corporate bonds (due within 1 year)43,865 10 (45)43,830 
Total investments$88,657 $42 $(54)$88,645 
Total cash, cash equivalents and investments$218,444 $42 $(54)$218,432 

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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
SEPTEMBER 30, 2020
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and cash equivalents$129,787 $ $ $129,787 
Total cash and cash equivalents:$129,787 $ $ $129,787 
Investments:
Commercial paper$ $44,815 $ 44,815 
Corporate bonds 43,830  43,830 
Total investments$ $88,645 $ $88,645 
Total cash, cash equivalents and investments:$129,787 $88,645 $ $218,432 

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 

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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 $251.5 million at September 30, 2020.

6. Inventory
Inventory consists of the following:
(in thousands)SEPTEMBER 30, 2020DECEMBER 31, 2019
Raw materials$2,724 $1,400 
Work-in-process15,639 13,414 
Finished goods2,479 6,240 
Total inventory$20,842 $21,054 

For the three and nine months ended September 30, 2020, $3.8 million and $12.4 million, respectively, of idle capacity cost associated with our Athlone manufacturing plant was recorded to costs of goods sold. The idle capacity results from the manufacturing plant having commenced operations earlier in 2020 and not reaching full capacity.

7. Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
(in thousands)SEPTEMBER 30, 2020DECEMBER 31, 2019
Manufacturing equipment$21,575 $18,073 
Laboratory equipment7,856 7,525 
Furniture and fixtures1,664 1,648 
Software, computer and other equipment8,025 7,772 
Leasehold improvements30,029 29,720 
Construction-in-progress1,536 3,892 
 Property, plant and equipment70,685 68,630 
Less: Accumulated depreciation(15,392)(10,483)
Property, plant and equipment, net$55,293 $58,147 

Manufacturing Plant
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 ASU 2016-02, Leases, the Company was deemed to be the owner of the leased space prior to 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.

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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 January 2022 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 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 Malta, 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, which the Company 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)SEPTEMBER 30, 2020DECEMBER 31, 2019
Operating Leases
Operating lease right-of-use assets$15,041 $16,523 
Operating lease liabilities$5,303 $5,502 
Long-term operating lease liabilities10,759 12,102 
Total operating lease liabilities$16,062 $17,604 

9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)SEPTEMBER 30, 2020DECEMBER 31, 2019
Accrued expenses and other current liabilities:
Accrued compensation and benefits $11,609 $11,169 
Accrued consulting and professional fees3,345 3,810 
Accrued research and development expenses (1)
4,379