0001628280-21-003345 | 10-K | XBRL Viewer | Aerie Pharmaceuticals INC

Cover Page - USD ($)	12 Months Ended
Cover Page - USD ($)	Dec. 31, 2020	Feb. 19, 2021	Jun. 30, 2020
Cover [Abstract]
Document Type	10-K
Document Annual Report	true
Document Period End Date	Dec. 31, 2020
Current Fiscal Year End Date	--12-31
Document Transition Report	false
Entity File Number	001-36152
Entity Registrant Name	Aerie Pharmaceuticals, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	20-3109565
Entity Address, Address Line One	4301 Emperor Boulevard,
Entity Address, Address Line Two	Suite 400
Entity Address, City or Town	Durham,
Entity Address, State or Province	NC
Entity Address, Postal Zip Code	27703
City Area Code	919
Local Phone Number	237-5300
Title of 12(b) Security	Common Stock, $0.001 par value per share
Trading Symbol	AERI
Security Exchange Name	NASDAQ
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
ICFR Auditor Attestation Flag	true
Entity Shell Company	false
Entity Public Float			$ 671,924,115
Entity Common Stock, Shares Outstanding		46,917,133
Documents Incorporated by Reference	Portions of the registrant’s definitive proxy statement (the “Proxy Statement”) for the 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission (the “SEC”) within 120 days of the registrant’s fiscal year ended December 31, 2020.
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Entity Central Index Key	0001337553

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 151,570	$ 143,940
Short-term investments	88,794	165,250
Accounts receivable, net	56,022	38,354
Inventory	27,059	21,054
Prepaid expenses and other current assets	8,310	7,744
Total current assets	331,755	376,342
Property, plant and equipment, net	54,260	58,147
Operating lease right-of-use assets	14,084	16,523
Other assets	1,946	1,596
Total assets	402,045	452,608
Current liabilities
Accounts payable	8,826	12,770
Accrued expenses and other current liabilities	90,723	65,376
Operating lease liabilities	4,923	5,502
Total current liabilities	104,472	83,648
Convertible notes, net	210,373	188,651
Deferred revenue, non-current	50,858	0
Long-term operating lease liabilities	10,206	12,102
Other non-current liabilities	2,168	1,257
Total liabilities	378,077	285,658
Commitments and contingencies (Note 14)
Stockholders’ equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of December 31, 2020 and December 31, 2019; None issued and outstanding	0	0
Common stock, $0.001 par value; 150,000,000 shares authorized as of December 31, 2020 and December 31, 2019; 46,821,644 and 46,464,669 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively	47	46
Additional paid-in capital	1,103,074	1,062,996
Accumulated other comprehensive loss	(52)	(92)
Accumulated deficit	(1,079,101)	(896,000)
Total stockholders’ equity	23,968	166,950
Total liabilities and stockholders’ equity	$ 402,045	$ 452,608

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	15,000,000	15,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	150,000,000	150,000,000
Common stock, shares issued (in shares)	46,821,644	46,464,669
Common stock, shares outstanding (in shares)	46,821,644	46,464,669

Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Total revenues, net	$ 83,138	$ 69,888	$ 24,181
Costs and expenses:
Cost of goods sold	25,333	4,833	641
Selling, general and administrative	137,184	138,402	120,614
Pre-approval commercial manufacturing	2,304	22,767	26,545
Research and development	74,007	91,378	86,123
Total costs and expenses	238,828	257,380	233,923
Loss from operations	(155,690)	(187,492)	(209,742)
Other (expense) income, net	(22,166)	(12,179)	(22,824)
Loss before income taxes	(177,856)	(199,671)	(232,566)
Income tax expense (benefit)	5,245	(90)	3
Net loss	$ (183,101)	$ (199,581)	$ (232,569)
Net loss per common share - basic and diluted (in dollars per share)	$ (3.99)	$ (4.39)	$ (5.58)
Weighted average number of common shares outstanding—basic and diluted (in shares)	45,897,255	45,427,154	41,663,958
Unrealized (loss) gain on available-for-sale investments	$ 40	$ (92)	$ 28
Comprehensive loss	(183,061)	(199,673)	(232,541)
Product revenues, net
Total revenues, net	$ 83,138	$ 69,888	$ 24,181

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	COMMON STOCK	ADDITIONAL PAID-IN CAPITAL	ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME	ACCUMULATED DEFICIT	ACCUMULATED DEFICIT Cumulative Effect, Period of Adoption, Adjustment
Beginning balance (in shares) at Dec. 31, 2017			36,947,637
Beginning balance, value at Dec. 31, 2017	$ 135,599	$ (2,122)	$ 37	$ 597,318	$ (28)	$ (461,728)	$ (2,122)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock, net of commissions and expenses (in shares)			2,313,824
Issuance of common stock, net of commissions and expenses of $1,345	136,445		$ 2	136,443
Issuance of common stock upon exercise of stock purchase rights (in shares)			34,193
Issuance of common stock upon exercise of stock purchase rights	1,401			1,401
Issuance of common stock upon exercise of stock options and warrants (in shares)			597,777
Issuance of common stock upon exercise of stock options and warrants	4,251		$ 1	4,250
Issuance of common stock for restricted stock awards, net (in shares)			216,005
Issuance of common stock for restricted stock awards, net	(2,172)			(2,172)
Stock-based compensation	38,862			38,862
Issuance of shares upon conversion of 2014 Convertible Notes (in shares)			5,369,447
Issuance of shares upon conversion of 2014 Convertible Notes	148,083		$ 5	148,078
Other comprehensive income (loss)	28				28
Net loss	(232,569)					(232,569)
Ending balance (in shares) at Dec. 31, 2018			45,478,883
Ending balance, value at Dec. 31, 2018	$ 227,806		$ 45	924,180	0	(696,419)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Accounting Standards Update [Extensible List]	aeri:AccountingStandardsUpdate201616Member
Issuance of common stock upon exercise of stock purchase rights (in shares)			42,611
Issuance of common stock upon exercise of stock purchase rights	$ 979			979
Issuance of common stock upon exercise of stock options and warrants (in shares)			612,759
Issuance of common stock upon exercise of stock options and warrants	3,140			3,140
Issuance of common stock for restricted stock awards, net (in shares)			330,416
Issuance of common stock for restricted stock awards, net	(2,629)		$ 1	(2,630)
Stock-based compensation	45,551			45,551
Equity component of Convertible Notes, net of issuance costs of $3,725	124,666			124,666
Other comprehensive income (loss)	(92)				(92)
Payment for capped call share options	(32,890)			(32,890)
Net loss	(199,581)				0	(199,581)
Ending balance (in shares) at Dec. 31, 2019			46,464,669
Ending balance, value at Dec. 31, 2019	166,950		$ 46	1,062,996	(92)	(896,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock upon exercise of stock purchase rights (in shares)			60,857
Issuance of common stock upon exercise of stock purchase rights	$ 724			724
Issuance of common stock upon exercise of stock options and warrants (in shares)	58,676		51,333
Issuance of common stock upon exercise of stock options and warrants	$ 172		$ 1	171
Issuance of common stock for restricted stock awards, net (in shares)			244,785
Issuance of common stock for restricted stock awards, net	(1,754)			(1,754)
Stock-based compensation	40,937			40,937
Other comprehensive income (loss)	40				40
Net loss	(183,101)					(183,101)
Ending balance (in shares) at Dec. 31, 2020			46,821,644
Ending balance, value at Dec. 31, 2020	$ 23,968		$ 47	$ 1,103,074	$ (52)	$ (1,079,101)

Consolidated Statements of Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Statement of Stockholders' Equity [Abstract]
Underwriting discounts and commissions and expenses		$ 1,345
Issuance costs, equity component of convertible debt	$ 3,725

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities
Net loss	$ (183,101)	$ (199,581)	$ (232,569)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation	6,366	5,138	2,442
Amortization and accretion	27,792	12,976	1,646
Acquisition of assets expensed to research and development	0	10,171	0
Stock-based compensation	40,095	45,093	38,728
Induced conversion of 2014 Convertible Notes	0	0	24,059
Other non-cash	(732)	(271)	(270)
Changes in operating assets and liabilities
Accounts receivable, net	(17,668)	(35,639)	(2,715)
Inventory	(5,166)	(10,257)	(9,689)
Prepaid, current and other assets	340	(2,144)	(791)
Accounts payable, accrued expenses and other current liabilities	22,536	28,766	26,583
Operating lease liabilities	(6,010)	(4,682)	0
Deferred revenue	50,858	0	0
Net cash used in operating activities	(64,690)	(150,430)	(152,576)
Cash flows from investing activities
Acquisition of assets	0	(7,835)	0
Purchase of available-for-sale investments	(116,591)	(165,454)	(56,195)
Proceeds from sales and maturities of investments	192,870	0	108,297
Purchase of property, plant and equipment	(3,100)	(9,958)	(31,313)
Net cash provided (used in) by investing activities	73,179	(183,247)	20,789
Cash flows from financing activities
Proceeds from loan	8,274	0	0
Repayment of loan	(8,274)	0	0
Proceeds from sale of common stock, net	0	0	135,972
Proceeds related to issuance of stock for stock-based compensation arrangements, net	(859)	684	3,630
Proceeds from exercise of warrants	0	761	0
Proceeds from convertible notes, net of issuance costs	0	308,349	0
Payments of issuance costs	0	(1,769)	(1,883)
Payment for capped call options	0	(32,890)	0
Other financing	0	(336)	(683)
Net cash (used in) provided by financing activities	(859)	274,799	137,036
Net change in cash and cash equivalents	7,630	(58,878)	5,249
Cash and cash equivalents, at beginning of period	143,940	202,818	197,569
Cash and cash equivalents, at end of period	151,570	143,940	202,818
Supplemental disclosures
Cash paid for interest	5,034	6,496	1,774
Cash paid for income taxes	4,987	0	0
Non-cash investing and financing activities:
Conversion of convertible notes to common stock (Note 10)	0	0	148,078
Liabilities incurred from Avizorex Asset Acquisition	0	1,186	0
Purchases of property, plant and equipment in accounts payable and accrued expense and other current liabilities	374	771	3,526
Build-to-suit lease transaction (Note 7)

The Company	12 Months Ended
The Company	Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
The Company	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. U.S. Commercial Products The Company has developed and commercialized two U.S. Food and Drug Administration (“FDA”) approved products, Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”) and Rocklatan® (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan®”). 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 Rhopressa® and Rocklatan® in the United States, the Company is pursuing its strategy to commercialize Rhopressa® and Rocklatan® in Europe and obtain regulatory approval in Japan. Rhopressa® and Rocklatan® will be marketed under the names Rhokiinsa® and Roclanda®, respectively, if ultimately commercialized in Europe. Outside the United States In Europe, Rhokiinsa® was granted a Centralised Marketing Authorisation (“Centralised MA”) by the European Commission (“EC”) in November 2019 and Roclanda® was granted a Centralised MA by the EC in January 2021. The Company reported positive interim topline 90-day efficacy data in September 2020 for the Phase 3b clinical 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). In Japan, the Company entered into a Collaboration and License Agreement (the “Santen Agreement”) with Santen Pharmaceuticals Co., Ltd. (“Santen”) in October 2020 to advance its clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan and eight other countries in Asia. See Note 3 for additional information. The Company commenced a Rhopressa® Phase 3 clinical trial in Japan in the fourth quarter of 2020. The Company initiated a Rhopressa® Phase 3 clinical trial in December 2020, the first of three expected Phase 3 clinical trials in Japan. Clinical trials for Rocklatan® have not yet begun. Glaucoma Product Manufacturing The Company has a sterile fill production facility in Athlone, Ireland, for the production of its FDA approved products and clinical supplies, which was completed in the second quarter of 2019. The Company received FDA approval to produce Rocklatan® and Rhopressa® at the Athlone manufacturing plant for commercial distribution in the United States in January 2020 and September 2020, respectively. The manufacturing plant began manufacturing commercial supplies of Rocklatan® during the first quarter of 2020 and Rhopressa® in the third quarter of 2020 for distribution to the United States. Shipments of commercial supply of Rocklatan® and Rhopressa® from the Athlone manufacturing plant to the United States commenced in the third quarter of 2020 and in the fourth quarter of 2020, respectively. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan. Product Candidates and Pipeline The Company is furthering the development of its product candidates focused on dry eye and retinal diseases, particularly AR-15512, AR-1105, AR-13503 SR and AR-14034 SR, described below. The Company acquired Avizorex, a Spanish ophthalmic pharmaceutical company developing therapeutics for the treatment of dry eye disease, in late 2019. 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 currently developing three sustained-release implants focused on retinal diseases, AR-1105, AR-13503 SR and AR-14034 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”). Also, 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 into Phase 3 along with commercialization prospects in both Europe and the United States. We are in the process of meeting with regulatory agencies in order to harmonize development plans across both Europe and the United States. 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 wet age-related macular degeneration (age-related macular degeneration, “AMD”) 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 preclinical sustained-release implant AR-14034 SR has the potential to deliver the active ingredient axitinib, an inhibitor of VEGF receptors. It has the potential to provide a once per-year injection to treat DME, wet AMD and related diseases of the retina. The Company anticipates filing an Investigational New Drug Application (“IND”) for AR-14034 SR with the FDA in the second half of 2022. Liquidity The Company commenced generating product revenues related to the 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 (Note 12) and issuance of convertible notes (Note 10) 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”) (Note 10). Further, in October 2020, the Company entered into the Santen Agreement, pursuant to which Santen paid an upfront payment of $50.0 million (Note 3). The Company expects to incur ongoing operating losses until such a time when Rhopressa® or Rocklatan® or any current or future product candidates, if approved, generate sufficient cash flows for the Company to achieve profitability. Accordingly, the Company may be required to obtain further funding through debt or equity offerings or other sources. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on acceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

Significant Accounting Policies

12 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Significant Accounting Policies

Basis of Presentation and Consolidation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The 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 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 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, acquisitions, stock-based compensation and fair value measurements. 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 consolidated balance sheet.

The Company relies on its manufacturing plant in Athlone, Ireland, and its current contract manufacturers to produce commercial supplies of Rhopressa® and Rocklatan® and may rely on its third-party manufacturers to produce the active pharmaceutical ingredient (“API”). The Company may rely on a combination of internal manufacturing and third-party manufacturers for its product candidates and future product candidates.

The commercial production of the final drug product is supported by a combination of internal and outsourced manufacturing. The Company has established its own manufacturing plant in Athlone, Ireland, for the production of our FDA approved products and clinical supplies. The Athlone manufacturing plant began manufacturing commercial supplies of Rocklatan® during the first quarter of 2020 and Rhopressa® in the third quarter of 2020 for distribution to the United States. Shipments of commercial supply of Rocklatan® and Rhopressa® from the Athlone manufacturing plant to the United States commenced in the third quarter of 2020 and in the fourth quarter of 2020, respectively. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan. As the Athlone manufacturing plant commenced operations in 2020, it has not yet reached full capacity. The Company expects that the Athlone manufacturing plant will have adequate capacity to produce Rhopressa® and Rocklatan® for the United States as well as the European and Japanese commercial markets. The Company expects that in 2021 the Athlone manufacturing plant will manufacture most of its needs for Rhopressa® and Rocklatan® in the United States. The Company may continue to use contract manufacturers to produce commercial supplies of Rhopressa® and Rocklatan® for distribution in the United States, but at reduced levels compared to before the Athlone manufacturing plant was operational.

In addition to the current contract manufacturers, the Company obtained FDA approval for an additional Rhopressa® drug product contract manufacturer in the first quarter of 2019, which began to supply commercial product in the second quarter of 2019. Further, the Company has obtained FDA approval for an additional API contract manufacturer, which began to supply commercial API in the second quarter of 2019. The Company has also received FDA approval of an additional Rocklatan® drug product contract manufacturer in January 2020, which began to supply commercial product in the first quarter of 2020. Latanoprost, used in the manufacture of Rocklatan®, is available in commercial quantities from multiple reputable third-party manufacturers.

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.

Product Revenues

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 December 31, 2020 were generated through sales of Rhopressa® and sales of Rocklatan®. 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.

Contract Revenues from License Agreements

In the normal course of business, the Company conducts research and development activities pursuant to which the Company may license certain rights of the Company’s intellectual property to third parties. The terms of these arrangements typically include payment to the Company for a combination of one or more of the following: upfront license fees; development, regulatory and sales-based milestone payments; clinical or commercial supply services and royalties on net sales of licensed products.

The Company would first assess any arrangements under ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether the agreement (or part of the agreement) represents a collaborative arrangement based on the risks and rewards and activities of the parties. The Company accounts for collaborative arrangements (or elements within the contract that are deemed part of a collaborative arrangement), which represent a collaborative relationship and not a customer relationship, outside the scope of ASC Topic 606.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”), which was effective for the Company on January 1, 2020. This standard makes targeted improvements for collaborative arrangements as follows:

•Clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC Topic 606, when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in ASC Topic 606 should be applied, including recognition, measurement, presentation and disclosure requirements;

•Adds unit-of-account guidance to ASC 808, to align with the guidance in ASC Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC Topic 606; and

•Requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting that transaction together with revenue recognized under ASC Topic 606 is precluded if the collaborative arrangement participant is not a customer.

For arrangements within the scope of ASC Topic 606, in determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the five steps outlined in “—Revenue Recognition” above. As part of the accounting for these arrangements, the Company must use judgment to determine: (a) the performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price under step (iv) above; and (d) in some circumstances when control transfers and the appropriate measure of progress in order to recognize revenue under step (v) above. The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, non-current.

Upfront license fees: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company will recognize revenue from upfront license fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company determines whether the combined performance obligation is satisfied over time or at a point in time.

Development, regulatory or commercial milestone payments: At the inception of each arrangement that includes payments based on the achievement of certain development, regulatory and sales-based or commercial events, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until uncertainty associated with the approvals has been resolved. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust the Company’s estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis and recorded as part of license revenues from collaborations during the period of adjustment.

Clinical or commercial supply services: Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as customer options. The Company assesses if these options provide a material right to the licensee and if so, they would be accounted for as separate performance obligations.

Sales-based milestone payments and royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, the Company will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate and if such is the case, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Upfront payments and fees may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements or when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with any variable consideration is subsequently resolved. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

See Note 3 for additional information.

Cash Equivalents

The Company’s cash and cash equivalents are held at several financial institutions. The Company considers money market accounts and short-term highly liquid investments with original maturities of three months or less to be cash equivalents.

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 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.

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 consolidated statements of operations and comprehensive loss. Once regulatory approval is obtained, the Company capitalizes such costs as inventory on the 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 been yet placed in service and are not depreciated or amortized, which primarily relates to the completion of the Company’s manufacturing plant in Athlone, Ireland. 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 equipment			10 years
Laboratory equipment			7 years
Furniture and fixtures			5 years
Software, computer and other equipment			3 years
Leasehold improvements			Lower 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 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.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the years ended December 31, 2020, 2019 and 2018, no such impairment losses have been recorded by the Company.

Acquisitions

The Company evaluates acquisitions to determine whether the acquisition is a business combination or an acquisition of assets under ASC Topic 805. Business combinations are accounted for using the acquisition method of accounting, whereby assets acquired and liabilities assumed are recorded as of the acquisition date at their respective fair values and excess of the fair value of the consideration transferred over the fair value of the net assets acquired is recorded as goodwill. In an asset acquisition that does not constitute a business, no goodwill is recognized, and the net assets acquired are generally recorded at cost. Significant judgment is required in estimating the fair value of intangible assets and in a determination of whether an acquisition is a business combination or an acquisition of assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain.

The consolidated financial statements as of and for the year ended December 31, 2019 include the impact of the acquisition of assets from Avizorex (see Note 14 for additional information).

Research and Development Costs

Research and development costs are charged to expense as incurred and include, but are not limited to:

•employee-related expenses including salaries, benefits, travel and stock-based compensation expense for research and development personnel;

•expenses incurred under agreements with contract research organizations (“CROs”), contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies;

•costs associated with any collaboration arrangements, licenses or acquisitions of preclinical molecules, product candidates or technologies;

•costs associated with preclinical activities and development activities;

•costs associated with regulatory operations; and

•depreciation expense for assets used in research and development activities.

Costs for certain development activities, such as clinical studies, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the patterns of costs incurred, and are reflected in the consolidated financial statements as prepaid expenses or accrued expenses as deemed appropriate. No material adjustments to these estimates have been recorded in these consolidated financial statements.

Research and development costs also include the cost of in-process research and development (“IPR&D”) projects acquired as part of an asset acquisition that have no alternative future use. Milestone payments due to third parties in connection with research and development activities prior to regulatory approval are expensed as incurred, while milestone payments due to third parties upon, or subsequent to, regulatory approval are capitalized and amortized over the estimate useful life.

Stock-Based Compensation

Stock-based compensation for awards granted to employees and non-employees is measured at grant date, based on the estimated fair value of the award. The Company estimates the fair value of options to purchase common stock and stock

appreciation rights (“SARs”) using a Black-Scholes option pricing model. The Black-Scholes option pricing model utilizes assumptions including expected term, volatility, a risk-free interest rate and an expected dividend yield. The Company utilized the guidance set forth in the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin 107, Share-Based Payment (“SAB 107”), to determine the expected term of options, as it does not have sufficient historical exercise and post-vesting termination data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. The simplified method utilizes the midpoint between the vesting date and the maximum contractual expiration date as the expected term. Volatility is based on the historical volatility of the Company as well as several public entities that are similar to the Company. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term. The Company uses an expected dividend yield of zero as it does not expect to pay cash dividends for the foreseeable future. Upon issuance and at each reporting period, the fair value of each 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.

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 determined based on the fair value of Aerie’s common stock on the date of grant. Compensation expense related to RSAs and RSUs are recognized ratably over the vesting period. As the PSAs have multiple performance conditions, compensation expense is recognized for each vesting tranche over the respective requisite service period of each tranche if and when the Company’s management deems it probable that the performance conditions will be satisfied. Stock-based compensation related to stock options, RSAs, RSUs and PSAs is expensed on a straight-line basis over the relevant vesting period, although the Company may recognize a cumulative true-up adjustment related to PSAs once a condition becomes probable of being satisfied if the related service period had commenced in a prior period. All stock-based compensation expense is recorded between selling, general and administrative, pre-approval commercial manufacturing, research and development costs and cost of goods sold in the consolidated statements of operations and comprehensive loss based upon the underlying employees’ roles within the Company. The Company accounts for forfeitures as they occur.

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 ASC Topic 320, Investments—Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its consolidated balance sheets. Investments are classified as long-term assets on the 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 consolidated statements of operations and comprehensive loss and in accumulated other comprehensive loss on the 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 consolidated balance sheets and the subsequent changes in fair values are recorded in other income (expense), net on the consolidated statements of operations and comprehensive loss. As of December 31, 2020, the fair value of the equity securities held at the end of the period was $1.3 million. For the year ended December 31, 2020, the Company had $1.3 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 income (expense), net. Interest income was $2.0 million, $3.0 million and $3.4 million for the years ended December 31, 2020, 2019 and 2018, 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 for the years ended December 31, 2020, 2019 and 2018.

The Company reviews investments in debt securities for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. The Company did not recognize any impairments on its investments during the years ended December 31, 2020, 2019 or 2018.

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 December 31, 2020. There were no transfers between the different levels of the fair value hierarchy in 2020 or in 2019.

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 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 on an effective interest basis 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 bought capped call options from financial institutions to minimize the impact of potential dilution of Aerie 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 consolidated balance sheet as the options are settleable in Aerie common stock at the election of the Company. See Note 10 for additional information.

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive loss. Other comprehensive loss includes changes in stockholders’ equity that are excluded from net income (loss), specifically changes in unrealized gains and losses on the Company’s available-for-sale debt securities.

Income Taxes

Deferred tax assets or liabilities are recorded for temporary differences between financial statement and tax basis of assets and liabilities, using enacted rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. The Company has provided a full valuation allowance on its deferred tax assets that consist of federal and state net operating losses (“NOLs”), stock-based compensation and tax credits as of December 31, 2020 and 2019 (Note 11).

As of December 31, 2020 and 2019, the Company had no uncertain tax positions. The Company recognizes the impact of an uncertain tax position in the consolidated financial statements only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities. The Company’s policy is to record interest and penalties on uncertain tax

positions as income tax expense. The Company did not recognize interest or penalties on uncertain tax positions for the years ended December 31, 2020, 2019 or 2018.

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, Fair Value Measurements and Disclosures. 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 its 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 loss is probable of occurring. 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. The guidance became effective for the Company beginning on January 1, 2020. The new guidance prescribes different transition methods for the various provisions. The Company adoption of ASU 2016-13 or ASU 2018-19 did not have a material impact on its consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC Topic 842”). ASC Topic 842 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months on the balance sheet. This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases. ASC Topic 842 became effective for financial statements issued for annual and interim periods beginning on January 1, 2019. The Company had elected the optional transition method that provided the option to use the effective date of ASC Topic 842 as the date of initial application on transition. Accordingly, the Company did not adjust comparative periods or make the new required lease disclosures for periods before the effective date of January 1, 2019. There was no cumulative effect adjustment recognized to accumulated deficit upon adoption. As of the date of adoption of the new leasing standards, the Company recognized an operating lease ROU asset of approximately $17.3 million and a corresponding operating lease liability of approximately $17.9 million, which are included in the consolidated balance sheets. The adoption of the new leasing standards did not have a material impact on the consolidated statements of operations and comprehensive loss.

The Company elected to utilize the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance (i) without reassessing the classification of the operating leases in accordance with ASC Topic 842, (ii) without reassessing whether an existing contract contained a lease and (iii) without reassessing initial direct costs. In addition, the Company elected not to allocate the consideration between lease and non-lease components for its operating leases. The Company also reassessed its lease conclusions for its manufacturing plant in Athlone, Ireland, under ASC Topic 842 since construction was still in progress as of the date of adoption. Upon the reassessment, the Company concluded it was the owner of the leased space for accounting purposes under ASC Topic 842 as of the date of adoption and therefore, maintained its previous build-to-suit lease accounting under the transition guidance of ASC Topic 842.

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40, Internal-Use Software, to include in its scope implementation costs of a cloud computing arrangement that is a service contract. Consequently, the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement, is aligned with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This ASU became effective for the Company beginning January 1, 2019 and early adoption is permitted. The Company elected to early adopt this standard during the third quarter of 2018, which did not have a material impact on its consolidated financial statements and disclosures.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of ASC Topic 718, Compensation—Stock Compensation to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU was effective for the Company beginning January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements and disclosures.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”) (“ASU 2018-05”), which adds guidance to clarify the treatment of income taxes based on changes enacted in December 2017 in H.R. 1 (referred to herein as the “Tax Act”). ASU 2018-05 incorporates references in ASC Topic 740 to SAB 118, which was issued in December 2017, to address the application of U.S. GAAP in situations when a registrant may not have the necessary information available in reasonable detail to complete the accounting for certain income tax effects. The guidance became effective immediately upon the enactment of the Tax Act in accordance with U.S. GAAP which requires deferred tax assets and liabilities to be revalued during the period in which new tax legislation is enacted. The Company’s final impact assessment on the consolidated financial statements did not materially change from its initial estimates.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance became effective for the Company beginning on January 1, 2018. The impact of the adoption of this guidance on its consolidated financial statements would be dependent on future modifications to share-based payment awards, if any.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which eliminates the exception to the principle in ASC Topic 740, Income Taxes, that generally requires comprehensive recognition of current and deferred income taxes for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. This ASU became effective for the Company on January 1, 2018 and was required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to accumulated deficit as of the beginning of the period of adoption. At December 31, 2017, the Company had $2.1 million of income tax effects deferred from past intercompany transactions that were recorded as prepaid assets within other assets, net, at December 31, 2017 that were adjusted through accumulated deficit as of January 1, 2018.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which provides guidance related to the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance became effective for the Company beginning on January 1, 2018 and prescribes different transition methods for the various provisions. The adoption of ASU 2016-01 did not have a material impact on its consolidated financial statements and disclosures.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard states that an entity should recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB subsequently issued amendments to ASU 2014-09 that had the same effective date of January 1, 2018. The Company did not generate any revenue prior to the three months ended June 30, 2018, and therefore the adoption of ASC Topic 606 did not have an impact on the Company’s financial statements for any prior periods or upon adoption. Revenue from sales of Rhopressa®, as well as any other future revenue arrangements, are and will be recognized under the provisions of ASC Topic 606.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired, or disposed of, is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The new standard was effective for the Company beginning on January 1, 2018; however, Aerie elected to early adopt this standard as of July 1, 2017. Under this guidance, the October 4, 2017 transaction to acquire assets from Envisia was determined to meet the criteria of an asset acquisition rather than a business combination resulting in a $24.8 million charge to research and

development expense on the consolidated statement of operations and comprehensive loss in the three months ended December 31, 2017. See Note 1 for additional information.

Recently Issued Accounting Standards

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 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 does not expect the adoption of ASU 2019-12 to have a material impact 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:


	DECEMBER 31,
	2020	2019	2018
Outstanding stock options	8,588,614	8,425,551	6,935,119
Stock purchase warrants	—	4,500	154,500
Nonvested restricted stock awards	809,527	754,415	572,706
Nonvested restricted stock units	107,182	41,811	—
Total	9,505,323	9,226,277	7,662,325

Revenue Recognition	12 Months Ended
Revenue Recognition	Dec. 31, 2020
Revenue from Contract with Customer [Abstract]
Revenue Recognition	Revenue Recognition Product Revenues Net product revenues for the year ended December 31, 2020 were generated from sales of Rhopressa® which was commercially launched in the United States at the end of April 2018, and sales of Rocklatan®, which was commercially launched in the United States in May 2019. For the year ended December 31, 2020, three distributors accounted for 37.4%, 32.4% and 28.8% of total revenues, respectively. For the year ended December 31, 2019, three distributors accounted for 36.5%, 33.3% and 28% 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 consolidated balance sheet. The Company did not have any contract assets (unbilled receivables) as of December 31, 2020 or 2019, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract liabilities as of December 31, 2020 or 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 $202.2 million, $105.9 million and $19.6 million in aggregate for the years ended December 31, 2020, 2019 and 2018, 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 information regarding returns of Rhopressa® and Rocklatan® as well as historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa® and Rocklatan® shipped to distributors, and contractual agreements with the Company's distributors intended to limit the amount of inventory they maintain. Reporting from the distributors includes distributor sales and inventory held by distributors, which provides the Company with visibility into the distribution channel to determine when product would be eligible to be returned. Santen Collaboration and License Agreement On October 28, 2020, Aerie Ireland Limited entered into a Collaboration and License Agreement with Santen Pharmaceutical Co., Ltd., a Japanese pharmaceutical company dedicated to ophthalmology that carries out research, development, marketing and sales of pharmaceuticals, over-the-counter products and medical devices. Pursuant to the Santen Agreement, Aerie Ireland Limited granted to Santen the exclusive right to develop, manufacture, market and commercialize Rhopressa® and Rocklatan® (the “Licensed Products”) in Japan, South Korea, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Taiwan (such jurisdictions collectively, the “Territories”). The Company is the sole manufacturer of the Licensed Products for Santen. Under the Santen Agreement, Aerie Ireland Limited granted Santen a first right of negotiation for the rights to the Licensed Products in any Asian countries other than the Territories. Under the Santen Agreement, Santen made an upfront payment of $50.0 million (the “Upfront Payment”) and Aerie Ireland Limited will earn various development milestones of up to $39.0 million and sales milestones of up to $60.0 million upon the achievement of certain events. In addition, Santen will pay Aerie Ireland Limited a royalty in excess of 25% of the Licensed Products’ net sales, such consideration consisting of the cost of products supplied to Santen from Aerie Ireland Limited and a royalty for the Company’s intellectual property. Santen will be responsible for sales, marketing and pricing decisions relating to the Licensed Products. Santen is also responsible for all development and commercialization costs and activities related to the Licensed Products in the Territories, except that Aerie Ireland Limited shares 50% of the costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan, which commenced in the fourth quarter of 2020. The term of the Santen Agreement continues on a country-by-country basis in the Territory until the later of (i) the expiration of the last to expire valid patent claim covering the Licensed Product and (ii) 12 years from the date of the first commercial sale of each Licensed Products under a New Drug Application approval, marketing authorization or the equivalent. The Santen Agreement may be terminated by either Aerie Ireland Limited or Santen upon the other party’s material breach or bankruptcy or insolvency. Aerie Ireland Limited may also terminate the Santen Agreement upon a patent challenge by Santen, and Santen may terminate the Santen Agreement in its discretion if, following marketing authorization for Rhopressa® in Japan, Santen reasonably determines that the Licensed Products are not commercially viable in the Territory (effective upon 180 days’ prior written notice). In addition, in the event that patents are issued that may prevent the commercialization of the Licensed Products, Santen would have the right to terminate the Santen Agreement and require Aerie Ireland Limited’s repayment of up to approximately 85% of the Upfront Payment, all development milestone payments and 50% of the development expenses incurred by Santen. In the event of termination, the Licensed Products in the applicable Territories will revert to the Company. The Company first assessed the Santen Agreement under ASC 808 to determine whether the Santen Agreement (or part of the Santen Agreement) represents a collaborative arrangement based on the risks and rewards and activities of the parties pursuant to the Santen Agreement. The Company accounts for collaborative arrangements (or elements within the contract that are deemed part of a collaborative arrangement), which represent a collaborative relationship and not a customer relationship, outside the scope of ASC Topic 606. The Company determined the Santen Agreement meets the definition of a customer for each unit of account and is within the scope of ASC 606. The Company identified two distinct performance obligations: (i) the exclusive license to Rhopressa® and Rocklatan® and (ii) the Phase 3 clinical trials in Japan. Santen can benefit from the license on its own by developing, manufacturing, marketing and commercializing the Licensed Products using its own resources. In addition, the Company expects to enter into a manufacturing and supply agreement with Santen no later than twenty-four months prior to the first commercial sale of a Licensed Product in the Territory. For the year ended December 31, 2020, the Company recorded $50.8 million as deferred revenue, non-current, relating to the Upfront Payment as well as for Santen’s portion of shared costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan, which commenced in the fourth quarter of 2020. While the Company determined that the license was a right to use the Company’s intellectual property and as of the effective date of the Santen Agreement, the Company had provided all necessary information to Santen to benefit from the license and the license term had begun, revenue was not recognized upon satisfaction of the performance obligation due to the uncertainty around potential termination in the event that patents are issued that may prevent the commercialization of the Licensed Products. The Company will recognize the Upfront Payment, and any other potential future development milestones and sales milestones, when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-URI http://asc.fasb.org/topic&trid=49130388

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130551-203045

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (b)(2)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130556-203045

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 9
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130550-203045

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (e)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130558-203045

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

+ Details

Investments

12 Months Ended

Dec. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Investments

Cash and cash equivalents and investments as of December 31, 2020 included the following:


			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED		FAIR
(in thousands)	COST		GAINS		LOSSES		VALUE
Cash and cash equivalents:
Cash and cash equivalents	$	151,570	$	—	$	—	$	151,570
Total cash and cash equivalents	$	151,570	$	—	$	—	$	151,570
Investments:
Commercial paper (due within 1 year)	$	44,122	$	5	$	(23)	$	44,104
Corporate bonds (due within 1 year)	44,724		3		(37)		44,690

Total investments	$	88,846	$	8	$	(60)	$	88,794
Total cash, cash equivalents and investments	$	240,416	$	8	$	(60)	$	240,364

Cash, cash equivalents and investments as of December 31, 2019 included the following:


			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED		FAIR
(in thousands)	COST		GAINS		LOSSES		VALUE
Cash and cash equivalents:
Cash and cash equivalents	$	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

Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

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
	DECEMBER 31, 2020
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and cash equivalents	$	151,570	$	—	$	—	$	151,570
Total cash and cash equivalents:	$	151,570	$	—	$	—	$	151,570
Investments:
Commercial paper	$	—	$	44,104	$	—	$	44,104
Corporate bonds	—		44,690		—		44,690
U.S. government and government agencies	—		—		—		—
Total investments	$	—	$	88,794	$	—	$	88,794
Total cash, cash equivalents and investments:	$	151,570	$	88,794	$	—	$	240,364


	FAIR VALUE MEASUREMENTS AS OF
	DECEMBER 31, 2019
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and cash equivalents	$	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 $296.7 million at December 31, 2020.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Inventory

12 Months Ended

Dec. 31, 2020

Inventory Disclosure [Abstract]

Inventory

Inventory consists of the following:


	DECEMBER 31,
(in thousands)	2020		2019
Raw materials	$	1,875	$	1,400
Work-in-process	21,648		13,414
Finished goods	3,536		6,240
Total inventory	$	27,059	$	21,054

Idle capacity cost associated with the Company’s Athlone manufacturing plant was $17.0 million for the year ended December 31, 2020 and 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.

Property, Plant and Equipment, Net

12 Months Ended

Dec. 31, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following:


(in thousands)	DECEMBER 31,

	2020		2019
Manufacturing equipment	$	21,705	$	18,073
Laboratory equipment	7,948		7,525
Furniture and fixtures	1,681		1,648
Software, computer and other equipment	7,836		7,772
Leasehold improvements	30,178		29,720
Construction-in-progress	1,481		3,892
Property, plant and equipment	70,829		68,630
Less: Accumulated depreciation	(16,569)		(10,483)
Property, plant and equipment, net	$	54,260	$	58,147

Depreciation expense was $6.4 million, $5.1 million and $2.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Manufacturing Plant

In the second quarter of 2019, the Company completed the build-out on its 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 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.

Leases

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

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 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 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:


	DECEMBER 31,
(in thousands)	2020		2019
Operating lease right-of-use assets	$	14,084	$	16,523

Operating lease liabilities	$	4,923	$	5,502
Long-term operating lease liabilities	10,206		12,102
Total operating lease liabilities	$	15,129	$	17,604

The cash paid for amounts included in the measurement of lease liabilities was $6.0 million and $4.7 million during the years ended December 31, 2020 and 2019, respectively. The Company’s right-of-use assets obtained in exchange for operating lease obligations were $1.9 million and $3.1 million during the years ended December 31, 2020 and 2019, respectively.


	DECEMBER 31,

	2020		2019
Operating Leases
Weighted-average remaining lease terms	8 years		8 years
Weighted-average discount rate	9	%	8	%

Maturities of lease liabilities as of December 31, 2020 are as follows:


	OPERATING
(in thousands)	LEASES
Year Ending December 31,
2021	$	5,068
2022	2,467
2023	2,139
2024	1,764
Thereafter	10,424
Total undiscounted lease payments	21,862
Less: present value adjustment	(6,733)
Total lease liabilities	$	15,129

Maturities of lease liabilities as of December 31, 2019 were as follows:


	OPERATING
(in thousands)	LEASES
Year Ending December 31,
2020	$	5,879
2021	4,074
2022	1,925
2023	1,758
Thereafter	11,551
Total undiscounted lease payments	$	25,187
Less: present value adjustment	(7,583)
Total lease liabilities	$	17,604

Lease expense for the Company’s operating leases was $5.6 million, including variable lease payments of $0.7 million, for the year ended December 31, 2020, respectively. Lease expense for the Company’s operating leases was $5.3 million, including variable lease payments of $1.3 million, for the year ended December 31, 2019, respectively.

Under prior lease guidance, rent expense for the Company’s operating leases was $3.8 million for the year ended December 31, 2018

Accrued Expenses & Other Current Liabilities

12 Months Ended

Dec. 31, 2020

Payables and Accruals [Abstract]

Accrued Expenses & Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:


	DECEMBER 31,
(in thousands)	2020		2019
Accrued expenses and other current liabilities:
Accrued compensation and benefits	$	15,207	$	11,169
Accrued consulting and professional fees	2,645		3,810
Accrued research and development (1)	2,222		8,734
Accrued revenue reserves(2)	66,552		38,450
Accrued other(3)	4,097		3,213
Total accrued expenses and other current liabilities	$	90,723	$	65,376

(1)Comprised primarily of accruals related to fees for investigative sites, contract research organizations and other service providers that assist in conducting preclinical research studies and clinical trials. As of December 31, 2019, liabilities incurred related to the Avizorex acquisition are also included.

(2)Comprised primarily of accruals related to commercial and government rebates as well as returns. The accrued revenue reserve at December 31, 2020 is higher than prior year primarily due to higher rebates largely driven by government sponsored programs.

(3)Comprised primarily of accruals related to interest payable as well as other business-related expenses.

Debt

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Debt

Convertible Notes

In September 2019, the Company issued an aggregate principal amount of $316.25 million of Convertible Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The Convertible Notes, governed by an indenture between the Company and a trustee, are senior, unsecured obligations and do not include financial and operating covenants nor any restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by Aerie or any of its subsidiaries. Interest on the Convertible Notes is payable semi-annually in cash in arrears at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020. The Convertible Notes will mature on October 1, 2024 unless they are redeemed, repurchased or converted prior to such date. Prior to April 1, 2024, the

Convertible Notes will be convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. On and after April 1, 2024, the Convertible Notes will be convertible at the option of the holders any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes may be settled in shares of Aerie common stock, cash or a combination, thereof, at the Company's election. The Company intends to settle the principal and interest amounts of the Convertible Notes in cash, and therefore, the Company currently would not expect the conversion to have a dilutive effect on the Company’s earnings per share, as applicable. However, the Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and disclosures, in which the Company will soon no longer be eligible to use the treasury stock method to reflect the shares underlying the Convertible Notes in the Company’s dilutive earnings per shares. See Note 2 for additional information.

The Convertible Notes have an initial conversion rate of 40.04 shares of Aerie common stock per $1,000 principal amount of the Convertible Notes, which will be subject to customary anti-dilution adjustments in certain circumstances. This represents an initial effective conversion price of approximately $24.98 per share, which represents a premium of approximately 35% to the $18.50 per share closing price of Aerie common stock on September 4, 2019, the date the Company priced the offering.

The Company may redeem all or any portion of the Convertible Notes, at its option, on or after October 3, 2022, at a cash redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price of Aerie common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately before the date the Company provides written notice of redemption; and the trading day immediately before the notice is sent.

Holders of Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

During the year ended December 31, 2020, the conditions allowing holders of the Convertible Notes to elect to convert had not been met. As of December 31, 2020, the if-converted value of the Convertible Notes did not exceed the principal amount of the Convertible Notes.

The estimated fair value of the liability component of the Convertible Notes at the time of issuance was $187.9 million and was determined based on a discounted cash flow analysis and a binomial lattice model. The valuation required the use of Level 3 unobservable inputs and subjective assumptions, including but not limited to the stock price volatility and bond yield. The effective interest rate on the liability component was 10.5% for the period from the date of issuance through December 31, 2020. The equity component of the Convertible Notes was recognized at issuance and represents the difference between the principal amount of the Convertible Notes and the fair value of the liability component of the Convertible Notes at issuance. The equity component was approximately $128.4 million at the time of issuance and its fair value is not remeasured as long as it continues to meet the conditions for equity classification.

In connection with the issuance of the Convertible Notes, the Company incurred debt issuance costs of $9.2 million for the three months ended December 31, 2019. In accordance with ASC Topic 470, Debt, these costs were allocated to debt and equity components in proportion to the allocation of proceeds. Issuance costs of $5.5 million were recorded as debt issuance costs in the net carrying value of Convertible Notes. The debt issuance costs are amortized on an effective interest basis over the term of the Convertible Notes. The remaining issuance costs of $3.7 million were recorded as additional paid-in capital, net with the equity component and such amounts are not subject to amortization.

The following table summarizes the carrying value of the Convertible Notes:


	DECEMBER 31,
(in thousands)	2020		2019
Gross proceeds	$	316,250	$	316,250
Unamortized debt discount	(101,565)		(122,402)
Unamortized issuance costs	(4,312)		(5,197)
Carrying value	$	210,373	$	188,651

The following table summarizes the interest expense recognized related to the Convertible Notes:


	DECEMBER 31,
(in thousands)	2020		2019
Stated interest	$	4,751	$	1,476
Amortized debt discount	20,837		5,989
Amortized issuance costs	885		254
Interest Expense	$	26,473	$	7,719

Separately, the Company entered into privately negotiated capped call options with financial institutions. The capped call options cover, subject to customary anti-dilution adjustments, the number of shares of Aerie common stock that initially underlie the Convertible Notes. The cap price of the capped call options is $37.00 per share of Aerie common stock, representing a premium of 100% above the closing price of $18.50 per share of Aerie common stock on September 4, 2019, and is subject to certain adjustments under the terms of the capped call options. The capped call options are generally intended to reduce or offset potential dilution to Aerie common stock upon conversion of the Convertible Notes with such reduction and/ or offset, as the case may be, subject to a cap based on the cap price. The Company paid a total of $32.9 million in premiums for the capped call options, which was recorded as additional paid-in capital, using a portion of the gross proceeds from the issuance and sale of the Convertible Notes. The capped call options are excluded from diluted earnings per share because the impact would be anti-dilutive.

Credit Facility

In September 2019, the Company terminated its $200 million credit facility with certain entities affiliated with Deerfield Management Company L.P. (“Deerfield”) pursuant to which $100 million of delayed draw term loan commitments were provided by Deerfield in July 2018 (the “July 2018 tranche”) and $100 million of delayed draw term loan commitments were provided by Deerfield in May 2019 (the “May 2019 tranche”). Upon termination, the Company paid aggregate fees of $6.5 million to Deerfield in respect of the fee on undrawn amounts and the exit fee for each of the July 2018 tranche and May 2019 tranche. No funds were drawn under either tranche at the time of termination.

Conversion of 2014 Convertible Notes

On July 23, 2018, Aerie entered into an Exchange and Termination Agreement (the “Exchange and Termination Agreement”) with Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P. and Deerfield Special Situations Fund, L.P. (collectively, the “Holders”). Pursuant to the Exchange and Termination Agreement, (i) the Holders converted the entire outstanding principal amount of the 2014 Convertible Notes (as defined below) into 5,040,323 shares of Aerie common stock (the “Conversion Shares”) in accordance with the terms of the 2014 Convertible Notes, which was recognized in stockholders’ equity, (ii) Aerie issued the Conversion Shares, and (iii) Aerie paid accrued and unpaid interest on the 2014 Convertible Notes through July 23, 2018.

In addition, as mutually agreed to with the Holders in order to complete the conversion on the date of the Exchange and Termination Agreement, Aerie issued an additional 329,124 shares of Aerie common stock (the “Additional Shares”) to the Holders. Aerie expensed the value of the Additional Shares in the amount of $24.1 million to other expense during the year ended December 31, 2018.

Interest Expense

Interest expense was $26.5 million for the year ended December 31, 2020, and included stated interest and amortization of debt discount and issuance costs related to the Convertible Notes. Interest expense was $15.3 million for the year ended December 31, 2019, and included stated interest and amortization of debt discount and issuance costs related to the Convertible Notes and issuance costs and fees related to the credit facility. Interest expense was $2.5 million for the year ended December 31, 2018, and included amortization of debt discount and issuance costs related to the $125.0 million aggregate principal amount of senior secured convertible notes (the “2014 Convertible Notes”) through the date of conversion, as well as issuance costs and fees related to the July 2018 tranche of the credit facility. In July 2018, the entire outstanding principal amount of the 2014 Convertible Notes was converted into shares of Aerie common stock.

Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

The provision for income taxes is based on net loss before income taxes as follows:


	DECEMBER 31,
(in thousands)	2020		2019		2018
Net loss before income taxes:
United States	$	(143,349)	$	(153,620)	$	(203,230)
Non-U.S.	(34,507)		(46,051)		(29,336)
Net loss before income taxes	$	(177,856)	$	(199,671)	$	(232,566)


	DECEMBER 31,
(in thousands, except percentages)	2020			2019			2018
Provision for income taxes:
Current:
United States	$	(33)		$	(90)		$	3
Non-U.S.	5,278			—			—
Total	$	5,245		$	(90)		$	3
Deferred:
United States	$	—		$	—		$	—
Non-U.S.	—			—			—
Total	—			—			—
Provision for income taxes	$	5,245		$	(90)		$	3
Effective tax rate	(2.95)		%	0.05		%	—		%

Significant components of the Company’s net deferred income tax assets as of December 31, 2020 and 2019 consist of the following:


	DECEMBER 31,
(in thousands)	2020		2019
Net deferred tax assets:
Net operating loss carryforwards	$	169,070	$	142,991
Stock-based compensation	29,884		22,785
U.S. tax credit carryforwards	13,526		10,980
Envisia asset acquisition	5,007		5,476
Basis difference in intangibles	7,625		7,625
Convertible Notes	(19,028)		(22,822)
Other assets	10,697		8,996
Other liabilities	(5,416)		(5,709)
Valuation allowance	(211,365)		(170,322)
Total net deferred income taxes	$	—	$	—

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2020, 2019 and 2018 is as follows:


	DECEMBER 31,
	2020		2019		2018
U.S. federal tax rate	21.00	%	21.00	%	21.00	%

State income taxes, net of federal benefit	4.02	%	4.97	%	4.56	%

Non-taxable foreign loss	(4.81)	%	(4.44)	%	0.09	%
Stock-based compensation	(2.29)	%	(1.47)	%	1.97	%
Other	0.48	%	0.98	%	(1.13)	%
Change in valuation allowance	(21.35)	%	(20.99)	%	(26.49)	%
Effective tax rate	(2.95)	%	0.05	%	—	%

In March 2019, the IRS issued new guidance related to sequestration on the AMT tax credits. For taxable years beginning after December 31, 2017, refund payments and refund offset transactions due to refundable minimum tax credits will not be reduced due to federal sequestration. In January 2020 the IRS issued new guidance related to sequestration on the AMT tax credits which would restore the portion of the minimum tax credit refunds previously sequestered with respect to MTC refund claims in lieu of bonus depreciation under Section 168(k)(4).

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes several business tax provisions which include, but are not limited to modifications of federal net operating loss carrybacks and deductibility, changes to prior year refundable alternative minimum tax liabilities to allow the accelerated recovery of refund, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest, taxes, depreciation, and amortization, technical corrections of the classification of qualified improvement property making them eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of industry specific excise taxes, deferral of the company portion of OASDI, and implementation of a refundable employee retention tax credit. During 2020, the Company received the remaining accelerated alternative minimum tax refund of $0.8 million. The CARES Act did not have a material impact on the Company's consolidated financial statements as of and for the year ended December 31, 2020.

At December 31, 2020, the Company had federal and state NOL carryforwards of approximately $585.4 million and $561.7 million, respectively. If not utilized, federal NOLs that arose prior to 2018 and state NOLs will begin to expire at various dates beginning in 2031 and 2023, respectively. Federal NOLs that arose on or after January 1, 2018 can be carried forward indefinitely against future income, but can only be used to offset a maximum of 80% of the Company’s federal taxable income in any year. As of December 31, 2020, the Company also had foreign NOL carryforwards of $98.9 million, which are available solely to offset taxable income of its foreign subsidiaries, subject to any applicable limitations under foreign law.

Federal NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2020. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, as of December 31, 2020, the Company maintains a valuation allowance on all of its deferred tax assets as of December 31, 2020. The amount of deferred tax asset considered realizable, however, could be adjusted if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to other subjective evidence such as projections for growth. As of December 31, 2020, 2019, 2018 and 2017, the Company had a valuation allowance of $211.4 million, $170.3 million, $143.3 million and $83.4 million, respectively. The increase in valuation allowance in 2020, 2019 and 2018 of $41.1 million, $27.0 million and $59.9 million, respectively, was primarily due to the increase in NOL carryforwards.

The Company does not have any unrecognized tax benefits as of December 31, 2020. The Company is subject to taxation in the United States, Ireland, Japan and the United Kingdom. As of December 31, 2020, tax years ended December 31, 2015 through December 31, 2019 are open under the statute of limitations and subject to tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the IRS, state, or non-U.S. tax authorities to the extent utilized in a future period.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details

Stockholders' Equity	12 Months Ended
Stockholders' Equity	Dec. 31, 2020
Equity [Abstract]
Stockholders' Equity	Stockholders’ Equity In September 2019, the Company issued an aggregate principal amount of $316.25 million of Convertible Notes, of which the equity component was approximately $128.4 million at the time of issuance. Separately, the Company entered into privately negotiated capped call options and paid $32.9 million in premiums. Refer to Note 10 for further information regarding the Convertible Notes. During the year ended December 31, 2018, the Company received net proceeds of approximately $136.4 million through the issue and sale of Aerie’s common stock pursuant to an “at-the-market” sales agreements (“ATMs”) that commenced in December 2017 and pursuant to an underwriting agreement, dated January 23, 2018, relating to the registered public offering of approximately 1.3 million shares of Aerie’s common stock. During the year ended December 31, 2017, Aerie issued and sold approximately 1.1 million shares of common stock under ATMs entered into in May 2017 and December 2017, and received net proceeds of approximately $61.1 million, after deducting fees and expenses. The Company also entered into an underwriting agreement, dated May 25, 2017, relating to the registered public offering of approximately 1.4 million shares of Aerie’s common stock at a price to the public of $53.75 per share, and received net proceeds of approximately $72.7 million, after deducting fees and expenses. Holders of common stock are entitled to dividends when and if declared by Aerie’s Board of Directors subject to prior rights of the holders of any preferred stock. The holder of each share of common stock is entitled to one vote.

Stock-based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Stock-based Compensation

Stock-based compensation expense for options granted, RSAs, PSAs, RSUs, SARs and stock purchase rights is reflected in the consolidated statements of operations and comprehensive loss as follows:


	YEAR ENDED DECEMBER 31,
(in thousands)	2020		2019		2018
Cost of goods sold	$	2,353	$	—	$	—
Selling, general and administrative	27,176		30,463		26,432
Pre-approval commercial manufacturing	344		3,634		2,622
Research and development	10,222		10,996		9,674
Total	$	40,095	$	45,093	$	38,728

As of December 31, 2020, the Company had $41.8 million of unrecognized compensation expense related to options outstanding under its equity plans. This expense is expected to be recognized over a weighted average period of 2.1 years as of December 31, 2020. As of December 31, 2020, the Company had $16.1 million of unrecognized compensation expense, related to unvested RSAs, including PSAs. This cost is expected to be recognized over a weighted average period of 2.4 years as of December 31, 2020.

Equity Plans

The Company maintains three equity compensation plans, the 2005 Aerie Pharmaceutical Stock Plan (the “2005 Plan”), the 2013 Omnibus Incentive Plan (the “2013 Equity Plan”), which was amended and restated as the Aerie Pharmaceuticals, Inc. Second Amended and Restated Omnibus Incentive Plan (the “Second Amended and Restated Equity Plan”), as described below, and the Aerie Pharmaceuticals, Inc. Inducement Award Plan (the “Inducement Award Plan”), as described below. The 2005 Plan, the Second Amended and Restated Equity Plan and the Inducement Award Plan are referred to collectively as the “Plans.”

On October 30, 2013, the effective date of the 2013 Equity Plan, the 2005 Plan was frozen and no additional awards have been or will be made under the 2005 Plan. Any remaining shares available for future grant under the 2005 Plan were allocated to the 2013 Equity Plan. On April 10, 2015, Aerie’s stockholders approved the adoption of the Aerie Pharmaceuticals, Inc. Amended

and Restated Omnibus Incentive Plan (“Amended and Restated Equity Plan”) and no additional awards have been or will be made under the 2013 Equity Plan. Any remaining shares available under the 2013 Equity Plan were allocated to the Amended and Restated Equity Plan.

On June 7, 2018, Aerie’s stockholders approved the adoption of the Second Amended and Restated Equity Plan to increase the number of shares issuable under the Plan by 4,500,000. The Second Amended and Restated Equity Plan provides for the granting of up to 10,229,068 equity awards in respect of common stock of Aerie, including equity awards that were previously available for issuance under the 2013 Equity Plan.

On December 7, 2016, Aerie’s Board of Directors approved the Inducement Award Plan which provides for the granting of up to 418,000 equity awards in respect of common stock of Aerie and was subsequently amended during the year ended December 31, 2017 to increase the equity awards that may be issued by an additional 874,500 shares. On December 5, 2019, the Inducement Award Plan was further amended by the Company’s Board of Directors to increase the number of shares issuable under the plan by 100,000 shares. Awards granted under the Inducement Award Plan are intended to qualify as employment inducement awards under NASDAQ Listing Rule 5635(c)(4).

Options to Purchase Common Stock

Weighted average assumptions utilized in the fair value calculation for options to purchase common stock as of December 31, 2020, 2019 and 2018 are as follows:


	YEAR ENDED DECEMBER 31,
	2020		2019		2018
Expected term (years)	6.0		6.0		6.0
Expected stock price volatility	74	%	74	%	78	%
Risk-free interest rate	0.9	%	1.9	%	2.7	%
Dividend yield	—	%	—	%	—	%

The following table summarizes the stock option activity under the Plans:


	NUMBER OF SHARES	WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)	AGGREGATE INTRINSIC VALUE (000’s)
Options outstanding at December 31, 2019	8,425,551	$	29.06
Granted	874,878	16.83
Exercised	(58,676)	5.28
Canceled	(653,139)	37.18

Options outstanding at December 31, 2020	8,588,614	$	27.36	5.9	$	15,180

Options exercisable at December 31, 2020	6,405,232	$	26.44	5.0	$	14,959

The weighted-average fair values of all stock options granted for the years ended December 31, 2020, 2019 and 2018 was $10.82, $20.70, and $38.38, respectively. The aggregate intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 was $0.6 million, $4.2 million and $32.0 million, respectively. The intrinsic value is calculated as the difference between the fair market value at December 31, 2020 and the exercise price per share of the stock options. The fair market value per share of common stock as of December 31, 2020 was $13.51.

The following table provides additional information about stock options that are outstanding and exercisable at December 31, 2020:


EXERCISE PRICE	OPTIONS OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)	OPTIONS EXERCISABLE
$0.20 - $10.00	1,407,002	2.5	1,407,002
$10.01 - $20.00	1,472,021	6.7	962,151
$20.01 - $30.00	2,763,163	6.1	1,841,580
$30.01 - $45.00	1,185,530	6.7	929,942
$45.01 - $55.00	1,061,299	7.2	744,904
$55.01 - $73.10	699,599	7.2	519,653
	8,588,614		6,405,232

Restricted Stock Awards

The following table summarizes the RSA, including PSAs, activity under the Plans:


	NUMBER OF SHARES	WEIGHTED AVERAGE FAIR VALUE PER SHARE
Nonvested RSAs at December 31, 2019	754,415	$	43.07
Granted	424,613	14.37
Vested	(267,872)	42.85
Canceled	(101,629)	35.65
Nonvested RSAs at December 31, 2020	809,527	$	29.03

The vesting of the RSAs is time and service based with terms of 1 to 4 years. The total fair value of restricted stock vested during the years ended December 31, 2020, 2019 and 2018 was $11.5 million, $9.8 million and $5.1 million, respectively. During the year ended December 31, 2017, the Company granted 98,817 RSAs with non-market performance conditions that vest upon the satisfaction of certain performance conditions and service conditions. As of December 31, 2020, 98,817 PSAs were vested.

Restricted Stock Units

As of September 30, 2019, 43,071 nonvested RSAs were cancelled and replaced with a corresponding number of RSUs. The RSUs were issued with the same vesting provisions as the cancelled RSAs. Accordingly, the 43,071 RSUs outstanding at September 30, 2019 were nonvested. As of December 31, 2020, the associated unrecognized compensation expense totaled $2.3 million. This expense is expected to be recognized over the weighted average period of 2.7 years as of December 31, 2020.


	NUMBER OF SHARES	WEIGHTED AVERAGE FAIR VALUE PER SHARE
Nonvested RSUs at December 31, 2019	41,811	$	19.22
Granted	85,305	12.76
Vested	(12,567)	19.22
Canceled	(7,367)	14.03
Nonvested RSUs at December 31, 2020	107,182	$	14.43

Stock Appreciation Rights

The following table summarizes the SARs activity under the Plans:


	NUMBER OF SHARES	WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)	AGGREGATE INTRINSIC VALUE (000’s)
SARs outstanding at December 31, 2019	163,016	$	41.70
Granted	73,500	13.95
Exercised	—	—
Canceled	(24,472)	40.00
SARs outstanding at December 31, 2020	212,044	$	32.28	3.5	$	46
SARs exercisable at December 31, 2020	50,133	$	45.24	2.8	$	—

Holders of the SARs are entitled under the terms of the Plans to receive cash payments calculated based on the excess of Aerie’s common stock price over the exercise price in their award; consequently, these awards are accounted for as liability-classified awards and the Company measures compensation cost based on their estimated fair value at each reporting date, net of actual forfeitures, if any.

Employee Stock Purchase Plan

The Company maintains the 2013 Employee Stock Purchase Plan (the “Purchase Plan”) under which substantially all employees may purchase Aerie’s common stock through payroll deductions and lump sum contributions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of the offering periods. Employees may not purchase more than the fair value equivalent of $25,000 of stock during any calendar year. The Purchase Plan provides for the issuance of up to 645,814 shares of Aerie’s common stock.

Commitments and Contingencies	12 Months Ended
Commitments and Contingencies	Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies Milestone Payments In November 2019, the Company entered into a Share Purchase Agreement (the “Avizorex Agreement”) with Avizorex, under which the Company acquired Avizorex, including its lead product candidate AVX-012 (now known as AR-15512) , for which Avizorex completed a Phase 2a study in dry eye subjects in 2019. The consideration given for the Avizorex acquisition was $10.2 million. Additionally, contingent milestone payments of up to $69.0 million may be due, subject to achievement of certain product regulatory approvals using the IPR&D assets acquired, plus royalties on net sales of any approved products from Avizorex’s development pipeline. In October 2017, the Company entered into an Asset Purchase Agreement (the “Envisia Agreement”) with Envisia to acquire the rights to use PRINT® technology in ophthalmology, as well as rights relating to a preclinical dexamethasone steroid implant for the potential treatment of RVO and DME that utilizes the PRINT® technology, referred to as AR-1105. Under the terms of the Envisia Agreement, the Company (a) made an upfront cash payment of $10.5 million and issued 263,146 shares of Aerie’s common stock valued at approximately $14.3 million and (b) agreed to make potential milestone payments of up to an aggregate of $45.0 million may be due, subject to achievement of certain product regulatory approvals using the IPR&D assets acquired, if achieved within the 15-year milestone period. In July 2017, the Company entered into a collaborative research, development and licensing agreement with DSM, which included an option to license DSM’s bio-erodible polymer implant technology for sustained delivery of certain Aerie compounds to treat ophthalmic diseases. This technology uses polyesteramide polymers to produce an injectable, thin fiber that is minute in size. On August 1, 2018, the Company entered into an Amended and Restated Collaborative Research, Development, and License Agreement with DSM (the “DSM Agreement”), which provides for (i) a worldwide exclusive license for all ophthalmic indications to DSM’s polyesteramide polymer technology, (ii) continuation of the collaborative research initiatives through the end of 2020, including the transfer of DSM’s formulation technology to Aerie during that time and (iii) access to a preclinical latanoprost implant. Aerie paid $6.0 million to DSM upon execution of the DSM Agreement, with an additional $9.0 million payable to DSM through the end of 2020. The DSM Agreement includes contingent payments of up to $75 million that may be due to DSM upon the achievement of certain development and regulatory milestones. In addition, pursuant to the DSM Agreement, a $3.0 million milestone payment was made during the year ended December 31, 2018 upon the completion of certain manufacturing technology transfer activities. Aerie would also pay royalties to DSM when products are commercialized under this DSM Agreement, if any. These contingent milestone payments are recognized only when the contingency is resolved (the milestone is achieved) and the consideration is paid or becomes payable. As of December 31, 2020, there were no liabilities recorded relating to potential future milestone payments as the achievement of the related milestones were not met and the timing and likelihood of such milestone payments are not known. Litigation The Company may periodically become subject to legal proceedings and claims arising in connection with its business. The Company is not a party to any known litigation, is not aware of any material unasserted claims and does not have contingency reserves established for any litigation liabilities.

Segment Information

12 Months Ended

Dec. 31, 2020

Segment Reporting [Abstract]

Segment Information

Aerie has one operating segment: the discovery, development and commercialization of pharmaceutical products that address unmet medical needs, focusing on open-angle glaucoma, ocular surface diseases and retinal diseases. The Company's business is managed by a single management team, which reports to the Chief Executive Officer.

The following table presents total long-lived assets by geographic location:


	DECEMBER 31,
(in thousands)	2020		2019
United States	$	8,391	$	9,184
Ireland	45,869		48,963
Total long-lived assets	$	54,260	$	58,147

- Definition

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.

+ References

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+ Details

Selected Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2020

Quarterly Financial Information Disclosure [Abstract]

Selected Quarterly Financial Data (Unaudited)

The following table presents selected unaudited quarterly financial information for the years ended December 31, 2020 and 2019. The results for any quarter are not necessarily indicative of future quarterly results and, accordingly, period to period comparisons should not be relied upon as an indication of future performance.


	FOR THE QUARTER ENDED
(in thousands, except per share amounts)	DECEMBER 31,		SEPTEMBER 30,		JUNE 30,		MARCH 31,
2020
Total revenues, net	$	24,683	$	20,081	$	18,033	$	20,341
Total costs and expenses	$	60,276	$	53,685	$	60,586	$	64,281
Net loss	$	(46,137)	$	(39,648)	$	(48,187)	$	(49,129)
Net loss per common share—basic and diluted	$	(1.00)	$	(0.86)	$	(1.05)	$	(1.07)

	DECEMBER 31,		SEPTEMBER 30,		JUNE 30,		MARCH 31,
2019
Total revenues, net	$	24,657	$	18,544	$	15,835	$	10,852
Total costs and expenses	$	74,595	$	61,871	$	61,910	$	59,004
Net loss	$	(55,064)	$	(49,402)	$	(47,164)	$	(47,951)
Net loss per common share—basic and diluted	$	(1.21)	$	(1.09)	$	(1.04)	$	(1.06)

Significant Accounting Policies (Policies)	12 Months Ended
Significant Accounting Policies (Policies)	Dec. 31, 2020
Accounting Policies [Abstract]
Basis of Presentation	The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Consolidation	The 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 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 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, acquisitions, stock-based compensation and fair value measurements. 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 consolidated balance sheet. The Company relies on its manufacturing plant in Athlone, Ireland, and its current contract manufacturers to produce commercial supplies of Rhopressa® and Rocklatan® and may rely on its third-party manufacturers to produce the active pharmaceutical ingredient (“API”). The Company may rely on a combination of internal manufacturing and third-party manufacturers for its product candidates and future product candidates. The commercial production of the final drug product is supported by a combination of internal and outsourced manufacturing. The Company has established its own manufacturing plant in Athlone, Ireland, for the production of our FDA approved products and clinical supplies. The Athlone manufacturing plant began manufacturing commercial supplies of Rocklatan® during the first quarter of 2020 and Rhopressa® in the third quarter of 2020 for distribution to the United States. Shipments of commercial supply of Rocklatan® and Rhopressa® from the Athlone manufacturing plant to the United States commenced in the third quarter of 2020 and in the fourth quarter of 2020, respectively. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan. As the Athlone manufacturing plant commenced operations in 2020, it has not yet reached full capacity. The Company expects that the Athlone manufacturing plant will have adequate capacity to produce Rhopressa® and Rocklatan® for the United States as well as the European and Japanese commercial markets. The Company expects that in 2021 the Athlone manufacturing plant will manufacture most of its needs for Rhopressa® and Rocklatan® in the United States. The Company may continue to use contract manufacturers to produce commercial supplies of Rhopressa