
•	our issued patents and patents that we may obtain in the future may not prevent generic entry into the market for ~~our~~ Rhopressa^® and Rocklatan^TM;™ ~~and Roclatan~~™ ~~product candidates;~~ ~~we do not at this time own or control issued foreign patents outside of Europe that would prevent generic entry into those markets for our product candidates;~~


•	we do not currently own or control foreign patents issued outside of Australia, Canada, Europe and Japan that would prevent generic entry into those markets for Rhopressa^® and Rocklatan^TM;

we may be required to disclaim part of the term of one or more patents;

there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;

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there may be prior art of which we are aware, which we do not believe affects the validity or enforceability of a patent claim, but which, nonetheless, ultimately may be found to affect the validity or enforceability of a patent claim;

there may be other patents issued to others that will affect our freedom to operate;

if our patents are challenged, a court of competent jurisdiction could determine that they are invalid or unenforceable;

there might be a significant change in the law that governs patentability, validity and infringement of our patents that adversely affects the scope of our patent rights;

a court of competent jurisdiction could determine that a competitor’s technology or product does not infringe our patents; and

our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations or could be subject to compulsory licensing.

If we encounter delays in our development or clinical trials, the period of time during which we could market ~~our potential products~~Rocklatan^TM under patent protection would be reduced.

Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of ~~any approved products~~Rhopressa^® by submitting ANDAs to the FDA in which our competitors claim that our patents are invalid, unenforceable and/or not infringed. Our competitors may employ similar strategies with respect to Rocklatan^TM, if approved.

Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency ~~with~~having competent jurisdiction may find our patents invalid and/or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The issuance of a patent is not conclusive as to its inventorship, scope, ownership, priority, validity or enforceability. In that regard, third parties may challenge our patents in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and potential products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

A significant portion of our intellectual property portfolio currently comprises pending patent applications that have not yet been issued as granted patents. If our pending patent applications fail to issue our business will be adversely affected.

Our commercial success will depend significantly on maintaining and expanding patent protection for ~~our~~Rhopressa^® and Rocklatan^TM and any future product candidates, as well as successfully defending our current and future patents against third-party challenges. As of December 31, ~~2015,~~2018, we own 58102 patents and have 2762 pending patent applications in the United States and certain foreign jurisdictions relating to Rhopressa^®, Rocklatan^TM and our ~~current and~~ previously discontinued product candidates and other proprietary technology. See “Business—Intellectual Property” included elsewhere in this report for further information about our issued patents and patent applications. Our issued patents include 1843 patents for composition of matter and method of use covering our ~~lead~~FDA-approved product, ~~candidate,~~ Rhopressa™ ^®in the United States and certain foreign jurisdictions. These patents also

cover our ~~other primary~~advanced-stage product candidate ~~Roclatan~~Rocklatan™^TM to the extent that Rhopressa™^® forms a part of ~~Roclatan~~Rocklatan™^TM. The remainder of our portfolio is made up of patents covering previously discontinued product candidates and other proprietary technology and pending patent applications that have not yet been issued by the USPTO, or any other jurisdiction that ~~cover~~covers Rhopressa^®, Rocklatan^TM or our ~~current and~~ previously discontinued product candidates or other proprietary technology.

There can be no assurance that our pending patent applications will result in issued patents in the United States or foreign jurisdictions in which such applications are pending. Even if patents do issue on any of these applications, there can be no assurance that a third party will not challenge their validity or enforceability, or that we will obtain sufficient claim scope in those patents to prevent a third party from competing successfully with our products.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in

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certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. It may be difficult for us to stop the infringement of our patents or the misappropriation of these intellectual property rights in any foreign jurisdictions. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and disrupt the commercialization of or increase the costs of commercializing Rhopressa^® or stop us from commercializing or increase the costs of commercializing ~~our products.~~Rocklatan^TM or any future product candidates, if approved.

Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that ~~our~~Rhopressa^® or any product candidates ~~or potential products~~ infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe.

Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that ~~our~~Rhopressa^®, Rocklatan^TM or any future product candidates ~~or potential products~~ infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that ~~our~~Rhopressa^®, Rocklatan^TM or any future product candidates ~~or potential products~~ infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover ~~our~~Rhopressa^®, Rocklatan^TM or any future product candidates.

Third parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly and could adversely affect our results of operations and divert the attention of managerial and scientific personnel. If we are sued for patent infringement, we would need to demonstrate that ~~our~~Rhopressa^®, Rocklatan^TM or any future product candidates ~~potential products~~ or methods either do not infringe the claims of the relevant patent or that the patent claims asserted are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize ~~our products~~Rhopressa^® or Rocklatan^TM or any future product candidates, if approved, unless we acquire or obtain a license under the applicable patents or until the patents expire. We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced,

including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our current product ~~candidates~~and potential products or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

We may be subject to claims that we or our employees have misappropriated the intellectual property, including trade secrets, of a third party, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities, biotechnology companies or other pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including ~~each member~~members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the intellectual property and other proprietary

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information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property, including trade secrets or other proprietary information. Litigation may be necessary to defend against these claims. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with members of our senior management, but litigation may be necessary in the future to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. However, any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets. Accordingly, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. In addition, others may independently discover our trade secrets and proprietary information. Further, the FDA, as part of its Transparency Initiative, a proposal by the FDA to increase disclosure and make data more accessible to the public, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects upon our competitive business position and financial results.

Any lawsuits relating to infringement of intellectual property rights brought by or against us will be costly and time consuming and may adversely impact the price of our common stock.

We may be required to initiate litigation to enforce or defend our intellectual property. These lawsuits can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical industry generally. Such litigation or proceedings could substantially increase our operating expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically

last for years before they are resolved. Further, any claims we assert against a perceived infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

In addition, our patents and patent applications could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings, and other forms of post-grant review. In the United States, for example, post-grant review has recently been expanded. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel’s time and attention. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the market price of our common stock.

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We will need to obtain ~~FDA~~regulatory approval of any proposed product names, and any failure or delay associated with such approval may adversely affect our business.

We assigned the trade names Rhopressa^TM® and ~~Roclatan~~Rocklatan^TM to our ~~lead~~now FDA-approved product ~~candidates~~and our advanced-stage product candidate, respectively, in 2014 and 2018, respectively, with the trademark applications for registration for Rhopressa^® accepted by the USPTO and the trademark application for registration for Rocklatan^TMpending from the USPTO. ~~These~~The trade name Rhopressa^® was approved by the FDA. If the EMA approves Rhopressa^®, it will be marketed as Rhokiinsa^®, for which the USPTO has already accepted our application for trademark registration. Rocklatan^TM and any other names we intend to use for our current or any future product candidates will require approval from the FDA and applicable non-U.S. regulatory authorities regardless of whether we have secured a formal trademark registration from the ~~USPTO.~~USPTO or applicable non-U.S. regulatory authorities. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims or contributes to an overstatement of efficacy. Regulatory authorities outside the United States conduct their own investigations. If the FDA ~~objects~~or applicable non-U.S. authorities object to any of our proposed product names, we may be required to adopt an alternative name for ~~our~~Rhopressa^® or Rhokiinsa^® outside the United States, Rocklatan^TM or any future product candidates. In 2018, the EMA approved the name Roclanda^TM for Rocklatan^TM in Europe. A trademark application for Roclanda^TM was filed in Europe on October 25, 2018, which remains pending. If, however, we adopt an alternative name, we would lose the benefit of our existing trademark applications for such product or product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the ~~FDA.~~FDA or applicable non-U.S. authorities. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would disrupt our commercialization of Rhopressa^® outside the United States and limit our ability to commercialize ~~our~~Rocklatan^TM or any future product candidates.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our patents and obtaining data exclusivity for ~~our~~Rhopressa^®, Rocklatan^TM or any future product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA regulatory approval for ~~our~~Rhopressa^®and Rocklatan^TM and any future product candidates, one or more of our U.S. patents may be eligible for limited ~~patent term restoration~~PTE under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent ~~restoration~~extension term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. ~~Patent term restorations,~~PTEs, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.

The application for ~~patent term extension~~PTE is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for PTE. The FDA approved the Rhopressa^® NDA on December 18, 2017. On February 8, 2018, we timely filed an application with the USPTO for PTE for our US8394826 patent, ~~term extension.~~which covers Rhopressa^® and Rocklatan^TM. The petition remains pending. We may not be granted an extension because of, for example, ~~failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise~~ failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain ~~patent term extension or restoration~~PTE or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain earlier approval of competing products, and our ability to generate revenues could be materially adversely affected.

Risks Related to Our Business Operations and Industry

We depend upon our key personnel and our ability to attract and retain employees.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team and our scientific founders, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of Vicente Anido, Jr., our Chairman of the Board of Directors and Chief Executive Officer, Thomas A. Mitro, our President and Chief Operating Officer, Richard J. Rubino, our Chief Financial Officer, or Casey C. Kopczynski, our Chief Scientific Officer, John LaRocca, Esq., our General Counsel, or Kathleen McGinley, our Vice President of Human Resources and Corporate Services, could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of executive management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We ~~will need to significantly increase~~have increased the size of our organization, and we may experience difficulties in managing our growth.

We ~~are currently a small company with 70~~have increased the size of our organization. We have 353 full-time employees as of December 31, ~~2015. In order~~2018 compared to ~~commercialize~~160 full-time employees as of December 31, 2017. We are currently expanding our ~~potential products,~~employment base as we ~~will need to substantially increase our operations. We plan to~~ continue to ~~build~~expand internationally, including for the future operation of our ~~compliance, financial~~

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manufacturing plant in Ireland, and ~~operating infrastructure~~for continued research activities to ~~ensure the maintenance of a well-managed company.~~further expand our pipeline. We expect to expand our employment base to approximately ~~300~~400 full-time employees when we are in the full commercial ~~stages of our current potential products’ life cycle.~~and manufacturing stage for Rhopressa^® and Rocklatan^TM, if approved, in the United States.

~~Future growth will impose~~Growth imposes significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate ~~additional~~new employees. ~~Our management, personnel and systems currently in place may not be adequate to support our future growth.~~ Our future financial performance and our ability to commercialize ~~our potential products~~Rhopressa^® and Rocklatan^TM and any future product candidates, if approved, and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:

manage our research programs, clinical trials and the regulatory process effectively;


•	manage the development and eventual operation of our manufacturing plant and the manufacturing of Rhopressa^®, Rocklatan^TM and any future product candidates ~~and potential products~~ for clinical and commercial use;

integrate current and additional management, administrative, financial, manufacturing and sales and marketing personnel;

~~develop a marketing and sales infrastructure;~~

~~hire new personnel necessary to effectively commercialize our product candidates;~~


•	hire additional personnel necessary to effectively commercialize and manufacture Rhopressa^® and Rocklatan^TM and any future product candidates, if approved;

continue to develop and maintain our administrative, accounting and management information systems and controls; and

hire and train additional qualified personnel.

Product candidates that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Our business ~~is affected~~may be negatively impacted by macroeconomic conditions.

Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global financial markets. For instance, ~~if and when our product candidates are approved,~~ if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass through price increases to patients. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients, ~~payors~~payers and distributors to purchase, pay for and effectively distribute ~~our potential products.~~Rhopressa^® or Rocklatan^TM or any future product candidates, if approved. Similarly, these macroeconomic factors could affect the ability of our ~~potential future~~ contract manufacturers, sole-source or single-source suppliers, collaboration partners or licensees

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to remain in business or otherwise develop, manufacture or supply product. Failure by any of them to remain in business could affect our ability to manufacture ~~potential products.~~Rhopressa^® or Rocklatan^TM or any future product candidates, if approved, or develop additional product candidates or technologies.

A significant portion of our revenue currently comes from a limited number of distributors, and any decrease in revenue from these distributors could harm our business.

A significant portion of our revenue comes from a limited number of distributors. In the year ended December 31, 2018, three distributors represented approximately 33.9%, 33.3% and 29.7% of total revenues. We further expect that a significant portion of our revenue will continue to depend on sales to a limited number of distributors in the foreseeable future. We do not have long-term commitments from our distributors to carry our products, and any of our distributors may from quarter to quarter comprise a significant concentration of our revenues. Our dependence on a few distributors could expose us to the risk of substantial losses if any single large distributor stops purchasing our products, purchases a lower quantity of our products or goes out of business and we cannot find substitute distributors on equivalent terms without delays, if at all. While we may be able to shift our business to one of our other existing distributors or to a new distributor, there may be disruption in the interim. In addition, any reduction in the prices we receive for our products could adversely impact our revenues and financial condition. If we lose our relationship with any of our significant distributors, we could experience delays in the distribution of our products and could also experience declines in our revenues which in turn could materially adversely affect our business, results of operations or financial condition.

If we engage in acquisitions or licenses in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions or licenses.

We may attempt to acquire or license businesses, technologies, services, products or product candidates in the future that we believe are a strategic fit with our business. For example, in October 2017, we acquired the rights to use PRINT^® technology and certain other assets from Envisia Therapeutics Inc. Further, in August 2018 we entered into an Amended and Restated Collaborative Research, Development, and License Agreement with DSM, 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. We have no present agreement regarding any material ~~acquisitions or licenses.~~acquisitions. However, if we

do undertake any acquisitions or additional licenses, the process of integrating an acquired or licensed business, technology, service, product or product candidate into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions or licenses could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions or licenses could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to intangible assets, any of which could adversely affect our operating results.

We have limited experience identifying, negotiating and implementing acquisitions or licenses of additional businesses, technologies, services, products or product candidates, which is a lengthy and complex process. The market for acquiring or licensing businesses, technologies, services, products or product candidates is intensely competitive, and other companies, including some with substantially greater financial, marketing and sales resources, may also pursue strategies to acquire or license businesses, technologies, products or product candidates that we may consider attractive. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.

We have limited resources to identify and execute the acquisition or licensing of additional businesses, technologies, services, products, or product candidates and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire or license the rights to additional businesses, technologies, services, products or product candidates on terms that we find acceptable, or at all. In particular, any product candidate that we acquire or license may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.

Business interruptions could delay ~~us in~~ the ~~process~~development of ~~developing~~ our potential products and our manufacturing activities, and could disrupt our potential sales.

Our business and operations would suffer in the event of system ~~failures.~~failures, cyber-attacks or other security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our CROs, sales force, collaborators and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, ransomware, natural disasters, terrorism, war, ~~and~~ telecommunication and electrical ~~failures.~~failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusions, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails and other electronic communications. In addition, an employee, supplier, collaboration partner or other third party with whom we do business may attempt to obtain such information and may purposefully or inadvertently cause a breach involving such information. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development ~~programs.~~programs, manufacturing activities and/or commercialization efforts, damage our reputation, provide competitors with valuable information and subject us to additional liabilities, including criminal penalties and civil sanctions. We have not been subject to cyber-attacks or other cyber incidents to date which, individually or in the aggregate, have been material to our business, but the actions we take to prevent or detect the risk of cyber incidents and protect our information technology networks and infrastructure may be insufficient to prevent or detect a major cyber-attack or other cyber incident in the future.

In addition, there is a risk created by our lack of redundancy across our systems and if any of these events were to occur, this could result in a loss of materials that would be difficult to replace, such as proprietary information including intellectual property and business information and/or customer, supplier, employee, business partner and, in certain instances, patient

personally identifiable information. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture Rhopressa^®, and similar events relating to their systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of Rhopressa^® and the further development or commercialization of ~~our~~Rocklatan^TM and any future product candidates could be delayed.

Our actual or perceived failure to comply with U.S. federal, state, and foreign governmental regulations and other legal obligations related to privacy, data protection and information security could harm our reputation and business.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, data about our clinical participants, suppliers and business partners and personally identifiable information. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. Any access, disclosure or other loss of information could result in legal claims or proceedings, disruption of our operations and damage to our reputation, all of which could materially adversely affect our business. In addition, we are subject to various U.S. federal and state and international privacy and security regulations. For example, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many U.S. states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA. With our increasing international presence, we are also subject to the laws of jurisdictions outside the United States. Privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements, which could increase the costs incurred by us in complying with such laws.

The EU member states, Switzerland, Japan and other countries have established, or are in the process of establishing, legal frameworks for privacy and data security that impose significant compliance obligations with which our customers, our vendors or we must comply. For example, the GDPR, which became effective on May 25, 2018, imposes strict requirements on data controllers and processors of personal data. The GDPR is wide-ranging in scope and imposes numerous requirements, including requirements relating to processing sensitive data (including health, biometric and genetic information), obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches and taking certain measures when engaging third-party processors. In addition, the GDPR grants individuals an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the EU, including to the United States and other regions.

The GDPR introduced new fines and penalties for a breach of requirements, which may result in significant fines of up to 4% of annual global revenues, or €20.0 million, whichever is greater. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, in particular as regards data processing in the context of clinical trials. As a result of the implementation of the GDPR, we were required to put in place additional mechanisms to ensure compliance with the new data protection rules, although there is a risk that the measures will not be implemented correctly or that individuals within our business will not be fully compliant with the new procedures. If there are any breaches of these measures, we could face significant administrative and monetary sanctions as well as reputational damage, which may have a material adverse effect on our business.

Our disclosure controls and procedures and our systems to implement such disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

As a public company, we are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within

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the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

We are in the process of implementing a new global enterprise resource planning (“ERP”) system. This ERP system will replace many of our existing financial systems. Such an implementation is a significant undertaking, both financially and from a management and personnel perspective. Any disruptions, delays or deficiencies in the design and implementation of our new ERP system could adversely affect our ability to process financial transactions, maintain effective disclosure or internal controls and procedures, fulfill contractual obligations or could otherwise materially adversely affect our business.

If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.

We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates. We face an additional risk from our commercial sales of Rhopressa^®and will face an even greater risk ifwhen we commercially sell ~~our potential products~~Rocklatan^TM or any ~~other~~future product ~~candidate that we develop.~~candidates, if approved. We maintain primary product liability insurance and excess product liability insurance that cover our clinical trials, and we have and plan to maintain insurance against product liability lawsuits for commercial sale of ~~our potential products.~~Rhopressa^® and Rocklatan^TM and any future product candidates, if approved. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use of ~~our potential products,~~Rhopressa^® or Rocklatan^TM or any future product candidates, if approved, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.

For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of ~~our~~Rhopressa^® or Rocklatan^TM or any future product ~~candidates.~~candidates, if approved. Regardless of the merits or eventual outcome, liability claims may result in:

reduced resources of our management to pursue our business strategy;

~~decreased demand for our product candidates or products that we may develop;~~


•	decreased demand for Rhopressa^® or Rocklatan^TM or any future product candidates, if approved;

injury to our reputation and significant negative media attention;

withdrawal of clinical trial participants;

termination of clinical trial sites or entire trial programs;

initiation of investigations by regulators;

product recalls, withdrawals or labeling, marketing or promotional restrictions;

significant costs to defend resulting litigation;

diversion of management and scientific resources from our business operations;

substantial monetary awards to trial participants or patients;

loss of revenue; and

the inability to commercialize any products that we may develop.

We ~~will need to increase~~increased our insurance coverage ~~if and~~ when ~~we begin selling our product candidates if and when they receive marketing~~Rhopressa^® received FDA approval. However, the product liability insurance we will need to maintain in connection with the continued commercial sales of Rhopressa^®, and will need to obtain in connection with ~~the~~ commercial sales of ~~our~~Rocklatan^TM and any future product candidates if and when they receive regulatory approval, may be unavailable in ~~meaningful~~adequate amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could ~~prevent~~inhibit the continued commercial production and sale of Rhopressa^® or ~~inhibit~~ the development and commercial production and sale of ~~our~~Rocklatan^TM or any future product candidates if and when they obtain regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

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Additionally, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate

levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results of operations.

Risks Related to Ownership of Our Common Stock

The market price of our common stock has been, and may continue to be, highly volatile.

Our stock price has been volatile and is likely to continue to be volatile. The following factors, in addition to other factors described in this “Risk Factors” section, may have a significant impact on the market price of our common stock:


•	the ~~results~~success of our ~~testing and clinical trials, including the results~~commercial launch of ~~our Phase 3 registration trials for~~ Rhopressa^{TM ®} in the United States, including associated sales volumes, revenues and ~~Roclatan~~profitability;


•	the anticipated approval of Rocklatan^TM; by the FDA, and the success of the commercial launch in the United States, if approved;

overall company profitability and ability to generate positive cash flows, and elimination of the additional costs associated with financing overhang;

our ability to maintain adequate product supply to meet demand;

our ability to obtain regulatory approval in jurisdictions outside the United States;

the results of our testing and clinical trials;

announcements of regulatory approval or a complete response letter, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;

announcements of therapeutic innovations or new products by us or our competitors;

adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

any adverse changes to our relationships with manufacturers, suppliers, licensees or collaboration partners;

the results of our efforts to develop, acquire or license additional product ~~candidates;~~

~~variations in the level of expenses related to our existing product~~ candidates or ~~preclinical and clinical development programs;~~technologies;


•	variations in the level of expenses related to Rhopressa^®, Rocklatan^TM or preclinical and clinical development programs;

any intellectual property infringement actions in which we may become involved;

announcements concerning our competitors or the pharmaceutical industry in general;

~~achievement of~~actual versus expected product sales and profitability;

manufacture, supply or distribution shortages;

actual or anticipated fluctuations in our quarterly or annual operating results;

changes in financial estimates or recommendations by securities analysts;

trading volume of our common stock;

sales of our common stock by us, our executive officers and directors or our stockholders in the future;

general economic and market conditions and overall fluctuations in the capital markets;

changes in accounting principles; and

the loss of any of our key scientific or management personnel.

In addition, the stock market, in general, and ~~small~~ pharmaceutical and biotechnology companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Further, ~~the current~~any decline in the financial markets and related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.

~~We have been named a defendant in a purported securities class action lawsuit. This, and any additional~~

Any securities litigation could result in substantial damages and may divert management’s time and attention from our business.

~~On April 23, 2015, we announced that Rocket 1 did not meet its primary efficacy endpoint.~~ A putative securities class action lawsuit ~~captioned Kelley et al. v. Aerie Pharmaceuticals, Inc., et al., Case No. 3:15-cv-03007,~~ was filed against us and certain of our officers and directors in ~~the United States District Court for the District of New Jersey on April 29, 2015. An amended complaint was filed on September 28,~~ 2015, on behalf of a purported class of persons and entities who purchased or otherwise acquired our publicly traded securities between June 25, 2014 and April 23, 2015. The amended complaint asserts claims under

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the Exchange Act and alleges that the defendants made materially false and misleading statements or omitted allegedly material information during that period related to, among other things, the prospects of Rocket 1 and Rhopressa^TM.

We believe that we have meritorious defenses and intend to defend the lawsuit vigorously. The outcome of this lawsuit is necessarily uncertain, we could be forced to expend significant resources in the defense of this suit and we may not prevail. We are not currently able to estimate the possible cost to us from this matter, as this lawsuit is currently at an early stage and we cannot be certain how long it may take to resolve this matter or the possible amount of any damages that we may be required to pay. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages. A decision adverse to our interests on this action could result in the payment of substantial damages, or possibly fines, and could have a material adverse effect on our business, financial condition and results of operations. In addition, the uncertainty of the currently pending litigation could lead to volatility in our stock price.

which has now concluded. If our stock price experiences volatility, we may be the subject of additional securities litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business. Monitoring and defending against legal actions is time-consuming for our management and detracts from our ability to fully focus on our business activities. Any adverse determination in litigation could also subject us to significant liabilities.

Certain of our existing stockholders, executive officers and directors own a significant percentage of our common stock and may be able to influence or control matters submitted to our stockholders for approval.

Our officers and directors, and stockholders who own more than 5% of our outstanding common stock, beneficially own approximately ~~66.1%~~52.7% of our common stock as of December 31, ~~2015.~~2018. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with ownership concentration. Some or all of our stockholders may be able to influence or determine matters requiring stockholder approval. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.

This may also prevent or discourage unsolicited acquisition proposals or offers for our common stock that other stockholders may feel are in their best interest, and certain of our existing stockholders may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.

Additionally, under certain circumstances, our amended and restated certificate of incorporation renounces any interest or expectancy that we have in, or in being offered an opportunity to participate in, corporate opportunities that are presented to certain ~~of our existing stockholders~~entities or their affiliates and certain other related parties (whether or not any such person is our director). These provisions will apply even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading volume could decline.

The trading market for our common stock may be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will continue to cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Because we do not intend to declare cash dividends on our shares of common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.

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We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of the ~~2014 Convertible Notes~~credit facility and any future debt agreements may preclude us from paying dividends. As a result, we expect that only appreciation of the price of our common stock, if any, will provide a return to investors for the foreseeable future.

The requirements associated with being a public company require significant company resources and management attention.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended ~~or the Sarbanes-Oxley Act,~~(the “Sarbanes-Oxley Act”), the listing requirements of the securities exchange on which our common stock is traded, and other applicable securities rules and regulations. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and NASDAQ may also impose various additional requirements on public companies. As a result, we have incurred, and we will continue to incur, additional legal, accounting and other expenses that we did not incur as a nonpublic company, particularly after we are no longer an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Further, the need to establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our growth strategy. We have made, and will continue to make, changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to continue to meet our reporting obligations. However, the measures we take may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

~~The JOBS Act allows us~~We are subject to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our common stock.

For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:

~~the provisions of~~ Section 404(b) of the Sarbanes-Oxley Act ~~requiring~~(“Section 404”), which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial ~~reporting;~~

reporting, among other additional requirements. Compliance with Section 404 is costly and time consuming for management and could result in the ~~“say on pay” provisions (requiring a non-binding stockholder vote to approve compensation~~detection of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer; and

the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act, and instead provide a reduced level of disclosure concerning executive compensation.

We may take advantage of these exemptions until we are no longer an “emerging growth company.” We would cease to be an “emerging growth company” upon the earliest of: (i) December 31, 2018; (ii) the last day of the first fiscal year in which our annual gross revenues are $1 billion or more; (iii) the date on whichinternal control deficiencies. Moreover, if we have ~~during the previous three-year period, issued more than $1 billion~~a material weakness in ~~non-convertible debt securities;~~our internal controls over financial reporting, we may not detect errors on a timely basis, and our financial statements may be materially misstated. We or ~~(iv) as of the end of any fiscal year in which the market value of~~ our ~~common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.~~

We currently take advantage of some, but not all, of the reduced regulatory and reporting requirements that are available to us so long as we qualify as an “emerging growth company.” For example, we have irrevocably elected under Section 107 of the JOBS Act not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Our independent registered public accounting firm ismay not ~~required~~be able to ~~provide~~conclude on an ~~attestation report on the effectiveness of our~~ongoing basis that we have effective internal ~~control~~controls over financial reporting, ~~so long as we qualify as an “emerging growth company,”~~ which ~~may increase the risk that weaknesses or deficiencies~~could harm our operating results, cause investors to lose confidence in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth company,” we may elect not to provide investors with certain information, including certainreported financial information and ~~certain information regarding compensation~~cause the trading price of our ~~executive officers,~~common stock to fall. Any failure to file accurate and timely quarterly and annual reports that we ~~would otherwise have been~~are required to ~~provide in filings we make~~file with the SEC ~~which may make it more difficult for investors and securities analysts to evaluate~~under the Exchange Act could result in sanctions, lawsuits, delisting of our ~~company. We cannot predict if investors will find~~shares from The NASDAQ Global Market or other adverse consequences that would materially harm our ~~common~~

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stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.business.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our restated certificate of incorporation and our bylaws, as well as provisions of the Delaware General Corporation Law ~~or DGCL,~~(“DGCL”), could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

establishing a classified board of directors such that not all members of the board are elected at one time;

allowing the authorized number of our directors to be changed only by resolution of our board of directors;

limiting the removal of directors by the stockholders;

authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

eliminating the ability of stockholders to call a special meeting of stockholders;

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and

requiring the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal our bylaws.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal executive ~~offices~~office and research facility is located in Durham, North Carolina, our regulatory, commercial support and other administrative activities are located in Irvine, California, and our clinical, finance and ~~finance~~legal operations are located in Bedminster, New ~~Jersey and our research and development facility is located~~Jersey. We also lease space for a manufacturing plant in Athlone, Ireland. Our Durham, North ~~Carolina. Our~~Carolina, facility consists of approximately 61,000 square feet of laboratory and office space under leases that expire between June 2020 and June 2024 and our Irvine, California, location consists of approximately ~~14,500~~37,300 square feet of office space under a lease that expires in January ~~2021~~2022. We terminated our previous lease and entered into a lease for our new Bedminster, New Jersey, location, which consists of approximately ~~14,000~~34,000 square feet of office space under a lease that expires in ~~August 2020.~~October 2029. Our ~~research and development facility~~manufacturing plant in Athlone, Ireland, consists of approximately ~~19,500~~30,000 square feet of ~~laboratory~~interior floor space and ~~office space~~is under a lease ~~agreement that expires~~through at least September 2027. We also have small offices in ~~January 2022.~~Malta, Ireland, the United Kingdom and Japan. We may require additional space and facilities as our business expands.

ITEM 3. LEGAL PROCEEDINGS

We may periodically become subject to legal proceedings and claims arising in connection with our business. ~~Except as set forth below, we~~We are not a party to any known litigation, are not aware of any material unasserted claims and do not have contingency reserves established for any litigation liabilities.

A putative securities class action lawsuit captioned Kelley et al. v. Aerie Pharmaceuticals, Inc., et al., Case No. 3:15-cv-03007, was filed against us and certain of our officers and directors in the United States District Court for the District of New Jersey on April 29, 2015. An amended complaint was filed on September 28, 2015 on behalf of a purported class of persons and entities

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who purchased or otherwise acquired our publicly traded securities between June 25, 2014 and April 23, 2015. The amended complaint asserts claims under the Exchange Act and alleges that the defendants made materially false and misleading statements or omitted allegedly material information during that period related to, among other things, the prospects of Rocket 1 and Rhopressa^TM.

We believe that the claims in the asserted action are without merit and intend to defend the lawsuit vigorously, and we expect to incur costs associated with defending the action. In addition, we have various insurance policies related to the risks associated with our business, including directors’ and officers’ liability insurance policies. However, there is no assurance that we will be successful in our defense of the action, and there is no assurance that our insurance coverage, which contains a self-insured retention, will be sufficient or that our insurance carriers will cover all claims or litigation costs. At this time, we cannot accurately predict the ultimate outcome of this matter. Due to the inherent uncertainties of litigation, we cannot reasonably predict the timing or outcomes, or estimate the amount of loss, or range of loss, if any, or their effect, if any, on our financial statements.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on ~~the~~The NASDAQ Global Market under the symbol “AERI.” On February 25, 2016, the closing price for our common stock as reported on the NASDAQ Global Market was $16.34. The following table sets forth the high and low intraday sale prices per share of our common stock for the periods indicated as reported by the NASDAQ Global Market.

High Low
2015
Fourth Quarter $ 28.21
$ 16.52
Third Quarter 33.25
14.29
Second Quarter 35.89
8.84
First Quarter 32.07
22.36

2014
Fourth Quarter $ 32.50
$ 19.46
Third Quarter 27.25
16.05
Second Quarter 29.71
13.66
First Quarter 27.15
15.03

Stockholders

As of February ~~25, 2016,~~15, 2019, we had ~~26,511,882~~45,911,125 shares of common stock outstanding held by approximately 8294 stockholders of record. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in “street” name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

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Stock Performance Graph

The following graph illustrates a comparison of the five-year cumulative total ~~cumulative~~ stockholder return on our common stock since ~~October 25,~~December 31, 2013 ~~which is the date our common stock first began trading on the NASDAQ Global Market,~~ to two indices: the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph assumes an initial investment of $100 on ~~October 25,~~December 31, 2013, in our common stock and in ~~the stocks comprising~~ each index. It also assumes reinvestment of dividends, if any. Historical stockholder return shown is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.

*This performance graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

Dividend Policy

We have not declared or paid any cash dividends on our capital stock in the last two fiscal years. We currently anticipate that we will retain future earnings, if any, for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of our current and any future debt agreements may preclude us from paying dividends. As a result, we anticipate that only appreciation of the price of our common stock, if any, will provide a return to investors for at least the foreseeable future.

Purchase of Equity Securities

We did not purchase any of our equity securities during the period covered by this report.

Recent Sales of Unregistered Securities

None.

Use of Proceeds from Registered Securities

On November 3, 2014, we filed a shelf registration statement on Form S-3 (Registration No. 333-199821), which was declared effective by the SEC on November 10, 2014. The shelf registration statement permits: (i) the offering, issuance and sale by us

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of up to a maximum aggregate offering price of $150.0 million of our common stock; (ii) sales of common stock by certain selling stockholders; and (iii) the offering, issuance and sale of up to a maximum aggregate offering price of $50.0 million of our common stock that may be issued and sold by us under an “at-the-market” sales agreement with Cantor Fitzgerald & Co. The common stock that was offered, issued and sold by us under the “at-the-market” sales agreement was included in the $150.0 million of common stock that may be offered, issued and sold by us under the shelf registration statement. As of December 31, 2015, we had no availability to issue shares under this “at-the-market” sales agreement.

On November 6, 2015, we filed a prospectus supplement to the base prospectus dated November 10, 2014. The prospectus supplement permits the offering, issuance and sale of up to a maximum aggregate offering price of $50.0 million of our common stock that may be issued and sold by us under separate “at-the-market” sales agreements with RBC Capital Markets, LLC and Cantor Fitzgerald & Co. The common stock that may be offered, issued and sold by us under these “at-the-market” sales agreements is included in the $150.0 million of common stock that may be offered, issued and sold by us under the shelf registration statement. As of December 31, 2015, $48.1 million remained available for issuance under these “at-the-market” sales agreements.

For the year ended December 31, 2015, we issued and sold 1,754,556 shares of our common stock under the “at-the-market” sales agreements and received net proceeds of $50.5 million, after deducting commissions at a rate of up to 3% of the gross sales price per share sold and other fees and expenses. There were no sales of securities registered pursuant to the shelf registration statement for the year ended December 31, 2014.

We currently hold the net proceeds from the “at-the-market” sales as cash deposits and in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities. There has been no material change in our planned use of the net proceeds as described in our shelf registration statement filed on November 3, 2014.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth our selected financial data for the periods and as of the dates indicated. You should read the following selected financial data together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report and our audited consolidated financial statements and the accompanying notes included elsewhere in this report. We have derived the statements of operations data for the years ended December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016 and the balance sheet data as of December 31, ~~2015~~2018 and ~~2014~~2017 from our audited consolidated financial statements included elsewhere in this report. We have derived the ~~statement~~statements of operations data for the years ended December 31, ~~2012~~2015 and ~~2011~~2014 and the balance sheet data as of December 31, ~~2013, 2012~~2016, 2015 and ~~2011~~2014 from our audited consolidated financial statements not included in this report. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.



	YEAR ENDED DECEMBER 31,
	2018			2017			2016			2015			2014
	(in thousands, except share and per share data)
Product revenues, net ⁽¹⁾	$	24,181		$	—		$	—		$	—		$	—
Total revenues, net	24,181			—			—			—			—
Costs and expenses:
Cost of goods sold	641			—			—			—			—
Selling, general and administrative	120,614			56,905			34,706			30,635			20,103
Pre-approval commercial manufacturing	26,545			16,710			9,772			—			—
Research and development	86,123			72,078			52,394			44,451			29,869
Total costs and expenses	233,923			145,693			96,872			75,086			49,972
Loss from operations	(209,742		)	(145,693		)	(96,872		)	(75,086		)	(49,972		)
Other income (expense), net ⁽²⁾	(22,824		)	(1,170		)	(1,994		)	862			1,839
Loss before income taxes	(232,566		)	(146,863		)	(98,866		)	(74,224		)	(48,133		)
Income tax expense (benefit)	3			(1,758		)	193			139			—
Net loss	$	(232,569	)	$	(145,105	)	$	(99,059	)	$	(74,363	)	$	(48,133	)
Net loss per common share—basic and diluted	$	(5.58	)	$	(4.11	)	$	(3.40	)	$	(2.88	)	$	(2.00	)
Weighted average number of common shares outstanding—basic and diluted	41,663,958			35,324,472			29,135,583			25,781,230			24,086,651

YEAR ENDED
DECEMBER 31,
2015 2014 2013 2012 2011
(in thousands)
Statement of Operations Data:
General and administrative $ (30,635 ) $ (20,103 ) $ (10,287 ) $ (5,020 ) $ (3,521 )
Research and development (44,451 ) (29,869 ) (11,883 ) (9,273 ) (10,695 )
Loss from operations (75,086 ) (49,972 ) (22,170 ) (14,293 ) (14,216 )
Other income (expense), net 862
1,839
(8,978 ) (685 ) 1,249
Net loss before income taxes $ (74,224 ) $ (48,133 ) $ (31,148 ) $ (14,978 ) $ (12,967 )
Income tax expense (139 ) —
—
—
—
Net loss $ (74,363 ) $ (48,133 ) $ (31,148 ) $ (14,978 ) $ (12,967 )
Net loss attributable to common stockholders—basic and diluted⁽¹⁾
$ (74,363 ) $ (48,133 ) $ (31,598 ) $ (15,643 ) $ (13,419 )
Net loss per share attributable to common stockholders—basic and diluted⁽¹⁾
$ (2.88 ) $ (2.00 ) $ (6.38 ) $ (16.39 ) $ (14.50 )
Weighted average number of common shares outstanding—basic and diluted⁽¹⁾
25,781,230
24,086,651
4,955,760
954,695
925,625

AS OF DECEMBER 31,
2015 2014 2013 2012 2011
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 91,060
$ 85,586
$ 69,649
$ 2,925
$ 15,068
Short-term investments 45,502
54,339
—
—
—
Long-term investments 13,808
18,275
—
—
—
Total assets 159,127
159,835
70,458
3,219
15,458
Notes payable, net of discount, and accrued interest thereon —
—
—
2,347
—
Warrants liability—related parties —
—
—
2,456
1,098
Convertible notes, net of discounts 123,236
122,906
—
—
—
Convertible preferred stock —
—
—
60,898
60,348
Total stockholders’ equity (deficit) 18,775
28,042
66,976
(63,919 ) (48,697 )

~~____________________~~


(1)	~~Prior~~ The Company launched its first product, Rhopressa^®,in the United States in April 2018 and commenced generating product revenues in the second quarter of 2018.

(2)

Includes the value of additional shares of Aerie common stock issued to ~~2014, net loss attributable to common stockholders reflects~~complete the accretion on convertible preferred stock and, where applicable, preferred stock dividends. See Note 2 to our audited consolidated financial statements appearing elsewhere in this report for an explanationconversion of the ~~method used to calculate the basic and diluted net loss per share attributable to common stockholders.~~2014 Convertible Notes in July 2018.



	AS OF DECEMBER 31,
	2018		2017		2016		2015		2014
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	202,818	$	197,569	$	197,945	$	91,060	$	85,586
Investments	—		52,086		35,717		59,310		72,614
Total assets	285,044		290,276		248,254		159,127		159,835
Convertible notes, net	—		123,845		123,539		123,236		122,906
Total stockholders’ equity	227,806		135,599		105,344		18,775		28,042

~~Table of Contents~~

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements, and see “Risk Factors” in Part I, Item 1A of this report for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods.

Overview

We are ~~a clinical-stage~~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, retinal diseases and other diseases of the eye. Our ~~two advanced stage~~strategy is to successfully commercialize our FDA-approved product, Rhopressa^®, in the United States and advance our product candidate, Rocklatan^TM, to regulatory approval. We have a commercial team that includes approximately 100 sales representatives targeting approximately 14,000 high prescribing eye-care professionals throughout the United States. This sales force is responsible for sales of Rhopressa^®, and will also be responsible for sales of Rocklatan^TM, if approved.

We seek to enhance our longer-term commercial potential by identifying and advancing additional product candidates ~~are~~through our internal discovery efforts, our entry into potential research collaborations or in-licensing arrangements or our acquisition of additional ophthalmic products or technologies or product candidates that complement our current product portfolio, such as our collaboration with DSM, whereby we have access to their bio-erodible polymer technology, and our acquisition of assets from Envisia, designed to ~~lower intraocular pressure, or IOP,~~advance our progress in ~~patients with open-angle glaucoma and ocular hypertension. Both~~developing potential future sustained-release product candidates to treat retinal diseases, as discussed below.

Our strategy also includes developing our business outside of the United States, including obtaining regulatory approval in Europe and Japan on our own for Rhopressa^® and Rocklatan^TM. If we obtain regulatory approval, we currently expect to commercialize Rhokiinsa^® and Roclanda^TM in Europe on our own, and likely partner for commercialization of their equivalents in Japan. To optimize the commercial opportunity, we expect to launch Roclanda^TM before Rhokiinsa^® in Europe, if approved, as the European market is oriented more toward fixed-dose combination products. We are continuing to expand our presence in Europe and are actively participating in European ophthalmology conferences and forums. We now have over 60 employees in Europe that manage the build-out and operation of our manufacturing plant in Ireland, discussed below, as well our Phase 3 clinical trial for Roclanda^TM, which is ongoing in several European countries. We are also building our clinical, medical affairs and commercial teams in Europe. In Japan, we announced the opening of our office in Tokyo and the hiring of key leadership positions to help execute our strategy in that market.

In January 2017, we commenced establishment of our own manufacturing plant in Athlone, Ireland. This will be our first manufacturing plant, which is expected to produce commercial supplies of Rhopressa^®and, if approved, Rocklatan^TM,Rhokiinsa^® and Roclanda^TM. Commercial supply from the plant is expected to be available in early 2020. Our current contract manufacturer produces commercial supply of Rhopressa^®and started to manufacture Rocklatan^TM in 2018 in anticipation of potential FDA approval and commercial launch in 2019. We are also in the process of adding an additional API contract manufacturer and an additional Rhopressa^® drug product contract manufacturer, both of which are expected to supply commercial materials in the first half of 2019. We expect to continue to use product sourced from our contract manufacturers when the Ireland plant is operational.

We own the worldwide rights to all indications for Rhopressa^® and Rocklatan^TM. We have patent protection for Rhopressa^® and Rocklatan^TM in the United States through early 2034 and internationally, through dates ranging from 2030 to 2037. Our intellectual property portfolio contains patents and pending patent applications related to composition of matter, pharmaceutical compositions, methods of use, and synthetic methods. Furthermore, we have patent protection for AR-13503 in the United States and internationally, which extends to 2030. We have also filed for patent protection for AR-1105 in the United States and internationally.

Product and Product Candidate Overview

Rhopressa^®, our FDA-approved product, has demonstrated that it reduces IOP through ROCK inhibition, its MOA, by which Rhopressa^® increases the outflow of aqueous humor through the TM, which accounts for approximately 80% of fluid drainage from the healthy eye. Our advanced-stage product candidate is once-daily Rocklatan^TM, a fixed-dose combination of

Rhopressa^® and latanoprost, reduces IOP through the same MOA as Rhopressa^® and through a second MOA, utilizing the ability of latanoprost to increase the outflow of aqueous humor through the uveoscleral pathway, the eye’s secondary drain. Both are taken once-daily in the evening and have shown in preclinical and clinical trials to be effective in ~~lowering~~reducing IOP, with ~~novel mechanisms~~a favorable safety profile.

Rhopressa^®

Rhopressa^® is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension. The active ingredient in Rhopressa^®, netarsudil, is an Aerie-owned ROCK inhibitor. We believe that Rhopressa^® represents the first of ~~action,~~a new drug class for reducing IOP in patients with glaucoma in over 20 years. Initial indications point to healthcare professionals prescribing Rhopressa^® as a concomitant therapy to prostaglandins or ~~MOAs,~~non-PGA medications when additional IOP reduction is desired. We believe Rhopressa^®is primarily competing with other non-PGA products, due to its targeting of the diseased TM, its demonstrated ability to reduce IOP at consistent levels across tested baselines, its preferred once-daily dosing relative to other currently marketed non-PGA products and its safety profile. Adjunctive therapies currently represent nearly one-half of the glaucoma prescription market in the United States, according to IQVIA. We believe that Rhopressa^® may also become a preferred therapy where PGAs are contraindicated, for patients who do not respond to PGAs and for patients who choose to avoid the cosmetic issues associated with PGA products.

Rhopressa^® received FDA approval on December 18, 2017 and we launched Rhopressa^® in the United States at the end of April 2018. Rhopressa^® is now being sold to national and regional U.S. pharmaceutical distributors, and patients have access to Rhopressa^® through pharmacies across the United States. We have obtained formulary coverage for Rhopressa^® for approximately 90% of lives covered under commercial plans and approximately 40% of lives covered under Medicare Part D plans. We expect Medicare Part D Tier 2 equivalent coverage to increase to over 70% by the end of the first quarter of 2019.

In October 2018, we announced that the EMA accepted our MAA for review for Rhokiinsa^®. Additionally, we completed a Phase 1 clinical trial and a ~~positive safety profile. Our lead product candidate is once-daily, Rhopressa™ (netarsudil ophthalmic solution) 0.02%.~~successful pilot Phase 2 clinical study in the United States on Japanese and Japanese-American subjects, which were designed to support meeting the requirements of Japan’s PMDA for potential regulatory submission of Rhopressa^® in Japan. We ~~successfully completed our second~~are also planning to initiate a Phase 2 clinical trial on Japanese patients in Japan by the end of the first quarter of 2019 to support subsequent Phase 3 registration ~~trial for Rhopressa™, named “Rocket 2,” in September 2015, which will be the pivotal trial for a New Drug Application, or NDA, filing with the U.S. Food and Drug Administration, or FDA,~~trials that we expect to submit in the third quarter of 2016. The primary clinical efficacy endpoint was to demonstrate non-inferiority of IOP lowering for Rhopressa™ compared to timolol in a 90-day efficacy period. The final primary baseline IOP ranges for Rocket 2 were above 20 mmHg, or millimeters of mercury, to below 25 mmHg. In addition to successfully achieving non-inferiority to timolol at this endpoint range, the recently reported topline 12-month safety data from Rocket 2 confirmed a positive safety profile for the drug and demonstrated a consistent IOP lowering effect throughout the 12-month period at the specified timepoint.

As background, the final primary endpoint range for Rocket 2 was updated from the original trial design, which included baseline IOPs of up to 27 mmHg. This change in endpoint range was made while Rocket 2 was in progress and prior to the database being locked, and was performed with FDA agreement. The reason for the change was the failure of our first Phase 3 registration trial for Rhopressa™, named “Rocket 1.” This 90-day efficacy trial did not meet its primary clinical efficacy endpoint of demonstrating non-inferiority of IOP lowering for Rhopressa™ compared to timolol at its primary range of above 20 mmHg to below 27 mmHg, which we reported in April 2015 (while Rocket 2 was already underway). Rocket 1 was successful at its pre-specified secondary endpoint range of above 20 mmHg and below 24 mmHg, and it was agreed by the FDA that Rocket 1, because of its success in meeting the secondary endpoint range, could be used as supportive to Rocket 2 for the upcoming NDA filing.

We are also ~~conducting a third Phase 3 registration trial for Rhopressa™, named “Rocket 3,”~~expected to be conducted in ~~Canada, which~~Japan under our direction.

Rocklatan^TM

Our advanced-stage product candidate, Rocklatan^TM, is a supplementary 12-month safety-only trial and is not required for NDA filing purposes. In addition, we are conducting a fourth Phase 3 registration trial for Rhopressa™, named “Rocket 4,” in the U.S., which is designed to generate the six-month safety data that will be needed for European approval purposes, and is also not required for NDA filing purposes. We expect to report the topline 90-day interim efficacy data for Rocket 4 in the fourth quarter of 2016.

~~Our second product candidate is~~ once-daily ~~Roclatan™ (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005%. Roclatan™ is a~~ fixed-dose combination of ~~Rhopressa™~~Rhopressa^® and latanoprost, ~~which is~~ the most commonly prescribed drug for the treatment of patients with ~~glaucoma. It currently has one Phase 3 registration trial in process with a second about to start, after having successfully completed a Phase 2b clinical trial for patients with~~ open-angle glaucoma and ocular hypertension in June 2014. In the Phase 2b clinical trial, Roclatan™ achieved its primary efficacy endpoint on day 29 and statistical superiority over individual components at all timepoints.glaucoma. We believe, ~~Roclatan™~~based on our clinical data, that Rocklatan^TM has the potential to provide a greater ~~IOP-lowering~~IOP-reducing effect than any currently ~~approved~~marketed glaucoma ~~product.~~medication. Therefore, we believe that ~~Roclatan~~Rocklatan^TM, if approved and formulary coverage is obtained, could compete with both PGA and non-PGA therapies and become the product of choice for patients requiring maximal IOP ~~lowering,~~reduction, including those with higher IOPs and those who present with significant disease progression despite using currently available therapies.

We submitted an NDA for Rocklatan^TM to the FDA in May 2018 under Section 505(b)(2) of the FDCA, which provides for an abbreviated approval pathway, since Rocklatan^TM is a fixed dose combination of two FDA-approved drugs in the United States. In July 2018, we announced that the NDA was accepted for review by the FDA and the PDUFA goal date was set for March 14, 2019.

~~The first~~With respect to Rocklatan^TM in jurisdictions outside the United States, we also initiated a Phase 3 registration trial for ~~Roclatan™~~ Roclanda^TM, named ~~“Mercury 1,” commenced~~Mercury 3, in ~~September 2015. We expect to commence our second Phase~~Europe during the third quarter of 2017. Mercury 3, ~~registration trial for Roclatan™ , named “Mercury 2,” in March 2016. Mercury 1 is~~ a ~~12-month~~six-month efficacy and safety ~~trial which includes a 90-day interim efficacy readout and Mercury 2 is a 90-day efficacy trial. If both Mercury~~

~~Table of Contents~~

~~1 and Mercury 2 are successful, we expect to file an NDA for Roclatan™ in the second half of 2017, approximately one year after the NDA filing for Rhopressa™.~~

~~We believe our clinical plans for both Rhopressa™ and Roclatan™ are already in place to satisfy European regulatory requirements. In addition to Rocket 1 and Rocket 2, the Rocket 4~~ trial, is designed to ~~provide adequate six-month safety data for Rhopressa™~~compare Roclanda^TM to meet European requirements. Based on our Rhopressa™ clinical plan, we expect to file for regulatory approval in Europe by mid-2017. While Mercury 1 and Mercury 2 will be used for European approval of Roclatan™Ganfort^®, ~~we also plan to initiate~~ a ~~third Phase 3 registration trial for Roclatan™, named Mercury 3,” in Europe in the first half of 2017. Mercury 3 will be designed to compare Roclatan™ to a fixed dose~~fixed-dose combination product ~~broadly~~ marketed in Europe ~~which if~~of bimatoprost, a PGA, and timolol, a beta blocker. If successful, ~~should~~Mercury 3 is expected to improve our commercialization prospects in Europe. We currently expect to read out topline 90-day efficacy data for the trial in 2019. Since Roclanda^TM is a fixed-dose combination product that ~~region.~~includes Rhokiinsa^®, we plan to submit an MAA for Roclanda^TM with the EMA if and when Rhokiinsa^® is approved by the EMA. We expect to submit the MAA for Roclanda^TM in early 2020, if the EMA has approved Rhokiinsa^® by such time.

Pipeline Opportunities

Our stated objective is to build a major ophthalmic pharmaceutical company. ~~In addition to~~We are evaluating our primary product candidates, Rhopressa™ and Roclatan™, we are also exploring the longer-term impact of Rhopressa™ on the diseased trabecular meshwork, as well as neuroprotection, and evaluating possible uses of our existing proprietary portfolio of ~~Rho Kinase~~owned ROCK inhibitors for additional indications within and beyond glaucoma. In February 2015, we issued a research update on preclinical results demonstrating the potential for Rhopressa™ to have disease-modifying activity in glaucoma patients by stopping fibrosis in the trabecular meshwork, and also increasing perfusion in the trabecular outflow pathway thus increasing both drainage and the delivery of nutrients to the diseased tissue. Additionally, ourOur owned preclinical small molecule, ~~AR-13154,~~AR-13503, is a ROCK and Protein kinase C inhibitor sustained-release implant with potential in the treatment of DME, wet AMD and related diseases of the retina. AR-13503, which has the same active metabolite as Rhopressa^®, has shown lesion size decreases in an in

vivo preclinical model of wet AMD at levels similar to the current market-leading wet AMD anti-VEGF product. When used in combination preclinically with the market-leading anti-VEGF product, AR-13503 produced greater lesion size reduction than the anti-VEGF product alone in a model of proliferative DR. This molecule has not yet been tested in humans in a clinical trial setting. Pending additional studies, AR-13503 may have the potential to ~~decrease lesion size~~provide an entirely new mechanism and pathway to treat DME, wet AMD and related diseases of the retina. Since AR-13503 is a small molecule with a short half-life, and the aforementioned diseases are located in ~~wet age-related~~the back of the eye, a delivery mechanism is needed to deliver the molecule to the back of the eye for a sustained delivery period.

To that end, in July 2017, we announced that we entered into a collaborative research, development and licensing agreement with DSM, a global science-based company headquartered in the Netherlands. The research collaboration agreement includes an option to license DSM’s bio-erodible polymer implant technology for sustained delivery of certain Aerie compounds to treat ophthalmic diseases. In August 2018, we announced the expansion of our collaboration with DSM to provide 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. This technology uses polyesteramide polymers to produce an injectable, thin fiber that is minute in size. Preclinical experiments have demonstrated early success in conjunction with AR-13503, including demonstration of linear, sustained elution rates over several months and achievement of target retinal drug concentrations. We expect to submit an IND for AR-13503 by the end of the first quarter of 2019.

Further, in October 2017, we acquired the rights to use PRINT^® technology in ophthalmology and certain other assets from Envisia. PRINT^® is a proprietary technology capable of creating precisely-engineered sustained release products utilizing fully-scalable manufacturing processes. In addition, we acquired Envisia’s intellectual property rights relating to Envisia’s preclinical dexamethasone steroid implant for the potential treatment of macular ~~degeneration (AMD) at numerically higher levels than~~edema due to RVO that also utilizes the PRINT^® technology, which we refer to as AR-1105. The IND for this sustained-release implant was submitted in December 2018. In January 2019, we announced that the FDA reviewed the IND for AR-1105 and it is now in effect, allowing Aerie to initiate human studies in the treatment of macular edema due to RVO. We expect to initiate a ~~current market-leading product.~~Phase 2 clinical study for AR-1105 in the first quarter of 2019.

We are also evaluating the PRINT^® technology platform for sustained release of therapies to the front of the eye, including to treat glaucoma or ocular hypertension, as examples. We commenced operation of our cGMP-validated manufacturing facility for production of ophthalmic implants using PRINT^® technology in our Durham, North Carolina, facility in October 2018.

We may continue to enter into research collaboration arrangements, license, acquire or develop additional product candidates and technologies to broaden our presence in ~~ophthalmology. In August 2015~~ophthalmology, and ~~September 2015,~~ we entered into collaboration and license arrangements with GrayBug, Inc. and Ramot at Tel Aviv University, Ltd., respectively, neither of which represents a material financial commitment by Aerie. Our collaboration with GrayBug is focused on researching the potential use of their biodegradable polymer technology to deliver a version of AR-13154 to the back of the eye over a sustained period of time. With Ramot, we are evaluating a Ramot preclinical anti-beta amyloid small molecule, named EG-30, for neuroprotection in glaucoma and reduction of geographic atrophy in advanced dry AMD. We continually explore and discuss potential additional opportunities for new ophthalmic products, delivery alternatives and new therapeutic areas with potential partners. We are also currently screening our owned library of ROCK inhibitors for indications beyond ophthalmology considering that third-party studies and trials have demonstrated potential for ROCK inhibition in treating certain disease categories. We are initially focused on exploring potential opportunities for our molecules in pulmonary health, dermatology and cancers.

Financial Overview

Our ~~strategy includes developing~~cash and cash equivalents totaled $202.8 million as of December 31, 2018. We believe that our ~~business outside of North America, including obtaining regulatory approval on our own~~cash and cash equivalents and projected cash flows from revenues will provide sufficient resources for our ~~lead product candidates in Europe and possibly obtaining regulatory approval~~current ongoing needs through at least the next twelve months, though there may be need for additional financing activity as we continue to grow, including the potential use of ~~a partner in Japan. Regarding our international commercialization strategy, if our product candidates are successful, we may potentially commercialize ourselves or with a partner in Europe,~~the currently undrawn $100 million credit facility. See “—Liquidity and ~~likely with a partner in Japan. We expect to finalize our European commercialization strategy by the end of 2016.~~

In March 2015, we revised our corporate structure to align with our business strategy outside of North America by establishing Aerie Pharmaceuticals Limited, a wholly-owned subsidiary organized under the laws of the Cayman Islands (“Aerie Limited”). In addition, we assigned the beneficial rightsCapital Resources” below and Note 9 to our non-U.S. and non-Canadian intellectual property to Aerie Limited (the “IP Assignment”). As part of the IP Assignment, we and Aerie Limited entered into a research and development agreement and cost sharing agreement pursuant to which we and Aerie Limited will share the costs of the development of intellectual property. Additionally,consolidated financial statements included elsewhere in ~~April 2015, we continued to prepare~~this report for foreign-based activities and established Aerie Pharmaceuticals Ireland Limited (“Aerie Ireland Limited”) as a wholly-owned subsidiary of Aerie Limited to develop and commercialize the beneficial rights of the intellectual property assigned as part of the IP Assignment pursuant to a license arrangement to be entered into between Aerie Limited and Aerie Ireland Limited. We are currently evaluating the possibility of constructing an Aerie manufacturing plant in Ireland.further discussion.

We have incurred net losses since our inception in June 2005. ~~Our~~Until 2018, when we commenced commercial operations, ~~to date have been~~our business activities were primarily limited to research and development and raising capital. As of December 31, ~~2015,~~2018, we had an accumulated deficit of ~~$217.6~~$696.4 million. We recorded net losses of ~~$74.4~~$232.6 million, ~~$48.1~~$145.1 million and ~~$31.1~~$99.1 million for the years ended December 31, ~~2015, 2014~~2018, 2017 and ~~2013,~~2016, respectively. ~~We anticipate that a substantial portion of our~~Our capital resources and business efforts ~~in the foreseeable future will be~~are largely focused on ~~completing~~activities relating to the ~~development and obtaining regulatory approval and preparing for potential~~ commercialization of Rhopressa^®, advancing our product ~~candidates.~~

~~We expect~~pipeline, international expansion and construction of our research and development expenses to increase as we continue to initiate and conduct clinical trials for our Rhopressa™ and Roclatan™ product candidates and pursue regulatory approval. As we prepare for commercialization, we will likely incur significant commercial, sales, marketing and manufacturing ~~expenses. Since our initial public offering (“IPO”)~~facility in ~~October 2013, we are also incurring additional expenses associated with operating as a public company. As a result, we~~Athlone, Ireland. We expect to continue to incur ~~significant and increasing~~ operating losses ~~at least for the next several years.~~

~~Table of Contents~~

~~Prior~~until our products generate adequate commercial revenue to our IPO, we raised net cash proceeds of $78.6 million from the private placement of convertible preferred stock and convertible notes. Prior to and in connection with our IPO, all outstanding shares of convertible preferred stock and all convertible notes were converted into shares of common stock. On October 30, 2013, we completed our IPO and raised net proceeds of approximately $68.3 million, after deducting underwriting discounts and commissions of $5.4 million and expenses of $3.6 million.

Since our IPO, we have issued $125.0 million aggregate principal amount of senior secured convertible notes (the “2014 Convertible Notes”), for which we received net proceeds of approximately $122.9 million, after deducting discounts and issuance costs of $2.1 million, and issued 1,754,556 shares of our common stock under our “at-the-market” sales agreements, for which we received net proceeds of approximately $50.5 million, after deducting commissions at a rate of up to 3% of the gross sales price per share sold and other fees and expenses.

Proceeds from our “at-the-market” sales in 2015, the 2014 Convertible Notes financing in September 2014, our IPO in October 2013 and any future sales under our current “at-the-market” sales agreements are currently expected to provide sufficient resources to complete all currently known non-clinical and clinical requirements for our development programs advancing Rhopressa™ and Roclatan™, approval by the FDA and product commercialization, pending successful outcome of the trials. We also intend to use the proceeds in part for general corporate purposes and potentially for strategic growth opportunities.

To date, we have not generated product revenue and we do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates.render Aerie profitable. If we do not successfully commercialize Rhopressa^®, or Rocklatan^TMor any ~~of our~~future product candidates, if approved, we may be unable to generate adequate product ~~revenue or~~revenues to achieve such profitability.

We may be required to draw down on the credit facility, or to obtain further funding through public or private ~~offerings,~~ debt ~~financing, collaboration and licensing arrangements~~or equity offerings or other ~~sources.~~arrangements. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we ~~would~~may be forced to delay, reduce or eliminate our research and development programs or commercialization or manufacturing efforts.

~~Financial Overview~~

~~Revenue~~

Product Revenues, Net

We launched Rhopressa^®in the United States in late April 2018 and commenced generating product revenues from sales of Rhopressa^®during the second quarter of 2018. Our product revenues are recorded net of provisions relating to estimates 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. These estimates reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. 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 may have an impact on earnings in the period of adjustment.

We will not ~~generated~~generate any revenue from ~~the sale of~~Rocklatan^TM or any ~~products,~~future product candidates unless and ~~we do not expect to generate any revenue unless or~~ until we obtain regulatory approval of and commercialize ~~our~~such products.

Cost of Goods Sold

Cost of goods sold consists of direct and indirect costs to procure and manufacture Rhopressa^® product sold, including third-party manufacturing costs. We began capitalizing inventory costs for Rhopressa^®after receipt of FDA approval of Rhopressa^®on December 18, 2017. Prior to receiving FDA approval, such costs were expensed as pre-approval commercial manufacturing expenses. Cost of goods sold in 2019 will continue to be favorably impacted by sales of Rhopressa^®inventory that was expensed prior to FDA approval; however, we do not expect the impact to be material.

Selling, General and Administrative Expenses

~~General~~Selling, general and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation for all officers and employees in general management, sales and marketing, finance and administration. Other significant expenses include selling and marketing expenses, facilities expenses, shipping and handling costs and professional fees for ~~accounting,~~audit, tax, legal and other services.

We expect that our selling, general and administrative expenses will increase ~~with the continued advancement~~modestly for 2019 as compared to 2018 reflecting a full year of our product candidates and with our increased management, legal, compliance, accounting and investor relations expenses as we continue to grow. We expect these increases will likely include higher expenses for insurance, expenses related to our sales force.

Pre-approval Commercial Manufacturing Expenses

Pre-approval commercial manufacturing expenses consist of costs incurred for commercial-related manufacturing activities for Rhopressa^® and Rocklatan^TMprior to FDA approval. These costs include those associated with the ~~hiring~~manufacturing of inventory in anticipation of commercial launch, expenses associated with the establishment of both our manufacturing plant in Athlone, Ireland, and our additional API and drug product contract manufacturers, as well as employee-related expenses, which includes salaries, benefits and stock-based compensation for commercial-related manufacturing personnel prior to regulatory approval.

If we obtain regulatory approval of our additional API and ~~payments~~drug product contract manufacturers in the first half of 2019, we expect that our pre-approval commercial manufacturing expenses will decrease in 2019 as compared to ~~outside service providers, lawyers and accountants.~~2018 as the cost of commercial material produced by these manufacturers following regulatory approval will be capitalized as inventory.

Research and Development Expenses

~~Since our inception, we have focused on our~~We expense research and development ~~programs.~~costs to operations as incurred. Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, which include:

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”),~~CROs, contract manufacturing organizations and service providers that assist in conducting clinical trials 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

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depreciation expense for assets used in research and development activities.

We expense research and development costs to operations as incurred. The costs for certain development activities, such as clinical trials, are recognized based on the terms of underlying agreements as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations along with additional information provided to us by our vendors.

Expenses relating to activities, such as manufacturing and stability and toxicology studies, that are supportive of the product candidate itself, are classified as direct non-clinical. Expenses relating to clinical trials and similar activities, including costs associated with CROs, are classified as direct clinical. Expenses relating to activities that support more than one development program or activity such as personnel costs, stock-based compensation, facilities and depreciation are not allocated to direct clinical or non-clinical expenses and are separately classified as “unallocated.”

~~The following table shows our research and development expenses by product candidate and by type of activity for the years ended December 31, 2015, 2014 and 2013:~~

YEAR ENDED
DECEMBER 31,
2015 2014 2013
(in thousands)
Rhopressa^TM

Direct non-clinical $ 6,958
$ 8,765
$ 3,410
Direct clinical 15,635
10,994
1,607
Total $ 22,593
$ 19,759
$ 5,017
Roclatan^TM

Direct non-clinical $ 2,151
$ 690
$ 481
Direct clinical 4,240
1,869
234
Total $ 6,391
$ 2,559
$ 715
Discontinued product candidates
Direct non-clinical $ 56
$ 89
$ 596
Direct clinical —
1
2,965
Total $ 56
$ 90
$ 3,561
Unallocated 15,411
7,461
2,590
Total research and development expense $ 44,451
$ 29,869
$ 11,883

For the periods presented, we did not incur significant direct non-clinical or direct clinical costs for our exploration of the impact of Rhopressa™ on the diseased trabecular meshwork and neuroprotection or for possible uses of our existing proprietary portfolio of Rho Kinase inhibitors beyond glaucoma. Costs for these activities were primarily comprised of internal personnel costs and were included in unallocated expenses. Costs associated with our current collaboration arrangements were also included in unallocated expenses. Discontinued product candidates relate to previously developed AR-12286 and related compounds for which further development for the treatment of glaucoma was discontinued in 2013.

Research and development activities associated with the discovery and development of new drugs and products for the treatment of diseases of the eye are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase as we continue to conduct clinical trials for our product candidates, or if the FDA requires us to conduct additional trials for approval, and explore additional product candidates and technologies to broaden our presence in ophthalmology.

Our research and development expenditures are subject to numerous uncertainties in timing and cost to completion. Development timelines, the probability of success and development expenses can differ materially from expectations. The cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development, including, among others, the following:

~~number of trials required for approval;~~

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~~number of sites included in the trials;~~

~~length of time required to enroll suitable patients;~~

~~number of patients that participate in the trials;~~

~~drop-out or discontinuation rates of patients;~~

~~duration of patient follow-up;~~

~~costs related to compliance with regulatory requirements;~~

~~number and complexity of analyses and tests performed during the trial;~~

~~phase of development of the product candidate; and~~

~~efficacy and safety profile of the product candidate.~~

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with research institutions, consultants and CROs that assist in conducting and managing clinical trials. We ~~generally~~ accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis. Historically, such modifications have not been material.

~~As a result of the uncertainties discussed above, we are unable to determine with certainty the duration and completion costs of~~We expect that our development programs or precisely when and to what extent we will receive revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for one or more of our product candidates. The duration, costs and timing of clinical trialsresearch and development ~~of any product candidates~~expenses will depend on a variety of factors, including the uncertainties of future preclinical studies and clinical trials, uncertainties in the clinical trial enrollment rate and changing government regulation. In addition, the probability of successbe relatively consistent for ~~each product candidate will depend on numerous factors, including efficacy and tolerability profiles, manufacturing capability, competition, and commercial viability.~~2019 as compared to 2018.

Other Income (Expense), Net

Other income (expense) primarily includes interest income, interest expense, foreign exchange gains and losses, and other income and expense. Interest income primarily consists of interest earned on our cash, ~~and~~ cash equivalents and investments, ~~as well as the net proceeds from the sale~~and amortization or accretion of discounts and premiums on our ~~net operating loss tax benefits for the state of New Jersey. Refer to Note 3 to our audited consolidated financial statements appearing elsewhere in this report for further information.~~

~~Other~~investments. Interest expense consists of interest expense under ~~our convertible notes, including~~ the 2014 Convertible Notes, including the amortization of debt discounts and issuance costs incurred prior to the conversion of the 2014 Convertible Notes on July 23, 2018. Interest expense also includes the amortization of issuance costs and ~~other miscellaneous expense.~~commitment fees incurred on the credit facility entered into on July 23, 2018. Foreign exchange gains and losses are primarily due to the remeasurement of our Euro-denominated liability related to our build-to-suit lease obligation, which is held by a subsidiary with a U.S. dollar functional currency. Other expense includes the value of additional shares of Aerie common stock issued to complete the conversion of the 2014 Convertible Notes in July 2018. See Note 9 to our consolidated financial statements included elsewhere in this report for additional information.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States or (“U.S. ~~GAAP.~~GAAP”). The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the determination of revenue recognition, inventories, accrued expenses, fair value measurements, acquisitions and stock-based ~~compensation and certain research and development expenses.~~compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully described in Note 2 to our ~~audited~~ consolidated financial statements included elsewhere in this report. The following accounting policies are the most critical in fully understanding and evaluating our reported financial results and affect significant judgments and estimates that we use in the preparation of our financial statements.

Revenue Recognition

~~Table~~We recognize revenue when our customers obtain control of ~~Contents~~our product in an amount that reflects the consideration we expect to receive from our customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of the Financial Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”), we perform 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) we satisfy the performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to our customer. Once the contract is determined to be within the scope of ASC Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied. Shipping and handling costs related to our product sales are included in selling, general and administrative expenses.

Net product revenues for the year ended December 31, 2018, were derived from sales of Rhopressa^® in the United States to customers, which principally 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. We expense

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. The product that is ultimately used by patients is generally covered by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and 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. We did not have any contract assets (unbilled receivables) at December 31, 2018, as customer invoicing generally occurs before or at the time of revenue recognition. We did not have any contract liabilities at December 31, 2018, as we did not receive payments in advance of fulfilling our performance obligations to our customers.

Net product revenue is typically recognized when the Distributors obtain control of our product, which occurs at a point in time, typically upon delivery of Rhopressa^® to the Distributors. For the year ended December 31, 2018, three Distributors accounted for 33.9%, 33.3% and 29.7% of total revenues, respectively. We evaluate the creditworthiness of each of our Distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. We do 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.

We calculate our net product revenue based on the wholesale acquisition cost that we charge our Distributors for Rhopressa^® 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. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. Provisions for revenue reserves reduced product revenues by $19.6 million in aggregate for the year ended December 31, 2018. The transaction price 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.

Trade Discounts and Allowances: We generally provide discounts on sales of Rhopressa^® to our Distributors for prompt payment and pay fees for distribution services and for certain data that Distributors provide to us. We expect our Distributors to earn these discounts and fees, and accordingly deduct the full amount of these discounts and fees from our gross product revenues at the time such revenues are recognized.

Rebates, Chargebacks and Other Discounts: We contract with Third-party Payers for coverage and reimbursement of Rhopressa^®. We estimate the rebates and chargebacks we expect to be obligated to provide to Third-party Payers and deduct these estimated amounts from our gross product revenue at the time the revenue is recognized. We estimate the rebates and chargebacks that we expect to be obligated to provide to Third-party Payers based upon (i) our contracts and negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa^® and (iii) historical industry information regarding the payer mix for comparable pharmaceutical products and product portfolios. Other discounts include our co-pay assistance 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 we expect to pay associated with product that has been recognized as revenue.

Product Returns: We estimate the amount of Rhopressa^® that will be returned and deduct these estimated amounts from our gross revenue at the time the revenue is recognized. We currently estimate product returns based on historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa^® shipped to Distributors, and contractual agreements with our Distributors intended to limit the amount of inventory they maintain. Reporting from the Distributors includes Distributor sales and inventory held by Distributors, which provide us with visibility into the distribution channel to determine when product would be eligible to be returned.

Inventories

Manufacturing costs related to commercial production are expensed as pre-approval commercial manufacturing expenses before we obtain regulatory approval for our product candidates. Once regulatory approval is obtained, such costs are capitalized as inventory. Inventories are stated at the lower of cost or net realizable value. We determine the cost of inventory

using the first-in, first-out (“FIFO”) method. We analyze our inventory levels at least quarterly and write 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 our estimate or if actual market conditions are less favorable than our 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.

Accrued Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with applicable vendor personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include:

fees paid to CROs in connection with clinical trials;

fees paid to investigative sites in connection with clinical trials; ~~and~~

fees paid to contract manufacturing organizations and service providers that assist in conducting preclinical and clinical ~~trials.~~trials or that produce commercial inventory prior to FDA approval; and

fees paid to service providers for audit, tax, legal and other services.

We accrue our expenses related to clinical trials based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct research activities and/or manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the level of effort varies from our estimate, we will adjust the accrual accordingly.

If we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. Although we do not currently anticipate the future settlement of existing accruals to differ materially from our estimates, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low for any period. There have been no material changes in estimates for the periods presented.

Fair Value Measurements

We record certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. ~~The fair value~~As of ~~our financial instruments, including cash and cash equivalents, short-term investments, other current assets, accounts payable and accrued expenses approximate their respective carrying values due to~~December 31, 2017, the ~~short-term nature of these instruments. The carrying amounts of long-term investments represent their estimated fair values. The~~ estimated fair value of the 2014 Convertible Notes was ~~$140.1 million~~$327.6 million. In July 2018, the entire outstanding principal amount of the 2014 Convertible Notes was converted into shares of Aerie common stock. See Note 9 to our consolidated financial statements included elsewhere in this report for additional information.

Acquisitions

We evaluate acquisitions to determine whether the acquisition is a business combination or an acquisition of assets under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 805: Business Combinations (“ASC Topic 805”). Business combinations are accounted for using the acquisition method of accounting, whereby assets acquired and ~~$163.8 million~~liabilities assumed are recorded as of ~~December 31, 2015~~the acquisition date at their respective fair values and ~~2014, respectively. As~~any excess of ~~December 31, 2015~~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 ~~2014,~~the net assets acquired are generally recorded at cost. In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The ASU 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 ~~outstanding warrants are classified~~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 us beginning on January 1, 2018; however, we elected to early adopt this ASU as ~~equity~~of July 1, 2017. Under ASC Topic 805, including the provisions of ASU 2017-01, 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 ~~are recorded within additional paid-in capital~~development expense on the consolidated ~~balance sheets.~~statement of operations and comprehensive loss in the three months ended December 31, 2017 for acquired in-process research and development (“IPR&D”). 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.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees ratably over the requisite service period, which in most cases is the vesting period of the award for employees, based on the estimated fair value of the awards on the date of grant. Compensation expense for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of the awards granted to non-employees is ~~re-measured~~remeasured each period until the related service is complete. ~~Compensation expense related to~~The fair value of restricted stock awards (“RSAs”), including restricted stock awards with non-market performance and service conditions (“PSAs”) is determined based on the ~~market~~fair value of our common stock on the ~~grant~~ date ~~and~~of grant. Compensation expense related to RSAs is ~~expensed~~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 we deem it probable that the performance conditions will be satisfied. Compensation expense for stock purchase rights under our employee stock purchase plan is measured and recognized on the date that we become obligated to issue shares of our common stock and is based on the difference between the fair value of our common stock and the purchase price on such date.

Stock-based compensation expense was $12.9 million, $9.2 million and $2.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, we had $29.9 million of unrecognized compensation expense.

The ~~intrinsic~~fair value of ~~all~~the stock ~~options outstanding~~appreciation rights (“SARs”) 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 ~~of December 31, 2015 was $55.9 million, of which $37.3 million and $18.6 million related to stock options that were vested and unvested, respectively, at that date.~~they may only be settled in cash.

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Significant Factors, Assumptions and Methodologies Used in Determining Fair Value

Determining the appropriate fair value measurement of stock-based awards requires the use of subjective assumptions. ~~In the absence of a public trading market for our common stock prior to the completion of our IPO, we conducted periodic assessments of the valuation of our common stock. The determination of~~We estimate the fair value ~~measurement~~ of options to purchase common stock using the Black-Scholes option pricing model, which is affected by our ~~estimated~~ common stock fair values as well as assumptions regarding a number of other subjective variables. These other variables include the expected term of the options, our expected stock price volatility over the expected term of the options, ~~stock option exercise and cancellation behaviors,~~ risk-free interest rates and expected dividends.

We ~~estimated~~estimate the fair value of stock options at the grant date using the following assumptions:

Fair Value of our Common Stock. ~~For all stock options granted after the completion of our IPO, the~~The fair value for our underlying common stock is determined using the closing price on the date of grant as reported on ~~the~~The NASDAQ Global Market. For all stock options granted prior to the completion of our IPO, the fair value for our underlying common stock was determined by our board of directors in its sole discretion based on recommendations from management and taking into account advice and assistance provided by third-party valuation consultants engaged to assist us in connection with such valuations.

Volatility. We calculate expected volatility based on our historical volatility in combination with reported data for a selected group of similar publicly traded companies, or guideline peer group, for which the relevant historical information is available. We selected representative companies from the pharmaceutical industry with similar characteristics to us, including stage of product development and ~~therapeutic focus. We will continue to use a combination of our historical volatility and the guideline peer group volatility information for the foreseeable future.~~commercialization.

Expected Term. We used the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, as we do 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 is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The midpoint between the vesting date and the maximum contractual expiration date is used as the expected term under this method.

Risk-free Rate. The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to exercise.

Forfeiture. Forfeitures are recognized in the period in which they occur. Prior to 2017, forfeitures were estimated such that we only ~~recognize~~recognized expense for the shares expected to vest, and adjustments ~~are~~were made if actual forfeitures ~~differ~~differed from those estimates. ~~We estimate our annual forfeiture rates based on our historical analysis of actual stock option forfeitures and our future expectations.~~

Dividend Yield. Except for a one-time cash dividend related to the spin-off of certain non-core intellectual property that occurred in 2012, we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

The estimation of the number of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period in which estimates are revised.

Key weighted average assumptions utilized in the fair value calculation for the underlying common stock as of December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016 appear in the table below.

YEAR ENDED
DECEMBER 31,
2015 2014 2013
Expected term (years) 6.07
6.25
6.25
Expected stock price volatility 74.11 % 80.44 % 79.20 %
Risk-free interest rate 1.63 % 1.90 % 1.78 %
Dividend yield —
—
—

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~~Stock Purchase Warrants~~

We account for our stock purchase warrants as either equity or liabilities based upon the characteristics and provisions of the underlying instruments. Warrants classified as equity are recorded at their fair value on the date of issuance as additional paid-in capital on the consolidated balance sheets and no further adjustments are made to their valuation. Warrants classified as liabilities are recorded at their fair value on the date of issuance and are re-measured on each subsequent balance sheet date until the earlier of the exercise or expiration of the applicable warrants or until such time that the warrants are no longer determined to be derivative instruments. The fair value changes are recognized as income (decreases in fair value) or expense (increases in fair value) in Other income (expense), net in the consolidated statements of operations and comprehensive loss. The fair value of these liabilities is estimated using the Black-Scholes method, which, under our facts and circumstances, approximates, in all material respects, the values determined when using a Monte Carlo simulation.

The Black-Scholes method and the Monte Carlo simulation require the use of subjective assumptions, including but not limited to stock price volatility, the expected life of the warrants, the risk free interest rate and the fair value of the underlying equity securities. The fair value of the underlying common stock is determined as discussed above under “—Stock-Based Compensation.”



	YEAR ENDED DECEMBER 31,
	2018		2017		2016
Expected term (years)	6.0		6.0		6.0
Expected stock price volatility	78	%	84	%	84	%
Risk-free interest rate	2.7	%	2.0	%	1.4	%
Dividend yield	—		—		—

Tax Valuation Allowance

A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. ~~We provided a full valuation allowance~~Realization of future tax benefits is dependent on our ~~deferred tax assets that consist of net federal and state net operating losses, stock based compensation and tax credits.~~ability to generate sufficient taxable income within the carryforward period. Due to our ~~three year cumulative loss position,~~ history of operating losses and lack of available evidence supporting future taxable income, we ~~believe that~~maintain a valuation allowance on all of our deferred tax assets as of December 31, ~~2015 remains appropriate.~~2018, with the exception of a release of valuation allowance during the year ended December 31, 2017 on a deferred tax asset related to a $1.7 million AMT refund that we expect to receive under the Tax Act. The amount of refund expected to be received is recorded as a receivable as of December 31, 2018 and 2017.

Results of Operations

Comparison of the Years Ended December 31, ~~2015~~2018 and ~~2014~~2017

The following table summarizes the results of our operations for the years ended December 31, ~~2015~~2018 and ~~2014:~~

2017:

YEAR ENDED
DECEMBER 31,

INCREASE
(DECREASE)

%
INCREASE
(DECREASE)
2015 2014
(in thousands)
Expenses
General and administrative $ (30,635 ) $ (20,103 ) $ 10,532
52 %
Research and development (44,451 ) (29,869 ) 14,582
49 %
Other income (expense), net 862
1,839
(977 ) N/A
Net loss before income taxes $ (74,224 ) $ (48,133 )



	YEAR ENDED DECEMBER 31,						CHANGE			% CHANGE
	2018			2017			CHANGE			% CHANGE
	(in thousands, except percentages)
Product revenues, net	$	24,181		$	—		$	24,181		*
Total revenues, net	24,181			—			24,181			*
Costs and expenses:
Cost of goods sold	641			—			641			*
Selling, general and administrative expenses	120,614			56,905			63,709			112	%
Pre-approval commercial manufacturing	26,545			16,710			9,835			59	%
Research and development expenses	86,123			72,078			14,045			19	%
Total costs and expenses	233,923			145,693			88,230			61	%
Loss from operations	(209,742		)	(145,693		)	(64,049		)	44	%
Other income (expense), net	(22,824		)	(1,170		)	(21,654		)	*
Loss before income taxes	$	(232,566	)	$	(146,863	)	$	(85,703	)	58	%

~~General and administrative expenses~~*Percentage not meaningful

~~General and administrative expenses increased by $10.5~~Product revenues, net

Product revenues, net was $24.2 million for the year ended December 31, ~~2015~~2018 and relate to sales of Rhopressa^®, which we launched in the United States at the end of April 2018. Rhopressa^® is our first product to receive regulatory approval, and we did not generate any revenues prior to the second quarter of 2018.

Cost of goods sold

Cost of goods sold was $0.6 million for the year ended December 31, 2018. Our gross margin percentage of 97.3% was favorably impacted during the year ended December 31, 2018 by sales of Rhopressa^® with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the year ended December 31, 2018 was valued at cost, our gross margin for the period then ended would have been 96.4%.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $63.7 million for the year ended December 31, 2018 as compared to the year ended December 31, ~~2014.~~2017. This increase was primarily associated with the expansion of our employee base to support the growth of our ~~operations. Personnel costs increased by $4.5 million, including an increase~~operations and selling and marketing expenses incurred in ~~employee stock based compensation expense~~connection with our commercial launch of ~~$2.6 million and an increase in salaries and related expenses of $1.9 million, and facilities, travel and other~~Rhopressa^®.

Employee-related expenses increased by ~~$2.4 million. Outside professional fees increased by $3.6 million as a result of the IP Assignment and associated tax and legal activities, as well as increased system integration expenses.~~

~~Research and development expenses~~

For the year ended December 31, 2015, our research and development activity was primarily associated with Phase 3 registration trials for Rhopressa™ and Roclatan™. Research and development expenses increased by $14.6$34.1 million for the year ended December 31, ~~2015~~2018 as compared to the year ended December 31, ~~2014. Costs~~2017 primarily due to increased headcount to build our commercial infrastructure, including the addition of our sales force which increased by $19.0 million in 2018. Employee-related expenses also included an increase in stock-based compensation expense of $7.8 million. Selling and marketing expenses increased by $24.1 million for ~~Roclatan™~~the year ended December 31, 2018 as compared to the year ended December 31, 2017 related to our commercial launch of Rhopressa^® in the United States and the preparation for our planned commercial launch of Rocklatan^TMin the United States, if approved.

Pre-approval commercial manufacturing expenses

Pre-approval commercial manufacturing expenses increased ~~$3.8~~by $9.8 million for the year ended December 31, 2018 as ~~direct~~compared to the year ended December 31, 2017. Employee-related expenses increased by $4.8 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily due to increased headcount in our manufacturing plant in Ireland. Other commercial manufacturing expenses increased by $5.1 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily related to the build-out and operation of our manufacturing plant in Ireland.

Research and development expenses

Research and development expenses increased by $14.0 million for the year ended December 31, 2018 as compared to the year ended December 31, 2017. This increase is primarily comprised of an increase of $19.4 million related to early-stage pipeline activities, including $12.6 million related to our expanded collaboration agreement with DSM, an increase of $9.4 million of employee-related expenses related to an increase in headcount and an increase of $5.3 million in expenses for Rhopressa^®, as discussed below. These increases were partially offset by a decrease of $24.8 million of research and development expenses related to our Envisia asset acquisition that occurred in 2017 for acquired IPR&D that was expensed during the year ended December 31, 2017, and a decrease of $2.7 million in expenses for Rocklatan^TM, as discussed below.

Research and development expenses for Rhopressa^® totaled $10.7 million and $5.3 million for the years ended December 31, 2018 and 2017, respectively. The $5.3 million increase in expenses for Rhopressa^® for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily related to costs incurred in 2018 for our clinical trials to support the potential regulatory submission of Rhopressa^®in Japan. Research and development expenses for Rocklatan^TM totaled $6.3 million and $9.0 million for the years ended December 31, 2018 and 2017, respectively. The $2.7 million decrease in expenses for Rocklatan^TM for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily related to a decrease in development and regulatory activities for U.S. approval in 2018 as compared to 2017, partially offset by costs ~~increased~~incurred in 2018 related to the Mercury 3 registration trial in Europe and the $2.4 million ~~and direct non-clinical costs increased $1.4 million as a result~~NDA filing fee incurred upon submission of ~~commencing Mercury 1 and preparatory activities~~the NDA for our other Phase 3 registration trials for Roclatan™. Costs for Rhopressa™ increased by $2.8 million as direct clinical costs increased by $4.6 million and direct non-clinical costs decreased by $1.8 million. Both

~~Table of Contents~~Rocklatan^TMto the FDA.

Rocket 1 and Rocket 2 commenced in July 2014. Rocket 1 was completed in April 2015 and we received three-month topline efficacy results for Rocket 2 in September 2015. Additionally, we began to incur expenses for Rocket 4 in mid-2015. Unallocated expenses, including employee compensation, facilities and travel costs, increased by $8.0 million.

Other income (expense), net

Other income (expense), net ~~decreased~~consists of the following:



	YEAR ENDED DECEMBER 31						CHANGE			% CHANGE
	2018			2017			CHANGE			% CHANGE
	(in thousands, except percentages)
Interest income	$	3,429		$	1,753		$	1,676		96	%
Interest expense	(2,531		)	(2,368		)	(163		)	7	%
Other income (expense)	(23,722		)	(555		)	(23,167		)	*
Other income (expense), net	$	(22,824	)	$	(1,170	)	$	(21,654	)	*

*Percentage not meaningful

Other income (expense), net changed by ~~$1.0~~$21.7 million for the year ended December 31, ~~2015~~2018 as compared to the year ended December 31, ~~2014.~~2017. The ~~decrease~~change was ~~mainly due~~primarily related to ~~an increase~~the value of the additional 329,124 shares of Aerie common stock issued to Deerfield in ~~interest and amortization~~the amount of $24.1 million, which was recorded as other expense during the third quarter of ~~$1.9 million~~2018 in connection with the induced conversion of the entire outstanding principal amount of the 2014 Convertible Notes in July 2018. See Note 9 to our consolidated financial statements included in this report for additional information. This expense was partially offset by an increase in interest income ~~of $0.9 million related~~primarily due to ~~both an~~the increase in ~~the sale of deferred state tax benefits to unrelated third parties of $0.6 million, as further described in Note 9 to~~ our ~~audited consolidated financial statements appearing elsewhere in this report,~~cash, cash equivalents and ~~an increase in investment income of $0.3 million.~~investments balances.

Comparison of the Years Ended December 31, ~~2014~~2017 and ~~2013~~2016

The following table summarizes the results of our operations for the years ended December 31, ~~2014~~2017 and ~~2013:~~

2016:


	YEAR ENDED DECEMBER 31,						INCREASE (DECREASE)		% INCREASE (DECREASE)		YEAR ENDED DECEMBER 31,						CHANGE			% CHANGE
	2014			2013			INCREASE (DECREASE)		% INCREASE (DECREASE)		2017			2016			CHANGE			% CHANGE
	(in thousands)										(in thousands, except percentages)
General and administrative expenses	$	(20,103	)	$	(10,287	)	$	9,816	95	%
Selling, general and administrative expenses											$	56,905		$	34,706		$	22,199		64	%
Pre-approval commercial manufacturing											16,710			9,772			6,938			71	%
Research and development expenses	(29,869		)	(11,883		)	17,986		151	%	72,078			52,394			19,684			38	%
Total operating expenses											145,693			96,872			48,821			50	%
Loss from operations											(145,693		)	(96,872		)	(48,821		)	50	%
Other income (expense), net	1,839			(8,978		)	10,817		N/A		(1,170		)	(1,994		)	824			*
Net loss before income taxes	$	(48,133	)	$	(31,148	)
Loss before income taxes											$	(146,863	)	$	(98,866	)	$	(47,997	)	49	%

~~General~~*Percentage not meaningful

Selling, general and administrative expenses

~~General~~Selling, general and administrative expenses increased by ~~$9.8~~$22.2 million for the year ended December 31, ~~2014~~2017 as compared to the year ended December 31, 2013. This increase was primarily associated with the expansion of our employee base to support the growth of our operations. Personnel costs increased by $6.7 million, including employee stock based compensation expense of $5.2 million and new salaried employees and related expenses of $1.9 million. This increase in personnel costs was partially offset by a decrease in severance expense of $0.4 million related to a former employee. Outside professional fees, including audit and legal fees, board expenses and other business related activities, increased by $2.8 million and travel2016. Employee-related expenses increased by ~~$0.3 million.~~

~~Research and development expenses~~

For the year ended December 31, 2014, our research and development activity was primarily associated with Phase 3 registration trials for Rhopressa™, Phase 2b clinical trials for Roclatan™ and preparatory activities for our Phase 3 clinical trials for Roclatan™. Research and development expenses increased by $18.0$12.0 million for the year ended December 31, ~~2014~~2017 as compared to the year ended December 31, ~~2013. Costs for Rhopressa™~~2016, driven primarily by the growth of our operations. The increase in employee-related expenses includes an increase in employee stock-based compensation expense of $6.0 million. Expenses related to our pre-launch sales and marketing planning activities increased by ~~$14.8~~$5.2 million for the year ended December 31, 2017 as ~~direct clinical costs and direct non-clinical costs increased $9.4 million and $5.4 million, respectively. Costs~~compared to the year ended December 31, 2016, in preparation for ~~Roclatan™ increased $1.9 million as direct clinical costs increased $1.6 million and direct non-clinical costs increased $0.2 million. Additionally, unallocated~~the Rhopressa^® commercial launch.

Pre-approval commercial manufacturing expenses ~~including employee compensation, consulting costs and related~~

Pre-approval commercial manufacturing expenses increased by ~~$4.9 million.~~ $6.9 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. Our preparatory commercial manufacturing activities were primarily related to the validation and scale-up of our manufacturing capabilities in preparation for Rhopressa^® launch and increased by $3.1 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. Employee-related expenses increased by $3.0 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily due to increased headcount in our manufacturing plant in Ireland.

Research and development expenses

Research and development expenses increased by $19.7 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase was primarily related to the acquisition of assets from Envisia in which $24.8 million of acquired IPR&D was expensed during the year ended December 31, 2017. Excluding the impact of the Envisia asset acquisition, research and development expenses decreased by $5.1 million primarily related to the completion of the Phase 3 registration trials for Rhopressa^® and Rocklatan^TMforU.S. approval, partially offset by expenses incurred for Rocklatan^TM registration trials for European approval and for Rhopressa^® clinical trials designed for potential future approval in Japan.

Research and development expenses for ~~discontinued product candidates decreased~~Rhopressa^® totaled $5.3 million and $12.0 million for the years ended December 31, 2017 and 2016, respectively. Research and development expenses for Rocklatan^TM totaled $9.0 million and $18.0 million for the years ended December 31, 2017 and 2016, respectively. In addition, employee-related expenses increased by ~~$3.5 million.~~$6.4 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to an increase in headcount to support the growth of our operations.

Other income (expense), net

Other income (expense), net ~~increased~~consists of the following:



	YEAR ENDED DECEMBER 31						CHANGE			% CHANGE
	2017			2016			CHANGE			% CHANGE
	(in thousands, except percentages)
Interest income	$	1,753		$	639		$	1,114		*
Interest expense	(2,368		)	(2,537		)	169			(7	)%
Other income (expense)	(555		)	(96		)	(459		)	*
Other income (expense), net	$	(1,170	)	$	(1,994	)	$	824		*

*Percentage not meaningful

Other income (expense), net changed by ~~$10.8~~$0.8 million for the year ended December 31, ~~2014~~2017 as compared to the year ended December 31, ~~2013.~~2016. The ~~increase~~change was ~~mainly~~primarily related to additional interest income for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to ~~a decrease of $3.7 million~~the increase in ~~non-cash~~our cash, cash equivalents and investments, partially offset by an increase in unrealized foreign exchange loss included in other expense related to the ~~change in the fair value~~remeasurement of ~~warrant liabilities and~~our Euro-denominated build-to-suit lease obligation, which is held by a decrease of $3.2 million in interest and amortization expense related to the 2014 Convertible Notes and the $18.0 million of convertible notes initially sold in 2012 (the “2012 Convertible Notes”). Upon closing of the IPO in October 2013, the principal and accrued interest outstanding under our 2012 Convertible Notes were converted into 1,860,363 shares of common stock resulting insubsidiary with a $2.7 million loss. Additionally, for the years ended December 31, 2014 and 2013, we received $2.3 million and $1.3 million, respectively, of income from the sale of deferred state tax benefits to unrelated third parties, as further described in Note 9 to our audited consolidated financial statements appearing elsewhere in this report.U.S. dollar functional currency.

~~Table of Contents~~

Liquidity and Capital Resources

Since our inception, we have funded operations primarily through the sale of equity securities ~~including our IPO,~~ and the issuance of convertible notes. We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses ~~for at least the next two to three years, or~~ until such a time when one or more of our ~~product candidates~~products are commercially successful, if at all. We received FDA approval for Rhopressa^® on December 18, 2017 and we launched Rhopressa^®in the United States at the end of April 2018. As a result, we commenced generating product revenues related to sales of Rhopressa^®in the second quarter of 2018. We will not generate any revenue from Rocklatan^TM or any future product candidates unless and until we obtain regulatory approval and commercialize such products. Rocklatan^TM has a PDUFA goal date of March 14, 2019.

~~Prior to~~Sources of Liquidity

Since our ~~IPO, we raised net cash proceeds of $78.6 million from the private placement of convertible preferred stock and convertible notes. Prior to and~~initial public offering in ~~connection with our IPO, all outstanding shares of convertible preferred stock and all convertible notes were converted into shares of common stock.~~

On October ~~30,~~ 2013, we completed our IPO and issued 7,728,000 shares of our common stock at an IPO price of $10.00 per share, including 1,008,000 shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares to cover over- allotments. We received net proceeds from the IPO of approximately $68.3 million, after deducting underwriting discounts and commissions of $5.4 million and expenses of $3.6 million.have:

~~On September 30, 2014, we~~ issued $125.0 million aggregate principal amount of the 2014 Convertible ~~Notes. We~~Notes, which was subsequently converted into shares of Aerie’s common stock in July 2018,

issued approximately 11.0 million shares of our common stock through December 31, 2017, for which we received net proceeds of approximately $351.3 million, after deducting fees and expenses. This includes approximately $207.7 million of net proceeds from our prior “at-the-market” sales agreements, of which approximately $61.1 million were received during the year ended December 31, 2017, and approximately $143.6 million of net proceeds from the issuance of ~~the 2014 Convertible Notes of approximately $122.9 million, after deducting discounts and issuance costs of $2.1 million.~~

On November 3, 2014, we filed a shelf registration statement on Form S-3 that permits: (i) the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of the our common stock; (ii) sales of common stock by certain selling stockholders; and (iii) the offering, issuance and sale by us of up to a maximum aggregate offering price of $50.0 millionshares of our common stock that may be issued and sold by us under an “at-the-market” sales agreement with Cantor Fitzgerald & Co. The common stock that was offered, issued and sold by us under this “at-the-market” sales agreement was included in the $150.0pursuant to underwriting

agreements, related to registered public offerings, of which approximately $72.7 million of common stock that may be offered, issued and sold by us under the shelf registration statement. As of December 31, 2015, we had no availability to issue shares under this “at-the-market” sales agreement.

On November 6, 2015, we filed a prospectus supplement to the base prospectus dated November 10, 2014. The prospectus supplement permits the offering, issuance and sale of up to a maximum aggregate offering price of $50.0 million of our common stock that may be issued and sold by us under separate “at-the-market” sales agreements with RBC Capital Markets, LLC and Cantor Fitzgerald & Co. The common stock that may be offered, issued and sold by us under the “at-the-market” sales agreements is included in the $150.0 million of common stock that may be offered, issued and sold by us under the shelf registration statement. As of December 31, 2015, $48.1 million remained available for issuance under these “at-the-market” sales agreements.

~~For~~were received during the year ended December 31, ~~2015, we~~ 2017,

issued ~~and sold 1,754,556~~approximately 2.3 million additional shares of our common stock under the “at-the-market” sales agreements and received net proceeds of $50.5 million, after deducting commissions at a rate of up to 3% of the gross sales price per share sold and other fees and expenses. There were no sales of securities registered pursuant to the shelf registration statement forduring the year ended December 31, ~~2014.~~2018, for which we received net proceeds of approximately $136.4 million, after deducting fees and expenses. This includes approximately $62.3 million of net proceeds from our “at-the-market” sales agreement (“ATM”) and approximately $74.1 million of net proceeds from the issuance of shares of our common stock pursuant to an underwriting agreement, dated January 23, 2018, related to a registered public offering, and


•	commenced generating product revenues related to sales of Rhopressa^® in the second quarter of 2018 following our commercial launch of Rhopressa^® in the United States. Product revenues, net amounted to $24.2 million for the year ended December 31, 2018 and relate to sales of Rhopressa^®. Accounts receivable, net amounted to $2.7 million as of December 31, 2018.

As of December 31, ~~2015,~~2018, our principal sources of liquidity were our cash and cash equivalents, ~~and investments,~~ which totaled approximately ~~$150.4~~$202.8 million.

In July 2018, we entered into a $100 million senior secured delayed draw term loan facility that matures on July 23, 2024. No funds were drawn at closing or as of December 31, 2018. See Note 9 to our consolidated financial statements included in this report for additional information. We believe that our cash and cash equivalents and ~~investments as of December 31, 2015 and any future sales under our current “at-the-market” sales agreements~~projected cash flows from revenues will provide sufficient resources ~~to complete all currently known non-clinical and clinical requirements~~ for our ~~development programs advancing Rhopressa~~current ongoing needs through at least the next twelve months. See “—^TMOperating Capital Requirements ~~and Roclatan~~^TM, approval by the FDA and product commercialization, pending successful outcome of the trials. Our ability to continue as a going concern will depend, in large part, on our ability to successfully commercialize our product candidates and generate positive cash flow from operations, neither of which is certain..”

70Cash Flows

~~Table of Contents~~

The following table summarizes our sources and uses of cash:


	YEAR ENDED DECEMBER 31,									YEAR ENDED DECEMBER 31,
(in thousands)	2015			2014			2013
										2018			2017			2016
Net cash (used in) provided by:	(in thousands)									(in thousands)
Operating activities	$	(55,746	)	$	(33,726	)	$	(16,448	)	$	(152,576	)	$	(93,213	)	$	(79,840	)
Investing activities	9,382			(73,318		)	(63		)	20,789			(42,807		)	18,100
Financing activities	51,838			122,981			83,235			137,036			135,644			168,625
Net increase in cash and cash equivalents	$	5,474		$	15,937		$	66,724
Net increase (decrease) in cash and cash equivalents										$	5,249		$	(376	)	$	106,885



~~ITEM 11.~~	ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the information set forth in the sections titled “Executive Compensation,” “Director Compensation” and ~~“Compensation~~“Information about the Board of Directors and Corporate Governance - Compensation Committee Interlocks and Insider Participation” in our Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to the information set forth in the sections titled “Securities Authorized for Issuance under Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the information set forth in the sections titled “Board of ~~Directors~~Directors’ Independence” and “Transactions with Related Persons” in our Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the information set forth in the section titled “Independent Registered Public Accounting Firm Fees and Services” in our Proxy Statement.

~~Table of Contents~~

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The financial statement schedules and exhibits filed as part of this ~~annual report~~Annual Report on Form 10-K are as follows:

(a)(1) Financial Statements

~~Reference is made~~See “Index to ~~the audited financial statements included in Item 8 of Part II~~Consolidated Financial Statements” beginning on page F-1 of this report.

(a)(2) Financial Statement Schedules

Financial statement schedules have been omitted because the required information is not present, or not present in amounts sufficient to require submission of the schedules, or because the required information is provided in the financial statements or notes thereto.

(a)(3) Exhibits

The exhibits required to be filed as part of this report are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

~~Table of Contents~~

ITEM 16. FORM 10-K SUMMARY

~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




	~~AERIE PHARMACEUTICALS, INC.~~

~~Date: March 2, 2016~~	~~By:~~	/S~~/ VICENTE~~ A~~NIDO, J~~R~~., P~~HD
		~~Vicente Anido, Jr., PhD~~
		~~Chief Executive Officer, Chairman of the Board~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.~~




~~SIGNATURE~~	~~TITLE~~	~~DATE~~

/S~~/ VICENTE~~ A~~NIDO, J~~R~~., P~~HD	~~Chief Executive Officer, Chairman of the Board (Principal Executive Officer)~~	~~March 2, 2016~~
~~Vicente Anido, Jr., PhD~~

/S~~/ RICHARD~~ ~~J. RUBINO~~	~~Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)~~	~~March 2, 2016~~
~~Richard J. Rubino~~

/S~~/ GERALD~~ ~~D. CAGLE, P~~HD	~~Director~~	~~March 2, 2016~~
~~Gerald D. Cagle, PhD~~

/S~~/ RICHARD~~ C~~ROARKIN~~	~~Director~~	~~March 2, 2016~~
~~Richard Croarkin~~

/S~~/ MICHAEL~~ M. DU T~~OIT~~	~~Director~~	~~March 2, 2016~~
~~Michael M. du Toit~~

/S~~/ GEOFFREY~~ D~~UYK, MD, P~~HD	~~Director~~	~~March 2, 2016~~
~~Geoffrey Duyk, MD, PhD~~

/S~~/ MURRAY~~ ~~A. GOLDBERG~~	~~Director~~	~~March 2, 2016~~
~~Murray A. Goldberg~~

~~/S/~~ B~~ENJAMIN~~ F. MCG~~RAW III,~~ P~~HARM.~~ D.	~~Director~~	~~March 2, 2016~~
~~Benjamin F. McGraw III, Pharm. D.~~

/S~~/ JULIE~~ MCH~~UGH~~	~~Director~~	~~March 2, 2016~~
~~Julie McHugh~~

~~Table of Contents~~

~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~AERIE PHARMACEUTICALS, INC.~~




	~~PAGE~~
~~Report of Independent Registered Public Accounting Firm~~	~~F-2~~
~~Consolidated Financial Statements~~
~~Consolidated Balance Sheets~~	~~F-3~~
~~Consolidated Statements of Operations and Comprehensive Loss~~	~~F-4~~
~~Consolidated Statements of Stockholders’ Equity (Deficit)~~	~~F-5~~
~~Consolidated Statements of Cash Flows~~	~~F-6~~
~~Notes to the Consolidated Financial Statements~~	~~F-7~~

~~Table of Contents~~

~~Report of Independent Registered Public Accounting Firm~~

~~To the Board of Directors and Stockholders of~~

~~Aerie Pharmaceuticals, Inc.~~

In our opinion, the accompanying Consolidated Balance Sheets and the related Consolidated Statements of Operations and Comprehensive Loss, of Stockholders’ Equity (Deficit), and of Cash Flows present fairly, in all material respects, the financial position of Aerie Pharmaceuticals, Inc. and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~/s/ PricewaterhouseCoopers LLP~~

~~Florham Park, New Jersey~~

~~March 2, 2016~~

~~F-2~~

~~Table of Contents~~

~~AERIE PHARMACEUTICALS, INC.~~

~~Consolidated Balance Sheets~~

~~(in thousands, except share and per share data)~~

DECEMBER 31,
2015 2014
Assets
Current assets
Cash and cash equivalents $ 91,060
$ 85,586
Short-term investments 45,502
54,339
Prepaid expenses and other current assets 1,865
1,122
Total current assets 138,427
141,047
Long-term investments 13,808
18,275
Furniture, fixtures and equipment, net 3,816
240
Other assets, net 3,076
273
Total assets $ 159,127
$ 159,835
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and other current liabilities $ 16,565
$ 8,336
Interest payable 551
551
Total current liabilities 17,116
8,887
Convertible notes, net of discounts and debt issuance costs 123,236
122,906
Total liabilities 140,352
131,793
Commitments and contingencies (Note 14)

Stockholders’ equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of December 31, 2015 and December 31, 2014; None issued and outstanding —
—
Common stock, $0.001 par value; 150,000,000 shares authorized as of December 31, 2015 and December 31, 2014; 26,458,495 and 24,018,577 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively 26
24
Additional paid-in capital 236,492
171,326
Accumulated other comprehensive loss (179 ) (107 )
Accumulated deficit (217,564 ) (143,201 )
Total stockholders’ equity 18,775
28,042
Total liabilities and stockholders’ equity $ 159,127
$ 159,835

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~F-3~~

~~Table of Contents~~

~~AERIE PHARMACEUTICALS, INC.~~

~~Consolidated Statements of Operations and Comprehensive Loss~~

~~(in thousands, except share and per share data)~~

YEAR ENDED
DECEMBER 31,
2015 2014 2013
Operating expenses
General and administrative $ (30,635 ) $ (20,103 ) $ (10,287 )
Research and development (44,451 ) (29,869 ) (11,883 )
Loss from operations (75,086 ) (49,972 ) (22,170 )
Other income (expense), net 862
1,839
(8,978 )
Net loss before income taxes $ (74,224 ) $ (48,133 ) $ (31,148 )
Income tax expense (139 ) —
—
Net loss $ (74,363 ) $ (48,133 ) $ (31,148 )
Net loss attributable to common stockholders—basic and diluted $ (74,363 ) $ (48,133 ) $ (31,598 )
Net loss per share attributable to common stockholders—basic and diluted $ (2.88 ) $ (2.00 ) $ (6.38 )
Weighted average number of common shares outstanding—basic and diluted 25,781,230
24,086,651
4,955,760

Net loss $ (74,363 ) $ (48,133 ) $ (31,148 )
Unrealized loss on available-for-sale investments (72 ) (107 ) —
Comprehensive loss $ (74,435 ) $ (48,240 ) $ (31,148 )

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~F-4~~

~~Table of Contents~~

~~AERIE PHARMACEUTICALS, INC.~~

~~Consolidated Statements of Stockholders’ Equity (Deficit)~~

~~(in thousands, except share and per share data)~~

CONVERTIBLE
PREFERRED
STOCK
COMMON STOCK
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED OTHER COMPREHENSIVE LOSS

ACCUMULATED
DEFICIT
TOTAL
SHARES AMOUNT SHARES AMOUNT
Balances at December 31, 2012 12,120,531
$ 60,898
964,880
$ 1
$ —
$ —
$ (63,920 ) $ (63,919 )
Exercise of stock options —
—
3,195
—
1
—
—
1
Vesting of restricted stock —
—
124,966
—
—
—
—
—
Stock-based compensation —
—
—
—
2,858
—
—
2,858
Accretion from conversion of note payable to related parties —
240
—
—
(240 ) —
—
(240 )
Accretion of stock issuance costs —
210
—
—
(210 ) —
—
(210 )
Conversion of convertible preferred stock to common stock (12,120,531 ) (61,348 ) 12,120,531
12
61,336
—
—
61,348
Conversion of convertible notes payable and accrued interest to common stock —
—
1,860,363
2
18,602
—
—
18,604
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions of $5,410 and offering costs of $3,644 —
—
7,728,000
8
68,218
—
—
68,226
Issuance of common stock upon net exercise of warrants —
—
483,614
—
4,896
—
—
4,896
Reclassification of warrants from liabilities to equity —
—
—
—
6,560
—
—
6,560
Net loss —
—
—
—
—
—
(31,148 ) (31,148 )
Balances at December 31, 2013 —
—
23,285,549
23
162,021
—
(95,068 ) 66,976
Issuance of common stock upon exercise of stock purchase rights —
—
10,941
—
119
—
—
119
Exercise of stock options —
—
579,083
1
8
—
—
9
Vesting of restricted stock —
—
143,004
—
—
—
—
—
Stock-based compensation —
—
—
—
9,178
—
—
9,178
Unrealized loss on available-for-sale investments —
—
—
—
—
(107 ) —
(107 )
Net loss —
—
—
—
—
—
(48,133 ) (48,133 )
Balances at December 31, 2014 —
—
24,018,577
24
171,326
(107 ) (143,201 ) 28,042
Proceeds from issuance of common stock, net of commissions and expenses of $1,496 —
—
1,754,556
2
50,371
—
—
50,373
Issuance of common stock upon exercise of stock purchase rights —
—
5,029
—
96
—
—
96
Exercise of stock options —
—
296,716
—
1,282
—
—
1,282
Issuance of common stock upon exercise of warrants —
—
314,368
—
9
—
—
9
Vesting of restricted stock —
—
69,249
—
—
—
—
—
Stock-based compensation —
—
—
—
12,945
—
—
12,945
Excess tax benefit —
—
—
—
463
—
—
463
Unrealized Gain/(Loss) —
—
—
—
—
(72 ) —
(72 )
Net loss —
—
—
—
—
—
(74,363 ) (74,363 )
Balances at December 31, 2015 —
$ —
26,458,495
$ 26
$ 236,492
$ (179 ) $ (217,564 ) $ 18,775

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~F-5~~

~~Table of Contents~~

~~AERIE PHARMACEUTICALS, INC.~~

~~Consolidated Statements of Cash Flows~~

~~(in thousands, except share and per share data)~~

YEAR ENDED
DECEMBER 31,
2015 2014 2013
Cash flows from operating activities
Net loss $ (74,363 ) $ (48,133 ) $ (31,148 )
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 252
73
64
Amortization and accretion costs related to notes payable—related parties —
—
3,207
Amortization of deferred financing costs and debt discount 305
77
—
Amortization and accretion of premium or discount on available-for-sale investments, net 570
416
—
Interest payable—related parties —
—
588
Loss (gain) on conversion of notes payable —
—
2,737
Stock-based compensation 12,945
9,178
2,858
Change in fair value measurements —
—
3,717
Changes in operating assets and liabilities
Prepaid, current and other assets (840 ) (717 ) (516 )
Accounts payable and other current liabilities 5,385
4,829
2,045
Interest payable —
551
—
Net cash used in operating activities (55,746 ) (33,726 ) (16,448 )
Cash flows from investing activities
Purchase of available-for-sale investments (46,872 ) (95,376 ) —
Maturity of available-for-sale investments 55,785
20,739
—
Sale of available-for-sale investments 3,749
1,500
—
Purchase of furniture, fixtures and equipment (3,280 ) (181 ) (63 )
Net cash provided by (used in) investing activities 9,382
(73,318 ) (63 )
Cash flows from financing activities
Proceeds from sale of common stock, net of commissions 50,451
—
—
Proceeds from exercise of stock options 1,282
9
1
Proceeds from exercise of stock purchase rights 96
119
—
Proceeds from exercise of warrants 9
—
8
Proceeds from issuance of convertible notes, net of discounts and issuance costs —
122,853
—
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts —
—
71,870
Payments of initial public offering costs —
—
(3,644 )
Proceeds from notes payable to related parties —
—
15,000
Net cash provided by financing activities 51,838
122,981
83,235
Net change in cash and cash equivalents 5,474
15,937
66,724
Cash and cash equivalents
Beginning of period 85,586
69,649
2,925
End of period $ 91,060
$ 85,586
$ 69,649
Supplemental disclosures
Interest paid $ 2,186
$ —
$ —
Income taxes paid 600
—
—
Non-cash financing activities
Conversion of preferred stock to common stock $ —
$ —
$ 61,348
Conversion of convertible notes payable and accrued interest to common stock —
—
18,604
Issuance of common stock upon net exercise of warrants —
—
4,888
Reclassification of warrants from liabilities to equity —
—
6,560
Accretion from conversion of note payable to related parties —
—
240
Accretion of stock issuance costs —
—
210
Deferred costs from issuance of convertible notes —
25
—

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~F-6~~

~~Table of Contents~~

~~AERIE PHARMACEUTICALS, INC.~~

~~Notes to the Consolidated Financial Statements~~

None.

~~1. The Company~~

Aerie Pharmaceuticals, Inc. (“Aerie”), with its wholly-owned subsidiaries Aerie Pharmaceuticals Limited and Aerie Pharmaceuticals Ireland Limited (“Aerie Limited” and “Aerie Ireland Limited”, respectively, together with Aerie, the “Company”), is a clinical-stage pharmaceutical company focused on the discovery, development and commercialization of small molecule products to treat patients with glaucoma and other diseases of the eye. The Company has its principal executive offices in Irvine, California and operates as one business segment.

The Company has not yet commenced commercial operations and therefore has not generated product revenue. The Company’s activities since inception have primarily consisted of developing product candidates, raising capital and performing research and development activities. The Company does not expect to generate revenue until and unless it receives regulatory approval of and successfully commercializes its product candidates. The Company has incurred losses and experienced negative operating cash flows since inception.

The Company has funded its operations primarily through the sale of equity securities and issuance of convertible notes. In October 2013, the Company completed its initial public offering (“IPO”) and issued 7,728,000 shares of its common stock at an IPO price of $10.00 per share, including 1,008,000 shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares to cover over-allotments. The Company received net proceeds from the IPO of approximately $68.3 million, after deducting underwriting discounts and commissions of $5.4 million and expenses of $3.6 million. On September 30, 2014, the Company issued $125.0 million aggregate principal amount of senior secured convertible notes (the “2014 Convertible Notes”). The Company received net proceeds from the issuance of the 2014 Convertible Notes of approximately $122.9 million, after deducting discounts and issuance costs of $2.1 million. Refer to Note 8 for further information regarding the 2014 Convertible Notes.

On November 3, 2014, the Company filed a shelf registration statement on Form S-3 that permits: (i) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $150.0 million of the Company’s common stock; (ii) sales of common stock by certain selling stockholders; and (iii) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $50.0 million of the Company’s common stock that may be issued and sold under an “at-the-market” sales agreement with Cantor Fitzgerald & Co. The common stock that was offered, issued and sold by the Company under this “at-the-market” sales agreement was included in the $150.0 million of common stock that may be offered, issued and sold by the Company under the shelf registration statement. As of December 31, 2015, the Company had no availability to issue shares under this “at-the-market” sales agreement.

On November 6, 2015, the Company filed a prospectus supplement to the base prospectus dated November 10, 2014. The prospectus supplement permits the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $50.0 million of the Company’s common stock that may be issued and sold by the Company under separate “at-the-market” sales agreements with RBC Capital Markets, LLC and Cantor Fitzgerald & Co. The common stock that may be offered, issued and sold by the Company under these “at-the-market” sales agreements is included in the $150.0 million of common stock that may be offered, issued and sold by the Company under the shelf registration statement. As of December 31, 2015, $48.1 million remained available for issuance under these “at-the-market” sales agreements.

For the year ended December 31, 2015, the Company issued and sold 1,754,556 shares of common stock under the “at-the-market” sales agreements and received net proceeds of $50.5 million, after deducting commissions at a rate of up to 3% of the gross sales price per share sold and other fees and expenses. There were no sales of securities registered pursuant to the shelf registration statement for the year ended December 31, 2014.

In March 2015, the Company revised its corporate structure to align with its business strategy outside of North America by establishing Aerie Limited, a wholly-owned subsidiary organized under the laws of the Cayman Islands. In addition, Aerie assigned the beneficial rights to its non-U.S. and non-Canadian intellectual property to Aerie Limited (the “IP Assignment”). As part of the IP Assignment, Aerie and Aerie Limited entered into a research and development agreement and cost sharing agreement pursuant to which Aerie and Aerie Limited will share the costs of the development of intellectual property. Refer to Note 9 for a description of the tax impact of the IP Assignment. Additionally, in April 2015, the Company continued to prepare for foreign-based activities and established Aerie Ireland Limited as a wholly-owned subsidiary of Aerie Limited to develop and commercialize the beneficial rights of the intellectual property assigned as part of the IP Assignment pursuant to a license arrangement to be entered into between Aerie Limited and Aerie Ireland Limited. The Company is currently evaluating the possibility of constructing an Aerie manufacturing plant in Ireland.

~~F-7~~

~~Table of Contents~~

If the Company does not successfully commercialize any of its product candidates, it may be unable to generate product revenue or achieve profitability. Accordingly, the Company may be required to obtain further funding through other public or private offerings, debt financing, collaboration and licensing arrangements 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 attractive terms, it would be forced to delay, reduce or eliminate its research and development programs or commercialization efforts.

~~2. Significant Accounting Policies~~

~~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”).~~

~~Principles of 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 the valuation of stock options and operating expense accruals. 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 in one operating segment.

~~Reverse Stock Split~~

The Company effected a 1-for-5 reverse stock split on October 8, 2013. Accordingly, all share and per share amounts for all preceding periods presented in these consolidated financial statements and notes hereto, have been adjusted retroactively to reflect this reverse stock split, including reclassifying an amount equal to the reduction in par value to additional paid-in capital.

~~CashEquivalents~~

Cash equivalents consist of short-term, highly liquid investments with an original term of three months or less at the date of purchase. Cash deposits are held by six financial institutions in the United States and two financial institutions in Europe.

~~Concentration of Credit Risk~~

~~The Company’s cash and cash equivalent balances with financial institutions exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation.~~

~~Debt Issuance Costs~~

Debt issuance costs consist of financing costs incurred by the Company in connection with the closing of the 2014 Convertible Notes are included as a direct deduction from the carrying amount of the 2014 Convertible Notes on the Company’s consolidated balance sheets. In connection with the Company’s adoption of ASU 2015-03 in the fourth quarter of 2015, the Company reclassified ~~$1.3 million~~ ~~from Other assets, net to a direct deduction from the carrying amount of the 2014 Convertible Notes on the consolidated balance sheet as of December 31, 2014. Refer to “Recent Accounting Pronouncements~~” for further information regarding the reclassification. The Company amortizes debt issuance costs through the earlier of maturity or the conversion of the 2014 Convertible Notes using the effective interest method. Refer to Note 8 for further information regarding the 2014 Convertible Notes.

~~Debt Discounts~~

Debt discounts consist of fees and expenses incurred by the Company in connection with the closing of the Company’s 2014 Convertible Notes that were paid directly to the note holders. The Company amortizes debt discounts through the earlier of maturity or the conversion of the 2014 Convertible Notes using the effective interest method. Refer to Note 8 for further information regarding the 2014 Convertible Notes.

~~F-8~~

~~Table of Contents~~

~~Furniture, Fixtures and Equipment, Net~~

Furniture, fixtures and equipment is recorded at historical cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. 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 income.

~~Software Capitalization~~

The Company capitalizes certain costs incurred in connection with obtaining or developing internal-use software including external direct costs of materials and services involved with the software development. Capitalized software costs are included in Furniture, fixtures, and equipment and are amortized over a period of three years beginning when the software project is substantially complete and the asset is ready for its intended use. Costs incurred during the preliminary project stage and post-implementation stage, as well as maintenance and training costs, are expensed as incurred.

~~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 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.

~~Stock-Based Compensation~~

Compensation cost of stock-based awards granted to employees is measured at grant date, based on the estimated fair value of the award. The Company estimates the fair value of stock options using a Black-Scholes option pricing model. Compensation cost for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of restricted stock awards (“RSAs”) is determined based on the fair value of the Company’s common stock on the date of grant. Stock-based compensation costs are expensed on a straight-line basis (net of estimated forfeitures) over the relevant vesting period. The fair value of unvested awards granted to non-employees is re-measured each period until the related service is complete. Compensation expense for employee stock purchase plan rights (“stock purchase rights”) is measured and recognized on the date that the Company becomes obligated to issue shares of common stock and is based on the difference between the fair value of the Company’s common stock and the purchase price on such date. All stock-based compensation expense is recorded between general and administrative and research and development costs in the consolidated statements of operations based upon the underlying employees roles within the Company. As a result of the taxable gain recognized in connection with the IP Assignment, the Company utilized certain net operating losses, including $462,978 in excess tax benefits related to stock-based compensation, to offset taxable income. In accordance with ASC 718, this excess tax benefit was recorded in additional paid-in capital for the year ended December 31, 2015. No excess tax benefits related to stock-based compensation were recognized for the years ended December 31, 2014 or 2013.

~~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 certificates of deposit, commercial paper, corporate bonds and government agency securities that are classified as available-for-sale in accordance with ASC 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.

~~F-9~~

~~Table of Contents~~

Available-for-sale investments are recorded at fair value, with unrealized gains or losses included in Accumulated other comprehensive gain (loss) on the Company’s consolidated balance sheets. Realized gains and losses are determined using the specific identification method and are included as a component of Other income (expense), net (Note 3). There were no realized gains or losses recognized for the years ended December 31, 2015, 2014 or 2013.

The Company reviews investments 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. To determine whether an impairment is other-than-temporary, the Company considers its intent to sell, or whether it is more likely than not that the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, the severity and the duration of the impairment and changes in value subsequent to period end. As of December 31, 2015, there were no investments with a fair value that was significantly lower than the amortized cost basis or any investments that had been in an unrealized loss position for a significant period.

~~Fair Value Measurements~~

The Company records certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The fair value of the Company’s financial instruments, including cash and cash equivalents, short-term investments, other current assets, accounts payable and accrued expenses approximate their respective carrying values due to the short-term nature of these instruments. The carrying amounts of long-term investments represent their estimated fair values. The estimated fair value of the 2014 Convertible Notes was $140.1 million and $163.8 million as of December 31, 2015 and 2014, respectively (Note 5). As of December 31, 2015 and 2014, all outstanding warrants are classified as equity and are recorded within additional paid-in capital on the consolidated balance sheets (Note 12).

~~Stock Purchase Warrants~~

The Company accounts for its stock purchase warrants as either equity or liabilities based upon the characteristics and provisions of the underlying instruments. Warrants classified as equity are recorded at their fair value on the date of issuance as additional paid-in capital on the consolidated balance sheets and no further adjustments are made to their valuation. Warrants classified as liabilities are recorded at their fair value on the date of issuance and are re-measured on each subsequent balance sheet date until the earlier of the exercise or expiration of the applicable warrants or until such time that the warrants are no longer determined to be derivative instruments. The fair value changes are recognized as income (decreases in fair value) or expense (increases in fair value) in Other income (expense), net in the consolidated statements of operations and comprehensive loss. The fair value of these liabilities is estimated using the Black-Scholes method, which, under the Company’s facts and circumstances, approximates, in all material respects, the values determined when using a Monte Carlo simulation.

~~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 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. 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, 2015, 2014 or 2013. As of December 31, 2015 and 2014, the Company had no uncertain tax positions and no interest or penalties were accrued for any uncertain tax positions.

~~Tax Valuation Allowance~~

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, stock based compensation and tax credits. Due to the Company’s three year cumulative loss position, history of operating losses and lack of available evidence supporting future taxable income, the Company believes that a valuation allowance on its deferred tax assets as of December 31, 2015 remains appropriate.

~~F-10~~

~~Table of Contents~~

~~Recent Accounting Pronouncements~~

In November 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU 2015-17, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance is effective for annual periods beginning after December 15, 2016, and all annual and interim periods thereafter, with early adoption permitted. The Company early adopted this guidance for the year ended December 31, 2015. The adoption of this guidance, which was applied retrospectively did not have a material impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt, consistent with the presentation of a debt discount. The guidance is effective for annual periods beginning after December 15, 2015, and all annual and interim periods thereafter. As permitted, the Company early adopted this guidance for the year ended December 31, 2015. The adoption of this guidance, which was applied retrospectively and impacted consolidated balance sheet presentation only, resulted in a reclassification of ~~$1.3 million~~ ~~from Other assets, net to a direct deduction from the carrying amount of the 2014 Convertible Notes on the consolidated balance sheet as of December 31, 2014.~~

In August 2014, the FASB issued ASU 2014-15, which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for the Company for the annual period ending after December 15, 2016 and for annual and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on the Company’s consolidated financial statements.

~~Net Loss per Share Attributable to Common Stock~~

Basic net loss per share attributable to common stock (“Basic EPS”) is calculated by dividing the net loss attributable to common stockholders 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 shares that are unequivocally issuable under the Company’s employee stock purchase plan and are therefore included in the calculation of the weighted-average number of shares of common stock as common stock equivalents. Net loss attributable to common stockholders for the year ended December 31, 2013 is calculated by adjusting the Company’s net loss for accretion on convertible preferred stock. Diluted net loss per share attributable to common stock (“Diluted EPS”) gives effect to all dilutive potential shares of common stock outstanding during this period. For Diluted EPS, net loss attributable to common stockholders used in calculating Basic EPS is adjusted for certain items related to the dilutive securities.

For all periods presented, the Company’s potential common stock equivalents have been excluded from the computation of Diluted EPS as their inclusion would have the effect of reducing the net loss per share of common stock. Therefore, the denominator used to calculate Basic EPS and Diluted EPS is the same in all periods presented.

~~The Company’s potential common stock equivalents that have been excluded from the computation of Diluted EPS for all periods presented consist of the following:~~

DECEMBER 31,
2015 2014 2013
2014 Convertible Notes⁽¹⁾
5,040,323
5,040,323
—
Outstanding stock options 4,583,586
3,826,459
3,189,660
Stock purchase warrants 157,500
309,506
309,506
Restricted common stock awards 119,993
103,064
246,068


~~(1)~~	Conversion is limited to a 9.985% ownership cap in shares of common stock by the holder. In addition to the common stock equivalents presented above, the 2014 Convertible Notes provide for an increase in the conversion rate if conversion is elected in connection with a significant corporate transaction. Refer to Note 8 for further information regarding the 2014 Convertible Notes.

~~F-11~~

~~Table of Contents~~

~~3. Other Income (Expense), Net~~

~~Other income (expense), net consists of the following:~~

YEAR ENDED
DECEMBER 31,
(in thousands) 2015 2014 2013
Interest and amortization expense $ (2,493 ) $ (628 ) $ (3,795 )
Sale of New Jersey state tax benefit 2,898
2,288
1,268
Investment and other income, net 457
179
3
Expense due to change in fair value measurements⁽¹⁾
—
—
(3,717 )
Loss on conversion of notes payable to related parties —
—
(2,737 )
$ 862
$ 1,839
$ (8,978 )

⁽¹⁾Includes change in fair value of warrant liabilities and change in fair value of a certain conversion feature related to the 2012 Notes (as defined herein) that was determined to be an embedded derivative requiring bifurcation and separate accounting. See Note 12 and Note 8, respectively.

~~4. Investments~~

~~Cash, cash equivalents and investments as of December 31, 2015 included the following:~~

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
Cash and cash equivalents:
Cash and money market accounts $ 91,060
$ —
$ —
$ 91,060
Total cash and cash equivalents $ 91,060
$ —
$ —
$ 91,060
Investments:
Certificates of deposit (due within 1 year) $ 13,611
$ 1
$ (7 ) $ 13,605
Certificates of deposit (due within 2 years) 4,760
—
(10 ) 4,750
Commercial paper (due within 1 year) 5,977
—
(11 ) 5,966
Corporate bonds (due within 1 year) 24,002
—
(65 ) 23,937
Corporate bonds (due within 2 years) 9,142
—
(84 ) 9,058
Government agencies (due within 1 year) 1,997
—
(3 ) 1,994
Total investments $ 59,489
$ 1
$ (180 ) $ 59,310
Total cash, cash equivalents, and investments $ 150,549
$ 1
$ (180 ) $ 150,370

~~F-12~~

~~Table of Contents~~

~~Cash, cash equivalents and investments as of December 31, 2014 included the following:~~

GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS LOSSES VALUE
Cash and cash equivalents:
Cash and money market accounts $ 84,613
$ —
$ —
$ 84,613
Certificates of deposit 472
—
—
472
Corporate bonds 501
—
—
501
Total cash and cash equivalents $ 85,586
$ —
$ —
$ 85,586
Investments:
Certificates of deposit (due within 1 year) $ 25,823
$ —
$ (9 ) $ 25,814
Certificates of deposit (due within 2 years) 4,429
1
(3 ) 4,427
Commercial paper (due within 1 year) 5,988
1
(3 ) 5,986
Corporate bonds (due within 1 year) 16,487
—
(24 ) 16,463
Corporate bonds (due within 2 years) 13,912
—
(64 ) 13,848
Government agencies (due within 1 year) 6,082
—
(6 ) 6,076
Total investments $ 72,721
$ 2
$ (109 ) $ 72,614
Total cash, cash equivalents, and investments $ 158,307
$ 2
$ (109 ) $ 158,200

~~5. Fair Value Measurements~~

The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820 on fair value measurements. 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.~~

~~F-13~~

~~Table of Contents~~

~~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
DECEMEBER 31, 2015
(in thousands) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Cash and cash equivalents:
Cash and money market accounts $ 91,060
$ —
$ —
$ 91,060
Total cash and cash equivalents: $ 91,060
$ —
$ —
$ 91,060
Investments:
Certificates of deposit $ —
$ 18,355
$ —
$ 18,355
Commercial paper —
5,966
—
5,966
Corporate bonds —
32,995
—
32,995
Government agencies —
1,994
—
1,994
Total investments $ —
$ 59,310
$ —
$ 59,310
Total cash, cash equivalents, and investments: $ 91,060
$ 59,310
$ —
$ 150,370

FAIR VALUE MEASUREMENTS AS OF
DECEMEBER 31, 2014
(in thousands) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
Cash and cash equivalents:
Cash and money market accounts $ 84,613
$ —
$ —
$ 84,613
Certificates of deposit —
472
—
472
Corporate bonds —
501
—
501
Total cash and cash equivalents: $ 84,613
$ 973
$ —
$ 85,586
Investments:
Certificates of deposit $ —
$ 30,241
$ —
$ 30,241
Commercial paper —
5,986
—
5,986
Corporate bonds —
30,311
—
30,311
Government agencies —
6,076
—
6,076
Total investments $ —
$ 72,614
$ —
$ 72,614
Total cash, cash equivalents, and investments: $ 84,613
$ 73,587
$ —
$ 158,200

As of December 31, 2015 and 2014, the estimated fair value of the 2014 Convertible Notes was $140.1 million and $163.8 million, respectively. The estimated fair value of the 2014 Convertible Notes was determined using a scenario analysis and Monte Carlo simulation model to capture the various features of the 2014 Convertible Notes. The scenario analysis and Monte Carlo simulation require the use of Level 3 unobservable inputs and subjective assumptions, including but not limited to the probability of conversion, stock price volatility, the risk free interest rate and credit spread. The decrease in the estimated fair value of the 2014 Convertible Notes was primarily attributable to the change in the closing price of Aerie’s common stock on December 31, 2015 as compared to December 31, 2014. The estimates presented are not necessarily indicative of amounts that could be realized in a current market exchange. The use of alternative market assumptions and estimation methodologies could have a material effect on these estimates of fair value.

~~F-14~~

~~Table of Contents~~

~~6. Furniture, Fixtures and Equipment, Net~~

~~Furniture, fixtures and equipment, net consists of the following:~~

(in thousands)
ESTIMATED
USEFUL LIVES
(YEARS)
DECEMBER 31,

2015 2014
Manufacturing equipment 10 $ 988
$ —
Laboratory equipment 7 1,619
830
Software and computer equipment 3 1,695
195
Furniture and fixtures 5 491
238
Leasehold improvements Term of lease 298
—
$ 5,091
$ 1,263
Less: Accumulated depreciation (1,275 ) (1,023 )
$ 3,816
$ 240

~~Depreciation expense was $252,000, $73,000 and $64,000 for the years ended December 31, 2015, 2014 and 2013, respectively.~~

~~7. Accounts Payable & Other Current Liabilities~~

~~Accounts payable and other current liabilities consist of the following:~~

DECEMBER 31,
(in thousands) 2015 2014
Accounts payable $ 1,629
$ 2,068
Accrued expenses and other liabilities:
Employee benefits and compensation related accruals⁽¹⁾
3,085
2,257
General and administrative related accruals⁽²⁾
2,389
731
Research and development related accruals⁽³⁾
7,741
3,280
Accrued income taxes⁽⁴⁾
1,721
—
$ 16,565
$ 8,336


~~(1)~~	~~Comprised of accrued bonus, accrued vacation, accrued severance liabilities and liabilities under the Company’s employee stock purchase plan.~~


~~(2)~~	~~Comprised of accruals such as outside professional fees and other business related expenses.~~


~~(3)~~	~~Comprised of accruals such as fees for investigative sites, CROs, contract manufacturing organizations and other service providers that assist in conducting preclinical and clinical trials.~~


~~(4)~~	~~Accrued income taxes are the result of the taxable gain from the IP Assignment. Refer to Note 9 for a description of the tax impact of the IP Assignment.~~

~~8. Convertible Notes~~

On September 30, 2014, Aerie issued the 2014 Convertible Notes to Deerfield Partners, L.P., Deerfield International Master Fund, L.P., Deerfield Private Design Fund III, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P. (collectively, “Deerfield”). On January 1, 2015, Deerfield Special Situations International Master Fund, L.P. transferred all of its rights under the 2014 Convertible Notes to Deerfield Special Situations Fund, L.P.

The 2014 Convertible Notes bear interest at a rate of 1.75% per annum payable quarterly in arrears on the first business day of each January, April, July and October. The 2014 Convertible Notes mature on the seventh anniversary from the date of issuance, unless earlier converted.

The 2014 Convertible Notes constitute a senior secured obligation of Aerie, collateralized by a first priority security interest in substantially all of the assets of Aerie. The 2014 Convertible Notes provide that, upon the request of Aerie, Deerfield will release all of the liens on the collateral if both of the following occur: (i) beginning one month after FDA approval of either Rhopressa^TM ~~or Roclatan~~^TM, shares of Aerie’s common stock have traded at a price above $30 per share (subject to adjustment for any subdivision or combination of outstanding common stock) for 30 consecutive trading days, and (ii) Aerie is prepared to

~~F-15~~

~~Table of Contents~~

~~close a financing that will be secured by a lien on Aerie’s assets, subject only to the release of the lien on Aerie’s assets held by Deerfield.~~

In connection with the IP Assignment, Aerie granted Deerfield a security interest in an intercompany promissory note and pledged 65% of the voting stock of Aerie Limited. Upon the request of Aerie, Deerfield will release the lien on the intercompany promissory note under certain circumstances.

At closing, Aerie paid Deerfield a one-time transaction fee of $625,000. In addition, Aerie reimbursed Deerfield in the amount of $250,000 for certain expenses incurred by Deerfield in connection with the transaction. Aerie also incurred $1.3 million of legal and advisory fees in connection with the transaction.

The 2014 Convertible Notes are convertible at any time at the option of Deerfield, in whole or in part, into shares of common stock, including upon the repayment of the 2014 Convertible Notes at maturity (the “Conversion Option”). However, upon conversion, Deerfield (together with their affiliates) is limited to a 9.985% ownership cap in shares of common stock (the “9.985% Cap”). The 9.985% Cap would remain in place upon any assignment of the 2014 Convertible Notes by Deerfield.

The initial conversion price is $24.80 per share of common stock (equivalent to an initial conversion rate of 40.32 shares of common stock per $1,000 principal amount of 2014 Convertible Notes), representing a 30% premium over the closing price of the common stock on September 8, 2014. The conversion rate and the corresponding conversion price are subject to adjustment for stock dividends (other than a dividend for which Deerfield would be entitled to participate on an as-converted basis), stock splits, reverse stock splits and reclassifications. In addition, in connection with certain significant corporate transactions, Deerfield, at its option, may (i) require Aerie to prepay all or a portion of the principal amount of the 2014 Convertible Notes, plus accrued and unpaid interest, or (ii) convert all or a portion of the principal amount of the 2014 Convertible Notes into, depending upon the type of transaction, shares of common stock or the right to receive upon consummation of the transaction the consideration Deerfield would have received had Deerfield converted the 2014 Convertible Notes immediately prior to the consummation of the transaction. The 2014 Convertible Notes provide for an increase in the conversion rate if Deerfield elects to convert their 2014 Convertible Notes in connection with a significant corporate transaction. The current maximum increase to the initial conversion rate, in connection with a significant corporate transaction, is 12.07 shares of common stock per $1,000 principal amount of 2014 Conversion Notes, which decreases over time and is determined by reference to the price of the common stock prior to the consummation of the significant corporate transaction or the value of the significant corporate transaction.

The agreement governing the 2014 Convertible Notes contains various representations and warranties, and affirmative and negative covenants, customary for financings of this type, including restrictions on the incurrence of additional debt and liens on Aerie’s assets. As of December 31, 2015, Aerie was in compliance with the covenants. The agreement governing the 2014 Convertible Notes also provides for certain events of default, including the failure to pay principal and interest when due; inaccuracies in Aerie’s representations and warranties to Deerfield; failure to comply with any of the covenants; Aerie’s insolvency or the occurrence of certain bankruptcy-related events; certain judgments against Aerie; the suspension, cancellation or revocation of governmental authorizations that are reasonably expected to have a material adverse effect on Aerie’s business; the acceleration of a specified amount of indebtedness; and the failure to deliver shares of common stock upon conversion of the 2014 Convertible Notes. If any event of default were to occur, and continue beyond any applicable cure period, the holders of more than 50% of the aggregate principal amount of the then outstanding 2014 Convertible Notes would be permitted to declare the principal and accrued and unpaid interest to be immediately due and payable.

The Company recorded the 2014 Convertible Notes as long-term debt at face value less debt discounts relating to fees and certain expenses paid to Deerfield in connection with the transaction. The Conversion Option is a derivative that qualifies for an exemption from bifurcation and liability accounting as provided for in ASC Topic 815, Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASC 815”). Since the Conversion Option is not bifurcated as a derivative pursuant to ASC 815, the Company further evaluated the Conversion Option to determine whether it is considered a beneficial conversion feature (“BCF”). The Company determined that the initial accounting conversion price was greater than the fair value of the common stock at the close of trading on the date of issuance, therefore no BCF existed at inception. However, if Deerfield elects to convert their 2014 Convertible Notes in connection with a significant corporate transaction, the increase to the initial conversion rate may cause a contingent BCF to exist at the time of conversion. The contingent BCF, if any, will be recognized in earnings when the contingency is resolved and will be measured using the fair value of the common stock at the close of trading on the date of issuance and the accounting conversion price as adjusted for such an increase to the initial conversion rate.

As of December 31, 2015, the Company recognized unamortized debt discounts and debt issuance costs of $1.8 million. Debt discounts and debt issuance costs are amortized using the effective interest method through the earlier of maturity or the conversion of the 2014 Convertible Notes.

~~F-16~~

~~Table of Contents~~

~~The table below summarizes the carrying value of the 2014 Convertible Notes as of December 31, 2015:~~

(in thousands) DECEMBER 31, 2015
Gross proceeds $ 125,000
Initial value of issuance costs recorded as debt discount (2,146 )
Amortization of debt discount and issuance costs 382
Carrying value $ 123,236

~~For the years ended December 31, 2015 and 2014, interest expense related to the 2014 Convertible Notes was $2.2 million and $551,000, respectively.~~

On December 7, 2012, the Company authorized the sale of convertible notes (the “2012 Notes”) to related parties in the aggregate principal amount of $15.0 million. The 2012 Notes accrued interest at a rate of 8% per annum, with principal plus accrued interest thereon due upon maturity at September 30, 2013. The initial closing comprised of five individual convertible notes with an aggregate principal balance of $3.0 million. As of December 31, 2012, $12.0 million of 2012 Notes were authorized and available for sale. On March 28, 2013, May 23, 2013 and August 9, 2013, the Company completed the second, third and fourth closing of the 2012 Notes, respectively. The closings each comprised of five individual convertible notes with aggregate principal balances of $3.0 million, $4.5 million, and $4.5 million, respectively. On August 9, 2013, the Company amended the agreements relating to the 2012 Notes. The amendment authorized the sale of an additional $3.0 million of the 2012 Notes, resulting in an aggregate principal amount of $18.0 million being authorized. In addition, the amendment extended the maturity date of the 2012 Notes from September 30, 2013 to December 31, 2013 and the issuance period through November 30, 2013. No other terms and conditions of the agreements were changed as part of the amendment. In accordance with ASC 470 Debt, the amendment met the criteria of a troubled debt restructuring and the amortization of the debt discount was revised to align with a new effective interest rate determined as of the amendment date. No gain was recorded as part of the restructuring. On September 30, 2013, the Company completed the fifth closing of the 2012 Notes. Aggregate proceeds to the Company were $3.0 million.

On October 30, 2013, upon closing of the IPO, the principal and accrued interest outstanding under the 2012 Notes were converted into 1,860,363 shares of common stock at a conversion price equal to the IPO price of $10.00 per share. The Company accounted for the conversion as an extinguishment of debt.

In connection with the issuance of the 2012 Notes, the Company determined that a certain conversion feature was an embedded derivative requiring bifurcation and separate accounting. To estimate the fair value, the Company compared the net present value of expected cash flows of the issued 2012 Notes with and without the conversion feature comprising the embedded derivative. The Company determined that the fair value of the embedded derivative was immaterial as of August 9, 2013, May 23, 2013, March 28, 2013 and December 7, 2012, representing the fourth, third, second and initial closing dates, and as of December 31, 2012. As of September 30, 2013, the fair value of the embedded derivative was $96,000 . The Company determined that upon the closing of the IPO on October 30, 2013, at which time the 2012 Notes were converted into common stock, no embedded derivative existed. The Company recorded the change in fair value as a component of Other income (expense), net.

~~F-17~~

~~Table of Contents~~

~~9. Income Taxes~~

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

DECEMBER 31,
(in thousands) 2015 2014 2013
Net loss before income taxes:
United States $ (59,211 ) $ (48,133 ) $ (31,148 )
Other (15,013 ) —
—
Net loss before income taxes $ (74,224 ) $ (48,133 ) $ (31,148 )

The components of the provision for income taxes are as follows:

DECEMBER 31,
(dollars in thousands) 2015 2014 2013
Provision for income taxes:
Current:
United States $ 139
$ —
$ —
Other —
—
—
Total $ 139
$ —
$ —
Deferred:
United States $ —
$ —
$ —
Other —
—
—
Total —
—
—
Provision for income taxes $ 139
$ —
$ —
Effective tax rate (0.19 )% — % — %

~~Significant components of the Company’s net deferred income tax assets as of December 31, 2015 and 2014 consist of the following:~~

DECEMBER 31,
(in thousands) 2015 2014
Net deferred tax assets:
Net operating loss carry-forwards $ 6,335
$ 42,863
Share based compensation 7,231
3,249
U.S. tax credit carry-forwards 3,823
631
Other assets 1,488
1,633
Other liabilities (696 ) (693 )
Valuation allowance (18,181 ) (47,683 )
Total net deferred income taxes $ —
$ —

~~F-18~~

~~Table of Contents~~

~~A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2015, 2014 and 2013 is as follows:~~

DECEMBER 31,
2015 2014 2013
U.S. federal tax rate 35.00 % 35.00 % 35.00 %
State income taxes, net of federal benefit (0.90 )% 6.13 % 5.36 %
Taxable gain resulting from IP Assignment (75.31 )% — % — %
Non-taxable foreign loss (6.98 )% — % — %
Tax deferral from IP Assignment 3.56 % — % — %
Other 0.02 % (0.04 )% (0.03 )%
Valuation allowance 44.42 % (41.09 )% (40.33 )%
Effective tax rate (0.19 )% — % — %

In January 2015, the Company participated in the New Jersey Economic Development Authority’s Sponsored Technology Business Tax Certificate Transfer Program to transfer $3.1 million in state tax benefits to unrelated profitable businesses with operations in the state of New Jersey. The Company received net proceeds of $2.9 million from the transfer.

The IP Assignment resulted in the recognition of a taxable gain for U.S. federal and state income tax purposes. As of December 31, 2015, the estimated income tax liability was $1.7 million after utilization of net operating loss carry-forwards, current year losses generated through December 31, 2015 and quarterly estimated payments made through December 31, 2015. Under ASC 810, Consolidation, the income tax expense of $2.8 million for the year ended December 31, 2015 was recorded as a prepaid asset. In accordance with ASC 810, Consolidation, the estimated prepaid asset will be amortized into income tax expense over the estimated remaining patent life of the intellectual property subject to the IP Assignment, through approximately 2030. For the year ended December 31, 2015, the Company recognized $139,000 of income tax expense related to the amortization of the prepaid asset.

Largely as a result of the IP Assignment, the Company reversed approximately $29.5 million of its valuation allowance on certain deferred tax assets, primarily federal and state net operating losses, as of December 31, 2015. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Due to the Company’s history of operating losses and lack of available evidence supporting future taxable income, the Company believes that a valuation allowance on its remaining deferred tax assets as of December 31, 2015 remains appropriate.

In addition, the IP Assignment is subject to complex tax and transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with the Company’s determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and the Company’s position were not sustained, the Company could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates and reduced cash flows than otherwise would be expected.

It is Aerie’s intention to reinvest the earnings of Aerie Limited and Aerie Ireland Limited in those operations. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. Aerie Limited and Aerie Ireland Limited have incurred losses and experienced negative operating cash flows since inception, and as such, Aerie has not recognized a deferred tax liability related to its investment in either subsidiary as of December 31, 2015.

As of December 31, 2015, the Company had federal and state net operating loss carry-forwards of approximately $61.1 million, which expire from 2024 through 2034. Included in the net operating loss carry-forwards are approximately $4.0 million of net operating loss carry-forwards related to exercises of stock-based awards, the tax benefit from which, if realized, will be credited to additional paid-in capital. Net operating loss and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities 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, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

Certain transactions occurred in 2015 and prior years that resulted in ownership changes which will limit the future use of certain federal and state net operating loss and credit carry-forwards. Those federal and state net operating losses and credits that are not limited are included as deferred tax assets and have been fully offset by a valuation allowance as of December 31, 2015, as the Company believes, based on our history of operating losses, it is more likely than not that the tax benefits will not be realized.

~~F-19~~

~~Table of Contents~~

~~10. Convertible Preferred Stock~~

On October 30, 2013, immediately prior to the closing of the Company’s IPO, all outstanding shares of convertible preferred stock automatically were converted into an aggregate of 12,120,531 shares of common stock. As of December 31, 2015 and December 31, 2014, no convertible preferred stock was authorized, issued or outstanding.

~~Carrying Value~~

On February 23, 2011, the Company received $23.8 million in proceeds from the issuance of its Series B Convertible Preferred Stock, net of $1.2 million of transaction costs. The convertible preferred stock was originally recorded at the net proceeds received by the Company at issuance. The difference between the net proceeds and the total redemption price was being accreted on a straight-line basis over the period from issuance until the earliest redemption date and was accreted to the convertible preferred stock capital account through the completion of the IPO. Accretion amounted to $210,000 for the year ended December 31, 2013.

On February 23, 2011, the Company issued the Series A-4 Convertible Preferred Stock in connection with the conversion of a series of convertible notes. The issuance was recorded at fair value. The difference between stated and fair value of $1.3 million was being accreted on a straight-line basis of the period from February 23, 2011 until the earliest redemption date and was accreted to the Series A-4 Convertible Preferred Stock capital account through the completion of the IPO. Accretion amounted to $240,000 for the year ended December 31, 2013. The Company determined that the straight-line method approximated the effective interest method.

~~11. Stockholders’ Equity (Deficit)~~

On October 30, 2013, the Company completed its IPO and issued 7,728,000 shares of its common stock at an IPO price of $10.00 per share, including 1,008,000 shares of common stock issued upon the exercise in full by the underwriters of their option to purchase additional shares to cover over-allotments. The shares began trading on the NASDAQ Global Market on October 25, 2013. The Company received net proceeds from the IPO of approximately $68.3 million, after deducting underwriting discounts and commissions of $5.4 million and expenses of $3.6 million.

~~In connection with the IPO, the following events occurred:~~

On October 24, 2013, 297,366 warrants to purchase convertible preferred stock were net exercised and were subsequently automatically converted into 297,366 shares of common stock on October 30, 2013 (Note 12);

On October 30, 2013, 186,248 warrants to purchase convertible preferred stock were net exercised and were subsequently automatically converted into 186,248 shares of common stock on October 30, 2013 (Note 12);

~~On October 30, 2013, the outstanding shares of convertible preferred stock were automatically converted into an aggregate 12,120,531 shares of common stock (Note 10);~~

On October 30, 2013, 717,801 warrants to purchase convertible preferred stock were automatically converted into 717,801 warrants to purchase common stock, at which time the liabilities were re-measured and reclassified to equity (Note 12);

On October 30, 2013, the principal and interest outstanding under the 2012 Notes were converted into 1,860,363 shares of common stock at a conversion price equal to the IPO price of $10.00 per share (Note 8);

~~On October 30, 2013, the 2013 Omnibus Incentive Plan became effective under which 3,229,068 equity awards for common stock of the Company may be distributed (Note 13); and~~

~~On October 30, 2013, the 2013 Employee Stock Purchase Plan became effective under which a maximum of 645,814 shares of common stock of the Company may be issued (Note 16).~~

Additionally, on October 30, 2013, the Company’s certificate of incorporation was amended to increase the number of authorized shares of common stock to 150,000,000 with a par value of $0.001 per share and decrease the number of authorized preferred stock to 15,000,000 with a par value of $0.001 per share.

On November 3, 2014, the Company filed a shelf registration statement on Form S-3 that permits: (i) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $150.0 million of the Company’s common stock; (ii) sales of common stock by certain selling stockholders; and (iii) the offering, issuance and sale by the Company of up to a maximum aggregate offering price of $50.0 million of the Company’s common stock that may be issued and sold under an “at-the-market” sales agreement with Cantor Fitzgerald & Co. The common stock that was offered, issued and sold by the Company under the “at-the-market” sales agreement was included in the $150.0 million of common stock that may be offered,

~~F-20~~

~~Table of Contents~~

~~issued and sold by the Company under the shelf registration statement. As of December 31, 2015, the Company had no availability to issue shares under this “at-the-market” sales agreement.~~

Holders of common stock are entitled to dividends when and if declared by the Company’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.

~~12. Stock Purchase Warrants~~

~~As of December 31, 2015, the following equity classified warrants were outstanding:~~

NUMBER OF
UNDERLYING
SHARES

EXERCISE
PRICE PER
SHARE

WARRANT
EXPIRATION
DATE

TYPE OF EQUITY
SECURITY
75,000 $ 5.00
February 2019 Common Stock
75,000 $ 5.00
November 2019 Common Stock
7,500 $ 5.00
August 2020 Common Stock
223,482 $ 0.05
December 2019 Common Stock

~~The warrants outstanding at December 31, 2015 are all currently exercisable with weighted-average remaining lives of 3.8 years.~~

Prior to the IPO, the Company recognized all of its outstanding warrants as liabilities on its consolidated balance sheet as they were subject to price protection provisions. The warrant liability was revalued at each reporting period and changes in fair value were included as a component of Other income (expense), net. For the year ended December 31, 2013, the Company recognized $3.7 million of expense related to changes in the fair value of the warrant liability. The initial recognition and subsequent changes in fair value of the warrant liability had no effect on the Company’s consolidated statement of cash flows.

The Company estimated the fair value of the warrants using the Black-Scholes option-pricing model utilizing the fair value of underlying preferred and common stock. Black-Scholes has inherent limitations for use in the case of a warrant with a price protection provision, since the model is designed to be used when the inputs to the model are static throughout the life of a security. Management concluded, under the Company’s facts and circumstances, that the estimated fair values of the warrants using the Black-Scholes option-pricing model approximates, in all material respects, the values determined using a Monte Carlo valuation model. The estimates in the Black-Scholes option-pricing model and the Monte Carlo valuation model are based, in part, on assumptions, including but not limited to stock price volatility, the expected life of the warrants, the risk free rate and the fair value of the equity stock underlying the warrants.

~~Key assumptions utilized in the fair value calculation as of October 30, 2013, the IPO closing date, appear in the table below.~~



	~~OCTOBER 30, 2013~~
~~Expected term (years)~~	~~5.32-6.84~~
~~Volatility~~	~~65.00~~	%
~~Risk-free interest rate~~	~~1.51%-2.00%~~
~~Dividend yield~~	—	%

~~F-21~~

~~Table of Contents~~

~~13. Stock-based Compensation~~

~~Stock-based compensation expense for options granted, RSAs, and stock purchase rights are reflected in the statement of operations as follows:~~

YEAR ENDED DECEMBER 31,
(in thousands) 2015 2014 2013
Research and development $ 2,500
$ 1,339
$ 222
General and administrative 10,445
7,839
2,636
Total $ 12,945
$ 9,178
$ 2,858

The estimated fair value of options granted is determined on the date of grant using the Black-Scholes option pricing model. Options granted to non-employees are revalued at each financial reporting period until required service is performed. Compensation expense related to RSAs is based on the market value of the Company’s common stock on the date of grant and is expensed on a straight-line basis over the vesting period. Compensation expense for stock purchase rights under the Company’s employee stock purchase plan is measured and recognized on the date that the Company becomes obligated to issue shares of common stock and is based on the difference between the fair value of the Company’s common stock and the purchase price on such date.

As of December 31, 2015, the Company had $28.2 million of unrecognized compensation expense related to options granted under its equity plans. This cost is expected to be recognized over a weighted average period of 2.6 years as of December 31, 2015. The weighted average remaining contractual life on all outstanding options as of December 31, 2015 was 8.0 years.

As of December 31, 2015, the Company had $1.7 million of unrecognized compensation expense, related to unvested RSAs. This cost is expected to be recognized over a weighted average period of 2.9 years as of December 31, 2015. The weighted average remaining contractual term for restricted stock awards as of December 31, 2015 was 2.9 years.

~~Key weighted average assumptions utilized in the fair value calculation for the underlying common stock as of December 31, 2015, 2014 and 2013 appear on the table below.~~

Based on the Company’s historical experience of employee turnover, an annualized forfeiture rate was assumed for options and RSAs. Under the true-up provisions of the stock compensation guidance, additional expense is recognized as the awards vest if the actual forfeiture rate is lower than estimated, and a recovery of prior expense if the actual forfeiture is higher than estimated.

The Company utilized the guidance set forth in the 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 is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The midpoint between the vesting date and the maximum contractual expiration date is used as the expected term under this method.

~~The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to liquidity.~~

Volatility is based on the historical volatility of the Company as well as several public entities that are similar to the Company. This peer group of companies utilized in 2015 remained consistent with that of 2014.

~~F-22~~

~~Table of Contents~~

~~Equity Plans~~

The Company maintains two equity compensation plans, the 2005 Aerie Pharmaceutical Stock Plan (the “2005 Plan”) and the 2013 Omnibus Incentive Plan (the “2013 Equity Plan”), which was amended and restated as the Aerie Pharmaceuticals, Inc. Amended and Restated Omnibus Incentive Plan (the “Amended and Restated Equity Plan”). The 2005 Plan and the Amended and Restated Equity 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 shares remaining available for future grant under the 2005 Plan were allocated to the 2013 Equity Plan.

At the 2015 Annual Meeting of Stockholders held on April 10, 2015, the Company’s stockholders approved the adoption of the 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.

The Amended and Restated Equity Plan provides for the granting of up to 5,729,068 equity awards in respect of common stock of the Company, including equity awards that were available for issuance under the 2013 Equity Plan.

~~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, 2014 3,826,459
$ 8.39

Granted 1,328,400
24.83

Exercised (297,763 ) 4.38

Canceled (273,510 ) 17.00

Options outstanding at December 31, 2015 4,583,586
$ 12.86
8.0 $ 55,918
Options vested and expected to vest at December 31, 2015 4,511,052
$ 12.75
8.0 $ 55,478
Options exercisable at December 31, 2015 2,237,663
$ 7.92
7.3 $ 37,308

The weighted-average fair values of all stock options granted for the years ended December 31, 2015, 2014 and 2013 was $24.83, $20.83 and $3.11, respectively. The aggregate intrinsic value of options exercised for the years ended December 31, 2015, 2014 and 2013 was $4.3 million, $10.5 million and $9,000, respectively. The intrinsic value is calculated as the difference between the fair market value and the exercise price per share of the stock options. The fair market value per share of common stock as of December 31, 2015 was $24.35.

~~The following table provides additional information about the Company’s stock options that are outstanding and exercisable at December 31, 2015:~~

EXERCISE
PRICE
OPTIONS
OUTSTANDING

WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)

OPTIONS
EXERCISABLE

$0.20 - $3.15 2,251,290
7.1 1,606,555
$10.44 - $15.97 148,770
9.6 4,737
$16.21 - $21.08 1,239,250
8.5 477,675
$22.31 - $26.76 336,701
9.2 54,138
$27.44 - $32.30 607,575
9.1 94,558
4,583,586
2,237,663

~~F-23~~

~~Table of Contents~~

~~The following table summarizes the RSA activity under the Plans:~~

NUMBER OF
SHARES

WEIGHTED AVERAGE
FAIR VALUE PER SHARE

RSAs outstanding at December 31, 2014 103,064
$ 2.47
Granted 99,027
28.00
Vested (69,697 ) 3.35
Canceled (12,401 ) 28.74
RSAs outstanding at December 31, 2015 119,993
$ 20.31

~~The vesting of the RSAs is time and service based with terms of one to four years.~~

~~14. Commitments and Contingencies~~

~~Lease Commitment Summary~~

The following table presents future minimum commitments of the Company due under non-cancelable operating leases with original or remaining terms in excess of one year at December 31, 2015. Our operating lease obligations are related to our principal executive offices in Irvine, California, offices in Bedminster, New Jersey and our research facility in Durham, North Carolina.

~~Minimum lease payments were as follows at December 31, 2015:~~

(in thousands)
2016 $ 1,623
2017 1,598
2018 1,291
2019 1,390
2020 1,295
2020 and thereafter 611
Total minimum lease payments $ 7,808

Rent expense was $1.5 million, $579,000 and $403,000 for the years ended December 31, 2015, 2014 and 2013, respectively, and is reflected in general and administrative expenses and research and development expenses as determined by the underlying activities occurring at each of the Company’s locations.

~~Litigation~~

The Company may periodically become subject to legal proceedings and claims arising in connection with its business. Except as set forth below, the Company is not a party to any known litigation, is not aware of any unasserted claims and does not have contingency reserves established for any litigation liabilities.

A putative securities class action lawsuit captioned Kelley et al. v. Aerie Pharmaceuticals, Inc., et al., Case No. 3:15-cv-03007, was filed against the Company and certain of its officers and directors in the United States District Court for the District of New Jersey on April 29, 2015. An amended complaint was filed on September 28, 2015 on behalf of a purported class of persons and entities who purchased or otherwise acquired the Company’s publicly traded securities between June 25, 2014 and April 23, 2015. The amended complaint asserts claims under the Exchange Act and alleges that the defendants made materially false and misleading statements or omitted allegedly material information during that period related to, among other things, the prospects of the Company’s initial Phase 3 registration trial of Rhopressa^TM~~, named “Rocket 1,” and Rhopressa~~^TM.

The Company believes that the claims asserted in the action are without merit and intends to defend the lawsuit vigorously, and the Company expects to incur costs associated with defending the action. In addition, the Company has various insurance policies related to the risks associated with its business, including directors’ and officers’ liability insurance policies. However, there is no assurance that the Company will be successful in its defense of the action, and there is no assurance that the Company’s insurance coverage, which contains a self-insured retention, will be sufficient or that its insurance carriers will cover all claims or litigation costs. At this time, the Company cannot accurately predict the ultimate outcome of this matter.

~~F-24~~

~~Table of Contents~~

Due to the inherent uncertainties of litigation, the Company cannot reasonably predict the timing or outcomes, or estimate the amount of loss, or range of loss, if any, or their effect, if any, on the Company’s financial statements.

~~Contract Service Providers~~

In the course of the Company’s normal business operations, it has agreements with contract service providers to assist in the performance of its research and development, clinical research and manufacturing and other general business activities. Substantially all of these contracts are on an as needed basis. Future minimum commitments of the Company due under non-cancelable agreements with service providers was $620,000 as of December 31, 2015 and are expected to be incurred by December 2017.

~~15. Related-Party Transactions~~

~~Collaboration~~

In August 2015, the Company entered into a research collaboration and license agreement with GrayBug, Inc. (“GrayBug”). The collaboration is focused on researching the potential use of Graybug’s biodegradable polymer technology to deliver certain of the Company’s preclinical stage molecules to the back of the eye over a sustained period of time. The Board of Directors of the Company and that of GrayBug have a common Board member. This Board member did not participate in any deliberations associated with this transaction.

~~2012 Notes~~

Prior to their conversion into common stock in connection with the IPO (Note 8), the 2012 Notes were due to holders of the Company’s convertible preferred stock. Interest expense on those obligations was $588,000 for the year ended December 31, 2013.

~~Consultation~~

For the years ended December 31, 2015, 2014 and 2013, the respective amounts of approximately $240,000, $333,000 and $190,000 were paid to board members, some of whom served as consultants of the Company through consulting agreements containing arm’s-length terms typical of agreements entered into with unaffiliated third parties.

~~16. Benefit Plans~~

~~Defined Contribution Plans~~

Aerie has adopted a 401(k) deferred compensation plan. Eligible employees meeting the participant criteria may contribute up to the statutory limitation ($18,000 for 2015 and $17,500 for 2014). Aerie may contribute a discretionary match if it elects to do so. During the years ended December 31, 2015, 2014 and 2013, Aerie contributed $0 as a matching contribution to the plan.

In October 2015, Aerie Ireland Limited adopted the Aerie Pharmaceuticals Ireland Pension and Life Assurance Scheme. Eligible employees meeting the participation criteria may contribute up to the aggregate statutory limitation of 15% to 40% of remuneration depending on age. During the year ended December 31, 2015, Aerie Ireland Limited contributed $0 as a matching contribution to the plan.

~~Employee Stock Purchase Plan~~

On October 30, 2013, the Company adopted the 2013 Employee Stock Purchase Plan (the “Purchase Plan”) under which substantially all employees may purchase the Company’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. As of December 31, 2015, approximately 629,844 shares were reserved for future issuance under the Purchase Plan.

~~17. Subsequent Events~~

On February 24, 2016, the Board of Directors authorized grants of common stock options and restricted stock awards to the officers of the Company in the aggregate amount of 332,754 and 55,960, respectively. The options have an exercise price of $16.69 per share, a term of ten years and are subject to vesting conditions over a four-year period. The aggregate fair value of these option grants was approximately $3.8 million. The restricted stock awards are subject to vesting conditions over a four-year period. The aggregate fair value of these restricted stock awards was approximately $0.9 million.

~~F-25~~

~~Table of Contents~~

~~18. Selected Quarterly Financial Data (Unaudited)~~

The following table presents selected unaudited quarterly financial information for the years ended December 31, 2015 and 2014. 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,
Year Ended December 31, 2015
Operating expenses $ (19,950 ) $ (17,366 ) $ (18,129 ) $ (19,641 )
Net loss attributable to common stockholders $ (20,377 ) $ (17,961 ) $ (18,786 ) $ (17,239 )
Net loss per share attributable to common stockholders—basic and diluted $ (0.76 ) $ (0.69 ) $ (0.73 ) $ (0.70 )
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
Year Ended December 31, 2014
Operating expenses $ (15,973 ) $ (13,174 ) $ (11,843 ) $ (8,982 )
Net loss attributable to common stockholders $ (16,501 ) $ (13,147 ) $ (11,814 ) $ (6,671 )
Net loss per share attributable to common stockholders—basic and diluted $ (0.69 ) $ (0.54 ) $ (0.49 ) $ (0.28 )

~~F-26~~

~~Table of Contents~~

EXHIBIT INDEX



EXHIBIT NO.		EXHIBIT DESCRIPTION

~~1.1~~		Sales Agreement, dated November 6, 2015, by and between Aerie Pharmaceuticals, Inc. and RBC Capital Markets LLC. (incorporated by reference to Exhibit 1.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36152) filed on November 6, 2015).

~~1.2~~		Sales Agreement, dated November 6, 2015, by and between Aerie Pharmaceuticals, Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 1.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36152) filed on November 6, 2015).

~~1.3~~		Sales Agreement, dated November 3, 2014, by and between Aerie Pharmaceuticals, Inc. and Cantor Fitzgerald & Co. (incorporated by reference to Exhibit 1.1 to the Registrant’s Form S-3 Registration Statement (File No. 333-199821) filed on November 3, 2014).

3.1		Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on October 31, 2013).

3.2		Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on October 31, 2013).

4.1†		~~Note Purchase~~ Exchange and Termination Agreement, ~~between~~dated as of July 23, 2018, by and among Aerie Pharmaceuticals, Inc. ~~and Deerfield Partners, L.P., Deerfield International Master Fund, L.P.~~, Deerfield Private Design Fund III, L.P., Deerfield ~~Special Situations Fund,~~Partners, L.P. and Deerfield Special Situations ~~International Master~~ Fund, ~~L.P., dated as of September 8, 2014~~L.P (incorporated by reference to Exhibit 4.1 to the Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K (File No. 001-36152) filed on ~~November 12, 2014)~~July 23, 2018).

4.2		~~Form~~ Registration Rights Agreement, dated as of ~~Note (included in Exhibit 4.1)~~July 23, 2018, by and among Aerie Pharmaceuticals, Inc., Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P. and Deerfield Special Situations Fund, L.P. (incorporated by reference to Exhibit 4.2 to the Registrant’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K (File No. 001-36152) filed on ~~November 12, 2014)~~July 23, 2018).

~~4.3~~		Security Agreement among Aerie Pharmaceuticals, Inc. and Deerfield Partners, L.P., Deerfield International Master Fund, L.P., Deerfield Private Design Fund III, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P., as Purchasers, and Deerfield Management Company, L.P., as Agent for the Purchasers, dated September 8, 2014 (incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36152) filed on November 12, 2014).

10.1		Amended and Restated Investors’ Rights Agreement by and among Aerie Pharmaceuticals, Inc. and TPG Biotechnology Partners, L.P., ACP IV, L.P., Sofinnova Venture Partners VII, L.P., Clarus Lifesciences II, L.P., Osage University Partners I, L.P., Thomas J. van Haarlem, M.D. and Casey Kopczynski, M.D., dated February 23, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.2~~		First Amendment to Amended and Restated Investors’ Rights Agreement by and among Aerie Pharmaceuticals, Inc. and TPG Biotechnology Partners, L.P., ACP IV, L.P., Sofinnova Venture Partners VII, L.P., Clarus Lifesciences II, L.P. and Osage University Partners I, L.P., dated December 7, 2012 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.3~~		Form of Aerie Pharmaceuticals, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.4~~10.2		Aerie Pharmaceuticals, Inc. Second Amended and Restated Omnibus Incentive Plan (incorporated by reference to the appendix to the Registrant’s Definitive Proxy Statement on Schedule 14A (File No. 001-36152) filed on ~~February~~April 27, ~~2015)~~2018).

~~10.5~~10.3		Form of Aerie Pharmaceuticals, Inc. Incentive Stock Option Agreement (Cliff Vesting) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on February 24, 2015).

~~10.6~~10.4		Form of Aerie Pharmaceuticals, Inc. Incentive Stock Option Agreement (Monthly Vesting) (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on February 24, 2015).

~~Table of Contents~~



~~10.7~~10.5		Form of Aerie Pharmaceuticals, Inc. Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on February 24, 2015).

~~10.8~~10.6		Form of Aerie Pharmaceuticals, Inc. Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on March 19, 2014).

~~10.9~~10.7		Aerie Pharmaceuticals, Inc. 2005 Stock Option Plan, dated as of July 13, 2005 (incorporated by reference to Exhibit 10.5 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.10~~10.8		First Amendment of Aerie Pharmaceuticals, Inc. 2005 Stock Option Plan, dated as of February 19, 2008 (incorporated by reference to Exhibit 10.6 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.11~~10.9		Second Amendment of Aerie Pharmaceuticals, Inc. 2005 Stock Option Plan, dated as of December 3, 2009 (incorporated by reference to Exhibit 10.7 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.12~~10.10		Third Amendment of Aerie Pharmaceuticals, Inc. 2005 Stock Option Plan, dated as of February 23, 2011 (incorporated by reference to Exhibit 10.8 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.13~~10.11		Fourth Amendment of Aerie Pharmaceuticals, Inc. 2005 Stock Option Plan, dated as of August 9, 2013 (incorporated by reference to Exhibit 10.9 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.14~~10.12		Fifth Amendment of Aerie Pharmaceuticals, Inc. 2005 Stock Option Plan, dated as of September 16, 2013 (incorporated by reference to Exhibit 10.10 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.15~~

10.13		Form of Indemnification Agreement for officers and directors (incorporated by reference to Exhibit 10.19 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 21, 2013).

~~10.16~~10.14		Employment Agreement, dated as of September 20, 2013, by and between Aerie Pharmaceuticals, Inc. and Vicente Anido, Jr., Ph.D. (incorporated by reference to Exhibit 10.18 to the Registrant’s Form S-1 Registration Statement (File No. 333-191219) filed on October 3, 2013).

~~10.17~~10.15		Amended and Restated Employment Agreement, dated ~~as of~~ July ~~31, 2013,~~25, 2017, by and between Aerie Pharmaceuticals, Inc. and ~~Thomas Mitro~~Vicente Anido, Jr., Ph.D. (incorporated by reference to Exhibit ~~10.17~~10.1 to the Registrant’s Current Report on Form ~~S-1 Registration Statement~~8-K (File No. ~~333-191219)~~001-36152) filed on ~~October 3, 2013)~~July 26, 2017).

~~10.18~~10.16		Amended and Restated Employment Agreement, dated as of December 18, 2013, between Aerie Pharmaceuticals, Inc. and Thomas Mitro (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on December 20, 2013).

~~10.19~~10.16.1		~~Letter~~ Amendment to Amended and Restated Employment Agreement, dated as of ~~September 24, 2012,~~March 6, 2017, by and between Aerie Pharmaceuticals, Inc. and ~~Richard Rubino~~Thomas Mitro (incorporated by reference to Exhibit ~~10.13~~10.16.1 to the Registrant’s Annual Report on Form ~~S-1 Registration Statement~~10-K (File No. ~~333-191219)~~001-36152) filed on ~~October 3, 2013)~~March 9, 2017).

~~10.20~~10.17		Amended and Restated Employment Agreement, dated as of December 18, 2013, between Aerie Pharmaceuticals, Inc. and Richard Rubino (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on December 20, 2013).

~~10.21~~10.17.1		Amendment to Amended and Restated Employment Agreement, dated as of ~~December 18, 2013,~~March 6, 2017, by and between Aerie Pharmaceuticals, Inc. and ~~Brian Levy~~Richard Rubino (incorporated by reference to Exhibit ~~10.3~~10.17.1 to the Registrant’s ~~Current~~Annual Report on Form ~~8-K~~10-K (File No. 001-36152) filed on ~~December 20, 2013)~~March 9, 2017).

~~10.22~~10.18		Employment Agreement, dated as of December 18, 2013, between Aerie Pharmaceuticals, Inc. and Casey Kopczynski (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on December 20, 2013).

10.18.1		Amendment to Employment Agreement, dated as of March 6, 2017, by and between Aerie Pharmaceuticals, Inc. and Casey Kopczynski (incorporated by reference to Exhibit 10.18.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-36152) filed on March 9, 2017).

10.19		Aerie Pharmaceuticals, Inc. Second Amended & Restated Inducement Award Plan (incorporated by reference to Exhibit 4.2 to the Registrant’s Form S-8 Registration Statement (File No. 333-223364) filed on March 1, 2018).

10.20		Form of Aerie Pharmaceuticals, Inc. Inducement Award Plan Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K (File No. 001-36152) filed on March 9, 2017).

10.21		Form of Aerie Pharmaceuticals, Inc. Inducement Award Plan Restricted Stock Agreement (incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K (File No. 001-36152) filed on March 9, 2017).

10.22		Employment Agreement, dated as of January 19, 2018, by and between Aerie Pharmaceuticals, Inc. and John LaRocca (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36152) filed on May 9, 2018).

10.23		~~Separation and Release~~Credit Agreement, dated as of July ~~9, 2015,~~23, 2018, by and ~~between~~among Aerie Pharmaceuticals, Inc., Aerie Distribution, Inc., the other Loan Parties (as defined therein) party thereto from time to time, Deerfield Partners, L.P., Deerfield Special Situations Fund, L.P. and ~~Brian Levy~~Deerfield Private Design Fund III, L.P., as lenders, and Deerfield Private Design Fund III, L.P., as agent for itself and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on July ~~9, 2015)~~23, 2018).

21.1*10.24		~~Subsidiaries~~ Guaranty and Security Agreement, dated as of July 23, 2018, by and among Aerie Pharmaceuticals, Inc., the ~~Registrant.~~other Grantors and Guarantors (each as defined therein) party thereto from time to time, and Deerfield Private Design Fund III, L.P., as agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on July 23, 2018).

~~Table of Contents~~



10.25		First Amendment to Credit Agreement, dated August 7, 2018, by and among Aerie Pharmaceuticals, Inc., the guarantors party thereto, the lenders party thereto, and Deerfield Private Design Fund III, L.P., as agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 10-Q (File No. 001-36152) filed on August 9, 2018).

10.26†		Contract Manufacturing Supply Agreement, dated as of December 9, 2014, by and between Bausch & Lomb Incorporated and Aerie Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 10-Q (File No. 001-36152) filed on November 7, 2018).

10.27†		First Amendment to Contract Manufacturing Supply Agreement, dated as of May 31, 2018, by and between Bausch & Lomb Incorporated, Aerie Pharmaceuticals, Inc. and Aerie Distribution Incorporated (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 10-Q (File No. 001-36152) filed on November 7, 2018).

10.28†		Second Amendment to Contract Manufacturing Supply Agreement, dated as of August 15, 2018, by and between Bausch & Lomb Incorporated, Aerie Pharmaceuticals, Inc. and Aerie Distribution Incorporated (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 10-Q (File No. 001-36152) filed on November 7, 2018).

10.29†		Manufacture and Supply Agreement, dated as of January 1, 2018, by and between Cayman Chemical Company, Incorporated and Aerie Distribution, Incorporated (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 10-Q (File No. 001-36152) filed on November 7, 2018).

21.1		Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K (File No. 001-36152) filed on March 9, 2017).

23.1*		Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) ~~promulgated under the Securities Exchange Act of 1934, as amended.~~

31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) ~~promulgated under the Securities Exchange Act of 1934, as amended.~~

32.1***		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2***		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document.

101.SCH**		XBRL Taxonomy Extension Schema Document.

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB**		XBRL Taxonomy Extension Label Linkbase Database.

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document.



†	Certain portions of this exhibit have been omitted and separately filed with the SEC pursuant to a request for confidential treatment which has been granted by the SEC.
*	Filed herewith.



**	Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):



	(i) Consolidated Balance Sheets at December 31, ~~2015~~2018 and ~~2014,~~2017, (ii) Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016 (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016 (iv) Consolidated Statements of Cash Flows for the years ended December 31, ~~2015, 2014~~2018, 2017 and ~~2013~~2016 and ~~(iv)~~(v) Notes to Consolidated Financial Statements.



***	Furnished herewith.

SIGNATURES




	AERIE PHARMACEUTICALS, INC.

Date: March 1, 2019	By:	/S/ VICENTE ANIDO, JR., PH.D.
		Vicente Anido, Jr., Ph.D.
		Chief Executive Officer, Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.




SIGNATURE	TITLE	DATE

/S/ VICENTE ANIDO, JR., PH.D.	Chief Executive Officer, Chairman of the Board (Principal Executive Officer)	March 1, 2019
Vicente Anido, Jr., Ph.D.

/S/ RICHARD J. RUBINO	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 1, 2019
Richard J. Rubino

/S/ GERALD D. CAGLE, PH.D.	Director	March 1, 2019
Gerald D. Cagle, Ph.D.

/S/ RICHARD CROARKIN	Director	March 1, 2019
Richard Croarkin

/S/ MECHIEL M. DU TOIT	Director	March 1, 2019
Mechiel M. du Toit

/S/ MURRAY A. GOLDBERG	Director	March 1, 2019
Murray A. Goldberg

/S/ DAVID W. GRYSKA	Director	March 1, 2019
David W. Gryska

/S/ BENJAMIN F. MCGRAW III, PHARM. D.	Director	March 1, 2019
Benjamin F. McGraw III, Pharm. D.

/S/ JULIE MCHUGH	Director	March 1, 2019
Julie McHugh

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AERIE PHARMACEUTICALS, INC.




	PAGE
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2018 and 2017	F-4
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016	F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016	F-7
Notes to the Consolidated Financial Statements	F-8

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Aerie Pharmaceuticals, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Aerie Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

March 1, 2019

We have served as the Company’s auditor since 2011.

AERIE PHARMACEUTICALS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)



	DECEMBER 31,
	2018			2017
Assets
Current assets
Cash and cash equivalents	$	202,818		$	197,569
Short-term investments	—			52,086
Accounts receivable, net	2,715			—
Inventory	10,112			—
Prepaid expenses and other current assets	4,530			4,487
Total current assets	220,175			254,142
Property, plant and equipment, net	60,525			31,932
Other assets	4,344			4,202
Total assets	$	285,044		$	290,276
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	12,403		$	6,245
Accrued expenses and other current liabilities	38,381			18,939
Total current liabilities	50,784			25,184
Convertible notes, net	—			123,845
Other non-current liabilities	6,454			5,648
Total liabilities	57,238			154,677
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of December 31, 2018 and December 31, 2017; None issued and outstanding	—			—
Common stock, $0.001 par value; 150,000,000 shares authorized as of December 31, 2018 and December 31, 2017; 45,478,883 and 36,947,637 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively	45			37
Additional paid-in capital	924,180			597,318
Accumulated other comprehensive loss	—			(28		)
Accumulated deficit	(696,419		)	(461,728		)
Total stockholders’ equity	227,806			135,599
Total liabilities and stockholders’ equity	$	285,044		$	290,276

The accompanying notes are an integral part of these consolidated financial statements.

AERIE PHARMACEUTICALS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)



	YEAR ENDED DECEMBER 31,
	2018			2017			2016
Product revenues, net	$	24,181		$	—		$	—
Total revenues, net	24,181			—			—
Costs and expenses:
Cost of goods sold	641			—			—
Selling, general and administrative	120,614			56,905			34,706
Pre-approval commercial manufacturing	26,545			16,710			9,772
Research and development	86,123			72,078			52,394
Total costs and expenses	233,923			145,693			96,872
Loss from operations	(209,742		)	(145,693		)	(96,872		)
Other income (expense), net	(22,824		)	(1,170		)	(1,994		)
Loss before income taxes	(232,566		)	(146,863		)	(98,866		)
Income tax expense (benefit)	3			(1,758		)	193
Net loss	$	(232,569	)	$	(145,105	)	$	(99,059	)
Net loss per common share—basic and diluted	$	(5.58	)	$	(4.11	)	$	(3.40	)
Weighted average number of common shares outstanding—basic and diluted	41,663,958			35,324,472			29,135,583

Net loss	$	(232,569	)	$	(145,105	)	$	(99,059	)
Unrealized gain on available-for-sale investments	28			40			111
Comprehensive loss	$	(232,541	)	$	(145,065	)	$	(98,948	)

The accompanying notes are an integral part of these consolidated financial statements.

AERIE PHARMACEUTICALS, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)



	COMMON STOCK			ADDITIONAL PAID-IN CAPITAL			ACCUMULATED OTHER COMPREHENSIVE LOSS			ACCUMULATED DEFICIT			TOTAL
	SHARES	AMOUNT		ADDITIONAL PAID-IN CAPITAL			ACCUMULATED OTHER COMPREHENSIVE LOSS			ACCUMULATED DEFICIT			TOTAL
Balances at December 31, 2015	26,458,495	$	26	$	236,492		$	(179	)	$	(217,564	)	$	18,775
Issuance of common stock, net of discounts, commissions and expenses of $5,963	6,721,529	7		167,158			—			—			167,165
Issuance of common stock upon exercise of stock purchase rights	75,205	—		1,120			—			—			1,120
Issuance of common stock upon exercise of stock options	149,186	—		591			—			—			591
Issuance of common stock for restricted stock awards, net	54,192	—		(153		)	—			—			(153		)
Stock-based compensation	—	—		16,794			—			—			16,794
Other comprehensive income	—	—		—			111			—			111
Net loss	—	—		—			—			(99,059		)	(99,059		)
Balances at December 31, 2016	33,458,607	33		422,002			(68		)	(316,623		)	105,344
Issuance of common stock, net of discounts, commissions and expenses of $3,458	2,506,387	2		133,810			—			—			133,812
Issuance of common stock upon exercise of stock purchase rights	27,953	—		1,050			—			—			1,050
Issuance of common stock upon exercise of stock options	201,592	1		827			—			—			828
Issuance of common stock for restricted stock awards, net	489,952	1		(751		)	—			—			(750		)
Shares issued for asset acquisition	263,146	—		14,302			—			—			14,302
Stock-based compensation	—	—		26,078			—			—			26,078
Other comprehensive income	—	—		—			40			—			40
Net loss	—	—		—			—			(145,105		)	(145,105		)
Balances at December 31, 2017	36,947,637	37		597,318			(28		)	(461,728		)	135,599
Cumulative effect adjustment from adoption of ASU 2016-16	—	—		—			—			(2,122		)	(2,122		)
Issuance of common stock, net of commissions and expenses of $1,345	2,313,824	2		136,443			—			—			136,445
Issuance of common stock upon exercise of stock purchase rights	34,193	—		1,401			—			—			1,401
Issuance of common stock upon exercise of stock options and warrants	597,777	1		4,250			—			—			4,251
Issuance of common stock for restricted stock awards, net	216,005	—		(2,172		)	—			—			(2,172		)
Issuance of shares upon conversion of 2014 Convertible Notes	5,369,447	5		148,078			—			—			148,083
Stock-based compensation	—	—		38,862			—			—			38,862
Other comprehensive income	—	—		—			28			—			28
Net loss	—	—		—			—			(232,569		)	(232,569		)
Balances at December 31, 2018	45,478,883	$	45	$	924,180		$	—		$	(696,419	)	$	227,806

The accompanying notes are an integral part of these consolidated financial statements.

AERIE PHARMACEUTICALS, INC.

Consolidated Statements of Cash Flows

(in thousands)



	YEAR ENDED DECEMBER 31,
	2018			2017			2016
Cash flows from operating activities
Net loss	$	(232,569	)	$	(145,105	)	$	(99,059	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation	2,442			1,410			970
Amortization of debt issuance costs and fees	1,577			306			303
Amortization and accretion of premium or discount on investments, net	69			9			525
Acquisition of assets expensed to research and development	—			24,802			—
Stock-based compensation	38,728			26,078			16,794
Induced conversion of convertible notes	24,059			—			—
Unrealized foreign exchange (gain) loss	(270		)	601			—
Changes in operating assets and liabilities
Accounts receivable, net	(2,715		)	—			—
Inventory	(9,689		)	—			—
Prepaid, current and other assets	(791		)	(2,239		)	(1,852		)
Accounts payable, accrued expenses and other current liabilities	26,583			925			2,479
Net cash used in operating activities	(152,576		)	(93,213		)	(79,840		)
Cash flows from investing activities
Acquisition of assets from Envisia	—			(10,500		)	—
Purchase of available-for-sale investments	(56,195		)	(104,490		)	(35,169		)
Proceeds from sales and maturities of investments	108,297			88,153			58,346
Purchase of property, plant and equipment	(31,313		)	(15,970		)	(5,077		)
Net cash provided by (used in) investing activities	20,789			(42,807		)	18,100
Cash flows from financing activities
Proceeds from sale of common stock, net	135,972			134,215			167,383
Proceeds related to issuance of stock for stock-based compensation arrangements, net	3,630			1,429			1,242
Payments of debt issuance costs	(1,883		)	—			—
Other financing	(683		)	—			—
Net cash provided by financing activities	137,036			135,644			168,625
Net change in cash and cash equivalents	5,249			(376		)	106,885
Cash and cash equivalents, at beginning of period	197,569			197,945			91,060
Cash and cash equivalents, at end of period	$	202,818		$	197,569		$	197,945
Supplemental disclosures
Cash paid for interest	$	1,774		$	2,188		$	2,192
Cash paid for income taxes	$	—		$	—		$	1,790
Non-cash investing and financing activities:
Conversion of convertible notes to common stock (Note 9)	$	148,078		$	—		$	—
Equity issued for Envisia Asset Acquisition	$	—		$	14,302		$	—
Purchases of property, plant and equipment	$	3,526		$	4,176		$	482
Acquisition of capital lease obligation	$	—		$	689		$	—
Deferred costs from the sale of common stock	$	—		$	403		$	70
Build-to-suit lease transaction (Note 7)

The accompanying notes are an integral part of these consolidated financial statements.

AERIE PHARMACEUTICALS, INC.

Notes to the Consolidated Financial Statements

1. The Company

Aerie Pharmaceuticals, Inc. (“Aerie”), with its wholly-owned subsidiaries, Aerie Distribution, Inc., Aerie Pharmaceuticals Limited and Aerie Pharmaceuticals Ireland Limited (“Aerie Distribution,” “Aerie Limited” and “Aerie Ireland Limited,” 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, retinal diseases and other diseases of the eye. The Company has its principal executive offices in Durham, North Carolina, and operates as one business segment.

The Company has a U.S. Food and Drug Administration (“FDA”) approved product, Rhopressa^®(netarsudil ophthalmic solution) 0.02% (“Rhopressa^®”), and an advanced-stage product candidate, Rocklatan^TM(netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan^TM”), previously referred to as Roclatan^TM, both designed to reduce elevated intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension. The Company is commercializing Rhopressa^®and intends to commercialize Rocklatan^TM, if approved, on its own in North American markets. The Company’s strategy also includes pursuing regulatory approval for Rhopressa^® and Rocklatan^TM in Europe and Japan on its own, though the products may be named differently in those respective regions.

Rhopressa^® is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension that received FDA approval on December 18, 2017. The Company launched Rhopressa^® in the United States at the end of April 2018. On October 9, 2018, the Company announced that the European Medicines Agency (“EMA”) accepted for review the marketing authorization application (“MAA”) for Rhopressa^®, which will be marketed under the name Rhokiinsa^® in Europe, if approved. Additionally, the Company has completed a Phase 1 clinical trial and a successful pilot Phase 2 clinical study in the United States on Japanese and Japanese-American subjects, which were designed to support meeting the requirements of Japan’s Pharmaceuticals and Medical Devices Agency for potential regulatory submission of Rhopressa^® in Japan. The Company is also planning to initiate a Phase 2 clinical trial on Japanese patients in Japan by the end of the first quarter of 2019 to support subsequent Phase 3 registration trials that are also expected to be conducted in Japan under its direction.

The Company’s advanced-stage product candidate, Rocklatan^TM, is a once-daily fixed-dose combination of Rhopressa^® and latanoprost. The Company submitted a New Drug Application (“NDA”) to the FDA in May 2018. In July 2018, the Company announced that the NDA was accepted for review by the FDA and the Prescription Drug User Fee Act goal date was set for March 14, 2019, which represents a ten-month review. In Europe, the Company is currently conducting a Phase 3 trial, named Mercury 3, comparing Rocklatan^TMto Ganfort^®, a fixed-dose combination product marketed in Europe of bimatoprost (a prostaglandin analog) and timolol (a beta blocker). If successful, Mercury 3 is expected to improve its commercialization prospects in Europe. Mercury 3 is not necessary for approval in the United States. The Company plans to submit an MAA with the EMA in early 2020 for Rocklatan^TM, if the EMA has approved Rhokiinsa^® by such time. Rocklatan^TM will be marketed under the name Roclanda^TM in Europe, if approved.

The Company is also focused on furthering the development of its preclinical molecules and technologies focused on retinal diseases, particularly AR-13503 and AR-1105. Through business development activities, discussed further below, the Company has acquired worldwide ophthalmic rights to a bio-erodible polymer technology from DSM, a global science-based company headquartered in the Netherlands, and PRINT^® implant manufacturing technology from Envisia Therapeutics Inc. (“Envisia”), with which the Company has created a sustained-release ophthalmology platform. Using this technology, the Company is currently developing two preclinical sustained-release implants, AR-13503 and AR-1105, both of which are expected to commence clinical trials in 2019.

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 “Collaboration 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



Delaware		20-3109565
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)



Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share		NASDAQ Global Market




		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii

PART I
Item 1.	Business	1
Item 1A.	Risk Factors	2633
Item 1B.	Unresolved Staff Comments	5569
Item 2.	Properties	5569
Item 3.	Legal Proceedings	5569
Item 4.	Mine Safety Disclosures	5669

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	5770
Item 6.	Selected Financial Data	6073
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6174
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7489
Item 8.	Financial Statements and Supplementary Data	7489
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7490
Item 9A.	Controls and Procedures	7490
Item 9B.	Other Information	7591

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	7692
Item 11.	Executive Compensation	7692
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	7692
Item 13.	Certain Relationships and Related Transactions, and Director Independence	7692
Item 14.	Principal Accountant Fees and Services	7692

PART IV
Item 15.	Exhibits, Financial Statement Schedules	7793
Item 16.	Form 10-K Summary	93



Name and Mechanism		Status	Intellectual Property Rights

Rhopressa^® (Rhokiinsa^®in Europe)	ROCK inhibitor	U.S.: Marketed; launched in April 2018 Europe: MAA accepted for review by EMA Japan: Phase 2	Wholly-Owned
Rocklatan^TM (Roclanda^TM in Europe)	ROCK inhibitor and latanoprost, a PGA	U.S.: PDUFA goal date is March 14, 2019 Europe: Phase 3	Wholly-Owned
AR-13503	ROCK and Protein kinase inhibitor	U.S.: Expect to submit IND in first quarter of 2019	Wholly-Owned
AR-1105	dexamethasone steroid implant	U.S.: Expect to commence Phase 2 clinical study in first quarter of 2019	Wholly-Owned; acquired from Envisia



ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


•	the potential future sales of Rhopressa^®(netarsudil ophthalmic solution) 0.02% (“Rhopressa^®”) and the potential commercial launch and potential future sales of Rocklatan^TM (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan^TM”), previously referred to as Roclatan^TM, in the United States, and any future product candidates, if approved;


•	the potential future sales in jurisdictions outside of the United States of Rhopressa^®, named Rhokiinsa^®(netarsudil ophthalmic solution) 0.02%(“Rhokiinsa^®”) in Europe, or Rocklatan^TM, named Roclanda^TM (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Roclanda^TM”) in Europe, or their equivalents, and any future product candidates;


•	third-party payer coverage and reimbursement for our approved products (currently only Rhopressa^®in the United States), product candidates and any future product candidates, if approved;



~~Product Candidate and Mechanism~~		~~Phase of Development~~	~~Intellectual~~ ~~Property~~ ~~Rights~~

~~Rhopressa~~^TM	~~Triple-action—ROCK/NET inhibitor~~	~~Phase 3~~	~~Wholly-Owned~~

~~Roclatan~~^TM	~~Quadruple-action—ROCK/NET inhibitor and latanoprost, a PGA~~	~~Phase 3~~	~~Wholly-Owned~~



New ~~MOAs~~MOA(s)
Brand	MOA / Dosing	~~Trial Stage~~Status
Rhopressa^TM® (Aerie AR-13324)	~~ROCK/NET~~ROCK inhibitor (qd)	U.S.: Marketed Europe: MAA accepted for review by EMA Japan: Phase 32
~~Roclatan~~Rocklatan^TM (Aerie PG324)	~~ROCK/NET~~ROCK inhibitor + PGA (qd)	U.S.: PDUFA goal date is March 14, 2019 Europe: Phase 3
~~INO-8875~~ ~~(Inotek)~~	~~Adenosine-A1 agonist (bid or qd)~~	~~Phase 3~~
~~OPA-6566~~ ~~(Acucela)~~	~~Adenosine-A2a agonist (bid)~~	~~Phase 1/2~~
~~SYL040012~~ ~~(Sylentis)~~	~~RNAi beta blocker (qd)~~	~~Phase 2~~

New PGAs¹
Brand	MOA / Dosing	~~Trial Stage~~Status
~~Vesneo~~ Vyzulta~~(Bausch + Lomb )~~^TM(Bausch)	NO donating latanoprost (qd)	~~Filed NDA~~U.S.: Marketed
Xelpros^TM(Sun)	Latanoprost, without BAK (qd)	U.S.: Marketed
DE-117 (Santen)	EP2 agonist (qd)	U.S.: Phase 23 Japan: approved in September 2018
~~ONO-9054~~DE-126 ~~(Ono)~~(Santen)	FP/EP3 agonist (qd)	U.S. and Japan: Phase 2b
NCX-470 (Nicox)	NO donating bimatoprost (qd)	U.S.: Phase 2



Country	Number of Issued Patents	Number of Pending Patents	Estimated Expiration Date Range
United States	34	18	2026 - 2039
Australia	10	12	2026 - 2037
Brazil	0	1	2037
Canada	2	7	2026 - 2037
China	0	3	2034
Europe	50⁽¹⁾	4	2026 - 2037⁽¹⁾
Hong Kong	0	1	2030
India	0	1	2035
Japan	6	5	2026 - 2037
Mexico	0	1	2037
Patent Cooperation Treaty	0	6	N/A
Singapore	0	1	2036
South Korea	0	2	2035 - 2037


•	demonstrate the advantages of our products compared to alternative therapies, including, in the case of Rhopressa^® and Rocklatan^TM, if approved, other currently marketed PGA and non-PGA products;


•	manufacturing delays if ~~our third-party manufacturers give greater priority to the supply of other products over~~ our third-party manufacturers give greater priority to the supply of other products over Rhopressa^® or Rocklatan^TM or any future product candidates, if approved, or otherwise do not satisfactorily perform according to the terms of their agreements with us;



~~ITEM 1A.~~	ITEM 1A. RISK FACTORS


•	delays in obtaining regulatory approval for Rhopressa^® outside the United States or for Rocklatan^TM or any future product candidates, if our third-party manufacturers fail to satisfy or comply with regulatory requirements;


•	maintain an acceptable price for Rhopressa^® in the United States and set an acceptable price for Rhopressa^® in jurisdictions outside the United States, if approved, and obtain adequate reimbursement from third-party payers in jurisdictions outside the United States;


•	set an acceptable price for Rocklatan^TM and any future product candidates, if approved, and obtain adequate reimbursement from third-party payers;


•	manufacture or obtain commercial quantities of Rhopressa^® and Rocklatan^TM and any future product candidates, if approved, at acceptable cost levels;


•	successfully market and sell Rhopressa^® and Rocklatan^TM and any future product candidates, if approved, in the United States and other jurisdictions; and


•	our commercial success with Rhopressa^® and our ability to successfully commercialize Rocklatan^TM and any future product candidates, if approved;


•	the amount of sales and other revenues from Rhopressa^® and Rocklatan^TM and any future product candidates, if approved, including the selling prices for such potential products and the availability of adequate third-party reimbursement;


•	selling and marketing costs associated with Rhopressa^® and Rocklatan^TM and any future product candidates, if approved, including the cost and timing of expanding our marketing and sales capabilities;


•	impairing our ability to successfully continue to commercialize Rhopressa^® or complete the development of Rocklatan^TM and any future product candidates, which would prevent us from generating a source of revenue and becoming profitable;


•	our patents may not be broad or strong enough to prevent competition from other products that are identical or similar to Rhopressa^® and Rocklatan^TM;



	High		Low
2015
Fourth Quarter	$	28.21	$	16.52
Third Quarter	33.25		14.29
Second Quarter	35.89		8.84
First Quarter	32.07		22.36

2014
Fourth Quarter	$	32.50	$	19.46
Third Quarter	27.25		16.05
Second Quarter	29.71		13.66
First Quarter	27.15		15.03



	YEAR ENDED DECEMBER 31,						INCREASE (DECREASE)			% INCREASE (DECREASE)
	2015			2014			INCREASE (DECREASE)			% INCREASE (DECREASE)
	(in thousands)
Expenses
General and administrative	$	(30,635	)	$	(20,103	)	$	10,532		52	%
Research and development	(44,451		)	(29,869		)	14,582			49	%
Other income (expense), net	862			1,839			(977		)	N/A
Net loss before income taxes	$	(74,224	)	$	(48,133	)


•	commercial performance of Rhopressa^®and Rocklatan^TM or any future product candidates, if approved;


•	costs of commercialization activities for Rhopressa^® and Rocklatan^TMand any future product candidates, if approved;



	TOTAL		LESS THAN 1 YEAR		1 TO 3 YEARS		3 TO 5 YEARS		MORE THAN 5 YEARS
	(in thousands)
Operating lease and other obligations⁽¹⁾	$	8,428	$	1,933	$	3,199	$	2,685	$	611
Convertible Notes⁽²⁾	125,000		—		—		—		125,000
	133,428		1,933		3,199		2,685		125,611


~~(1)~~	Our operating lease and other obligations are primarily related to our principal executive office in Irvine, California, corporate office in Bedminster, New Jersey and research facility in Durham, North Carolina.


(3)	Purchase obligations primarily include non-cancelable commitments under our contract manufacturing agreements.



	CONVERTIBLE PREFERRED STOCK					COMMON STOCK			ADDITIONAL PAID-IN CAPITAL			ACCUMULATED OTHER COMPREHENSIVE LOSS			ACCUMULATED DEFICIT			TOTAL
	SHARES		AMOUNT			SHARES	AMOUNT		ADDITIONAL PAID-IN CAPITAL			ACCUMULATED OTHER COMPREHENSIVE LOSS			ACCUMULATED DEFICIT			TOTAL
Balances at December 31, 2012	12,120,531		$	60,898		964,880	$	1	$	—		$	—		$	(63,920	)	$	(63,919	)
Exercise of stock options	—		—			3,195	—		1			—			—			1
Vesting of restricted stock	—		—			124,966	—		—			—			—			—
Stock-based compensation	—		—			—	—		2,858			—			—			2,858
Accretion from conversion of note payable to related parties	—		240			—	—		(240		)	—			—			(240		)
Accretion of stock issuance costs	—		210			—	—		(210		)	—			—			(210		)
Conversion of convertible preferred stock to common stock	(12,120,531	)	(61,348		)	12,120,531	12		61,336			—			—			61,348
Conversion of convertible notes payable and accrued interest to common stock	—		—			1,860,363	2		18,602			—			—			18,604
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions of $5,410 and offering costs of $3,644	—		—			7,728,000	8		68,218			—			—			68,226
Issuance of common stock upon net exercise of warrants	—		—			483,614	—		4,896			—			—			4,896
Reclassification of warrants from liabilities to equity	—		—			—	—		6,560			—			—			6,560
Net loss	—		—			—	—		—			—			(31,148		)	(31,148		)
Balances at December 31, 2013	—		—			23,285,549	23		162,021			—			(95,068		)	66,976
Issuance of common stock upon exercise of stock purchase rights	—		—			10,941	—		119			—			—			119
Exercise of stock options	—		—			579,083	1		8			—			—			9
Vesting of restricted stock	—		—			143,004	—		—			—			—			—
Stock-based compensation	—		—			—	—		9,178			—			—			9,178
Unrealized loss on available-for-sale investments	—		—			—	—		—			(107		)	—			(107		)
Net loss	—		—			—	—		—			—			(48,133		)	(48,133		)
Balances at December 31, 2014	—		—			24,018,577	24		171,326			(107		)	(143,201		)	28,042
Proceeds from issuance of common stock, net of commissions and expenses of $1,496	—		—			1,754,556	2		50,371			—			—			50,373
Issuance of common stock upon exercise of stock purchase rights	—		—			5,029	—		96			—			—			96
Exercise of stock options	—		—			296,716	—		1,282			—			—			1,282
Issuance of common stock upon exercise of warrants	—		—			314,368	—		9			—			—			9
Vesting of restricted stock	—		—			69,249	—		—			—			—			—
Stock-based compensation	—		—			—	—		12,945			—			—			12,945
Excess tax benefit	—		—			—	—		463			—			—			463
Unrealized Gain/(Loss)	—		—			—	—		—			(72		)	—			(72		)
Net loss	—		—			—	—		—			—			(74,363		)	(74,363		)
Balances at December 31, 2015	—		$	—		26,458,495	$	26	$	236,492		$	(179	)	$	(217,564	)	$	18,775



			GROSS		GROSS
	AMORTIZED		UNREALIZED		UNREALIZED			FAIR
(in thousands)	COST		GAINS		LOSSES			VALUE
Cash and cash equivalents:
Cash and money market accounts	$	91,060	$	—	$	—		$	91,060
Total cash and cash equivalents	$	91,060	$	—	$	—		$	91,060
Investments:
Certificates of deposit (due within 1 year)	$	13,611	$	1	$	(7	)	$	13,605
Certificates of deposit (due within 2 years)	4,760		—		(10		)	4,750
Commercial paper (due within 1 year)	5,977		—		(11		)	5,966
Corporate bonds (due within 1 year)	24,002		—		(65		)	23,937
Corporate bonds (due within 2 years)	9,142		—		(84		)	9,058
Government agencies (due within 1 year)	1,997		—		(3		)	1,994
Total investments	$	59,489	$	1	$	(180	)	$	59,310
Total cash, cash equivalents, and investments	$	150,549	$	1	$	(180	)	$	150,370



	FAIR VALUE MEASUREMENTS AS OF
	DECEMEBER 31, 2015
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and money market accounts	$	91,060	$	—	$	—	$	91,060
Total cash and cash equivalents:	$	91,060	$	—	$	—	$	91,060
Investments:
Certificates of deposit	$	—	$	18,355	$	—	$	18,355
Commercial paper	—		5,966		—		5,966
Corporate bonds	—		32,995		—		32,995
Government agencies	—		1,994		—		1,994
Total investments	$	—	$	59,310	$	—	$	59,310
Total cash, cash equivalents, and investments:	$	91,060	$	59,310	$	—	$	150,370

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