Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172021
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36152
Aerie Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware
20-3109565
Delaware
20-3109565
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification Number)
2030 Main Street,4301 Emperor Boulevard, Suite 1500400
Irvine, California 92614Durham, North Carolina 27703
(949) 526-8700(919) 237-5300
(Address of principal executive offices, zip code and telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareAERINasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:  ý☒    No:  o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes:  ý☒    No:  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated fileroAccelerated filerý
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging growth companyý☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o☐    No  ý☒

As of November 2, 2017,July 30, 2021, there were 36,704,72947,233,646 shares of the registrant’s common stock, par value $0.001 per share, outstanding.


Table of Contents
TABLE OF CONTENTS
Page
ii
1
Item 1.
1
Condensed Consolidated Balance Sheets at SeptemberJune 30, 20172021 and December 31, 20162020
1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020
2
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the three and six months ended June 30, 2021 and 2020
3
Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172021 and 20162020
35
Notes to the Condensed Consolidated Financial Statements
46
Item 2.
1619
Item 3.
2530
Item 4.
2630
2731
Item 1.
2731
Item 1A.
2731
Item 2.
2732
Item 3.
2832
Item 4.
2832
Item 5.
2832
Item 6.
2933




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


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may, in some cases, use terms such as “predicts,” “believes,” “potential,” “proposed,” “continue,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “would,” “could,” “might,” “will,” “should,” “exploring,” “pursuing” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.
Forward-looking statements appear in a number of places throughout this report and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things:
•the broad impact of the coronavirus (“COVID-19”) pandemic on our business;
•the sales of Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”) or of Rocklatan® (netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan®”), in the United States, and the potential future sales in the United States of any product candidates or future product candidates, if approved;
•the potential future sales in jurisdictions outside of the United States of Rhopressa®, named Rhokiinsa® (netarsudil ophthalmic solution) 0.02%(“Rhokiinsa®”) in Europe, or Rocklatan®, named Roclanda® (netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“Roclanda®”) in Europe, or their equivalents, and those of any product candidates or future product candidates;
•our commercialization, marketing, manufacturing and supply management capabilities and strategies in and outside of the United States;
•third-party payer coverage and reimbursement for our products and product candidates and any future product candidates, if approved;
•the glaucoma patient market size and the rate and degree of market adoption of our products and product candidates and any future product candidates, if approved, by eye-care professionals and patients;
•the timing, cost or other aspects of the commercial launch of our products and product candidates and any future product candidates, if approved;
•the success, timing and cost of our ongoing and anticipated preclinical studies and clinical trials for our current product candidates and potentialany future product candidates, including statements regarding the timing of initiation and completion of the studies and trials;
•our expectations regarding the clinical effectiveness of our products, product candidates and any future product candidates and our expectations regarding the results of ourany clinical trials;trials and preclinical studies;
•the timing of and our ability to request, obtain and maintain U.S. Food and Drug Administration (“FDA”)FDA or other regulatory authority approval of, or other action with respect to our products, product candidates and any future product candidates in the U.S., Canada,United States, Europe, Japan and elsewhere, including the expected timing of, and regulatory and/or other review of, filings for oursuch products, product candidates and any future product candidates;
•our expectations related to the use of proceeds from our financing activities;
•our estimates regarding anticipated operating expenses and capital requirements and our needs for additional financing;
the commercial launch and potential future sales
ii
Table of our current or any other future product candidates;Contents
our commercialization, marketing, manufacturing and supply management capabilities and strategies;
third-party payor coverage and reimbursement for our product candidates;
the glaucoma patient market size and the rate and degree of market adoption of our product candidates by eye-care professionals and patients;
the timing, cost or other aspects of the commercial launch of our product candidates;
•our plans to pursue development of additional product candidates and technologies in ophthalmology, including development of our products or product candidates for additional indications, and our preclinical retinal programs and other therapeutic opportunities;
•the potential advantages of our products, product candidates and any future product candidates;
our plans to explore possible uses of our existing proprietary compounds beyond glaucoma;
•our ability to protect our proprietary technology and enforce our intellectual property rights; and
•our expectations regarding existing and future collaborations, licensing, acquisitions and strategic operations, including our ability to in-license or acquire additional ophthalmic products, product candidates or product candidates; and
our stated objective of building a major ophthalmic pharmaceutical company.technologies.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, industry change and other factors beyond our control, and depend on regulatory approvals and economic and other environmental circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, as filed with the Securities and Exchange Commission (“SEC”) on March 9, 2017,February 26, 2021, and other documents we have filed or furnished with the SEC.
In particular, FDA approval of Rhopressa® and Rocklatan® do not constitute FDA approval of our product candidates or any future product candidates in the United States, and there can be no assurance that we will receive FDA approval for our product candidates or any future product candidates. In addition, the European Commission (“EC”) grant of a Centralised Marketing Authorisation (“Centralised MA”) for Rhokiinsa® and Roclanda® and the receipt of marketing authorization from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) for Roclanda® do not constitute European Medicines Agency (“EMA”) or MHRA approval of our product candidates or any future product candidates in Europe, and there can be no assurance that we will receive EMA or MHRA approval for our product candidates or any future product candidates. FDA, EMA and MHRA approval of Rhopressa® and Rocklatan® do not constitute regulatory approval of these products in jurisdictions outside of the United States or Europe and there is no assurance that we will receive regulatory approval for Rhopressa® and Rocklatan® in such jurisdictions. In addition, the clinical trials discussed in this report are preliminary and the outcome of such clinical trials may not be predictive of the outcome of later clinical trials. Any future clinical trial results may not demonstrate safety and efficacy sufficient to obtain regulatory approval related to the clinical trials findings discussed in this report, and we may suspend or discontinue research programs at any time for any reason.
You should not rely upon forward-looking statements as predictions of future events.

ii
Table of Contents

In particular, our receipt of a Prescription Drug User Fee Act (“PDUFA”) goal date notification and the FDA advisory committee’s vote in favor of RhopressaTM do not constitute FDA approval of the RhopressaTM New Drug Application (“NDA”), and there can be no assurance that the FDA will complete its review by the PDUFA goal date, that the FDA will not require changes or additional data that must be made or received before it will approve the NDA, if ever, or that the FDA will approve the NDA.
Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this report, they may not be predictive of results or developments in future periods.
Any forward-looking statements that we make in this report speak only as of the date of this report. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as athe result of new information, future events or otherwise, after the date of this report.

iii
Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
 SEPTEMBER 30, 2017 DECEMBER 31, 2016
Assets   
Current assets   
Cash and cash equivalents$194,078
 $197,945
Short-term investments87,256
 35,717
Prepaid expenses and other current assets2,065
 4,028
Total current assets283,399
 237,690
Long-term investments901
 —
Property, plant and equipment, net19,246
 7,857
Other assets2,656
 2,707
Total assets$306,202
 $248,254
Liabilities and Stockholders’ Equity   
Current liabilities   
Accounts payable and other current liabilities$18,045
 $18,820
Interest payable551
 551
Total current liabilities18,596
 19,371
Convertible notes, net123,769
 123,539
Other non-current liabilities4,569
 —
Total liabilities146,934
 142,910
Commitments and contingencies (Note 11)
 
Stockholders’ equity   
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of September 30, 2017 and December 31, 2016; None issued and outstanding—
 —
Common stock, $0.001 par value; 150,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 36,426,830 and 33,458,607 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively36
 33
Additional paid-in capital562,545
 422,002
Accumulated other comprehensive loss(98) (68)
Accumulated deficit(403,215) (316,623)
Total stockholders’ equity159,268
 105,344
Total liabilities and stockholders’ equity$306,202
 $248,254

JUNE 30, 2021DECEMBER 31, 2020
Assets
Current assets
Cash and cash equivalents$79,956 $151,570 
Short-term investments108,331 88,794 
Accounts receivable, net59,151 56,022 
Inventory30,704 27,059 
Prepaid expenses and other current assets10,876 8,310 
Total current assets289,018 331,755 
Property, plant and equipment, net52,715 54,260 
Operating lease right-of-use assets12,830 14,084 
Other assets965 1,946 
Total assets$355,528 $402,045 
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities
Accounts payable$7,437 $8,826 
Accrued expenses and other current liabilities96,761 90,723 
Operating lease liabilities3,888 4,923 
Total current liabilities108,086 104,472 
Convertible notes, net222,023 210,373 
Deferred revenue, non-current52,829 50,858 
Long-term operating lease liabilities10,031 10,206 
Other non-current liabilities2,173 2,168 
Total liabilities395,142 378,077 
Commitments and contingencies (Note 12)00
Stockholders’ (deficit) equity
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of June 30, 2021 and December 31, 2020; NaN issued and outstanding0 0 
Common stock, $0.001 par value; 150,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 46,994,403 and 46,821,644 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively47 47 
Additional paid-in capital1,120,153 1,103,074 
Accumulated other comprehensive loss(61)(52)
Accumulated deficit(1,159,753)(1,079,101)
Total stockholders’ (deficit) equity(39,614)23,968 
Total liabilities and stockholders’ (deficit) equity$355,528 $402,045 
The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Table of Contents

AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
 THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
 2017 2016 2017 2016
Operating expenses       
Selling, general and administrative$19,774
 $10,627
 $51,402
 $29,814
Research and development12,408
 12,688
 33,977
 38,301
Total operating expenses32,182
 23,315
 85,379
 68,115
Loss from operations(32,182) (23,315) (85,379) (68,115)
Other income (expense), net(141) (460) (1,071) (1,490)
Net loss before income taxes(32,323) (23,775) (86,450) (69,605)
Income tax expense49
 39
 142
 132
Net loss$(32,372) $(23,814) $(86,592) $(69,737)
Net loss per common share - basic and diluted$(0.89) $(0.81) $(2.48) $(2.52)
Weighted average number of common shares outstanding - basic and diluted36,210,329
 29,380,453
 34,932,551
 27,632,090
        
Net loss$(32,372) $(23,814) $(86,592) $(69,737)
Unrealized (loss) gain on available-for-sale investments(17) (3) (30) 166
Comprehensive loss$(32,389) $(23,817) $(86,622) $(69,571)

 THREE MONTHS ENDED JUNE 30,SIX MONTHS ENDED JUNE 30,
 2021202020212020
Product revenues, net$27,185 $18,033 $50,155 $38,374 
Total revenues, net27,185 18,033 50,155 38,374 
Costs and expenses:
Cost of goods sold6,177 7,326 12,877 13,418 
Selling, general and administrative34,542 33,237 67,140 70,139 
Pre-approval commercial manufacturing0 80 0 2,194 
Research and development17,967 19,943 35,858 39,116 
Total costs and expenses58,686 60,586 115,875 124,867 
Loss from operations(31,501)(42,553)(65,720)(86,493)
Other (expense) income, net(7,169)(5,634)(14,883)(10,856)
Loss before income taxes(38,670)(48,187)(80,603)(97,349)
Income tax expense (benefit)18 0 49 (33)
Net loss$(38,688)$(48,187)$(80,652)$(97,316)
Net loss per common share—basic and diluted$(0.84)$(1.05)$(1.75)$(2.12)
Weighted average number of common shares
 outstanding—basic and diluted		46,197,656 45,876,106 46,153,613 45,834,305 
Net loss$(38,688)$(48,187)$(80,652)$(97,316)
Unrealized gain (loss) on available-for-sale investments, net3 237 (9)209 
Comprehensive loss$(38,685)$(47,950)$(80,661)$(97,107)
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Table of Contents


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

 NINE MONTHS ENDED 
 SEPTEMBER 30,
 2017 2016
Cash flows from operating activities   
Net loss$(86,592) $(69,737)
Adjustments to reconcile net loss to net cash used in operating activities   
Depreciation916
 702
Amortization of deferred financing costs and debt discount230
 227
Amortization and accretion of premium or discount on available-for-sale investments, net52
 403
Stock-based compensation18,072
 11,514
Unrealized foreign exchange loss522
 —
Changes in operating assets and liabilities   
Prepaid, current and other assets1,718
 (916)
Accounts payable and other current liabilities(1,981) (3,187)
Net cash used in operating activities(67,063) (60,994)
Cash flows from investing activities   
Purchase of available-for-sale investments(101,217) (19,948)
Proceeds from sales and maturities of investments48,696

35,355
Purchase of property, plant and equipment(7,073) (1,392)
Net cash (used in) provided by investing activities(59,594) 14,015
Cash flows from financing activities   
Proceeds from sale of common stock, net122,046
 167,387
Proceeds related to issuance of stock for stock-based compensation arrangements, net744
 470
Net cash provided by financing activities122,790
 167,857
Net change in cash and cash equivalents(3,867) 120,878
Beginning of period197,945
 91,060
End of period$194,078
 $211,938
Supplemental disclosures   
Income taxes paid$—
 $1,790
Interest paid$1,636
 $1,641
Non-cash investing and financing activities   
Build-to-suit lease transaction (Note 8)
 

 COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOMEACCUMULATED
DEFICIT		TOTAL
 SHARESAMOUNT
Balances at December 31, 201946,464,669 $46 $1,062,996 $(92)$(896,000)$166,950 
Issuance of common stock upon exercise of stock options and warrants5,811 — 44 — — 44 
Issuance of common stock for restricted stock awards, net5,705 — (1,466)— — (1,466)
Stock-based compensation— — 10,838 — — 10,838 
Other comprehensive loss— — — (28)— (28)
Net loss— — — — (49,129)(49,129)
Balances at March 31, 202046,476,185 $46 $1,072,412 $(120)$(945,129)$127,209 
Issuance of common stock upon exercise of stock purchase rights23,494 — 295 — — 295 
Issuance of common stock upon exercise of stock options31,615 1 118 — — 119 
Issuance of common stock for restricted stock awards, net(17,945)— (150)— — (150)
Stock-based compensation— — 10,289 — — 10,289 
Other comprehensive income— — — 237 — 237 
Net loss— — — — (48,187)(48,187)
Balances at June 30, 202046,513,349 $47 $1,082,964��$117 $(993,316)$89,812 
The accompanying notes are an integral part of these condensed consolidated financial statements.

























3
Table of Contents

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


 COMMON STOCKADDITIONAL
PAID-IN
CAPITAL		ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOMEACCUMULATED
DEFICIT		TOTAL
 SHARESAMOUNT
Balances at December 31, 202046,821,644 $47 $1,103,074 $(52)$(1,079,101)$23,968 
Issuance of common stock upon exercise of stock options62,016 — 26 — — 26 
Issuance of common stock for restricted stock awards, net10,162 — (1,127)— — (1,127)
Stock-based compensation— — 8,741 — — 8,741 
Other comprehensive loss— — — (12)— (12)
Net loss— — — — (41,964)(41,964)
Balances at March 31, 202146,893,822 $47 $1,110,714 $(64)$(1,121,065)$(10,368)
Issuance of common stock upon exercise of stock purchase rights89,555 — 998 — — 998 
Issuance of common stock upon exercise of stock options18,426 — 91 — — 91 
Issuance of common stock for restricted stock awards, net(7,400)— (13)— — (13)
Stock-based compensation— — 8,363 — — 8,363 
Other comprehensive income— — — 3 — 3 
Net loss— — — — (38,688)(38,688)
Balances at June 30, 202146,994,403 $47 $1,120,153 $(61)$(1,159,753)$(39,614)
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents

AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 SIX MONTHS ENDED 
JUNE 30,
 20212020
Cash flows from operating activities
Net loss$(80,652)$(97,316)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation3,161 3,186 
Amortization and accretion14,948 13,358 
Stock-based compensation16,745 20,705 
Other non-cash1,320 7 
Changes in operating assets and liabilities
Accounts receivable, net(3,129)(4,724)
Inventory(3,173)2,397 
Prepaid, current and other assets(2,532)(861)
Accounts payable, accrued expenses and other current liabilities4,082 1,484 
Operating lease liabilities(2,934)(2,929)
Deferred revenue1,970 0 
Net cash used in operating activities(50,194)(64,693)
Cash flows from investing activities
Purchase of available-for-sale investments(73,006)(43,455)
Proceeds from sales and maturities of investments52,988 118,357 
Purchase of property, plant and equipment(1,377)(1,690)
Net cash (used in) provided by activities(21,395)73,212 
Cash flows from financing activities
Proceeds from loan0 8,274 
Repayment of loan0 (8,274)
Payments related to issuance of stock for stock-based compensation arrangements, net(25)(1,160)
Net cash used in financing activities(25)(1,160)
Net change in cash and cash equivalents(71,614)7,359 
Cash and cash equivalents, at beginning of period151,570 143,940 
Cash and cash equivalents, at end of period$79,956 $151,299 
Non-cash investing and financing activities
Purchase of property, plant and equipment$727 $409 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
AERIE PHARMACEUTICALS, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. The Company
Aerie Pharmaceuticals, Inc. (“Aerie”), with its wholly-owned subsidiaries, Aerie Distribution, Inc., Aerie Pharmaceuticals Limited, and Aerie Pharmaceuticals Ireland Limited and Avizorex Pharma S.L. (“Aerie Distribution,” “Aerie Limited,” “Aerie Ireland Limited” and “Aerie Ireland Limited,“Avizorex,” respectively, together with Aerie, the “Company”), is a clinical-stagean ophthalmic pharmaceutical company focused on the discovery, development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma, ocular surface diseases and other diseases of the eye.retinal diseases. The Company has its principal executive offices in Irvine, California,Durham, North Carolina, and operates as one1 business segment.
U.S. Commercial Products
The Company has two advanced-stage product candidatesdeveloped and commercialized 2 U.S. Food and Drug Administration (“FDA”) approved products, Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”) and Rocklatan® (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Rocklatan®”), which are sold in the United States and comprise its glaucoma franchise. Rhopressa® is a once-daily eye drop designed to lowerreduce elevated intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension that it intendshypertension. Rocklatan® is a once-daily fixed-dose combination of Rhopressa® and latanoprost, the most widely-prescribed drug for the treatment of patients with open-angle glaucoma. The Company is commercializing Rhopressa®, which was launched in the United States in April 2018, and Rocklatan®, which was launched in the United States in May 2019.
Outside the United States
In addition to commercialize on its ownactively promoting Rhopressa® and Rocklatan® in North American markets, if approved. Thethe United States, the Company’s strategy also includes pursuing regulatory approval for these product candidatesdeveloping business opportunities outside of the United States, including the successful commercialization of Rhopressa® and Rocklatan® in Europe, Japan and Japan on its own. The first product candidate, RhopressaTM (netarsudil ophthalmic solution) 0.02% (“RhopressaTM”), is a once-daily eye drop designed to lower IOP in patients with glaucoma or ocular hypertension, whichother regions. At present, the Company has submitted a New Drug Applicationdevelopment and commercialization partner for Japan and certain other Asian countries, and is evaluating potential collaborators for Europe and other regions. Rhopressa® and Rocklatan® will be marketed under the namesRhokiinsa® andRoclanda®, respectively, if ultimately commercialized in Europe.
In Europe, Rhokiinsa® and Roclanda® were granted a Centralised Marketing Authorisation (“NDA”Centralised MA”) by the European Commission (“EC”) in November 2019 and January 2021, respectively. In April 2021, Roclanda® received marketing authorisation from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in Great Britain. As the EC decision was received after the end of the Brexit transition period, the Company was required to complete a further administrative step in order to obtain authorisation in Great Britain.
The Company reported positive interim topline 90-day efficacy data in September 2020 for Mercury 3, the Phase 3b clinical trial for Roclanda®, a six-month efficacy and safety trial designed to compare Roclanda® to Ganfort®, a fixed-dose combination product marketed in Europe of bimatoprost (a prostaglandin analog), and timolol (a beta blocker). As a result of the positive Mercury 3 results, discussions are underway with third parties who have expressed interest in a commercialization partnership in and potentially beyond Europe, while the Company is simultaneously preparing on its own for pricing discussions in Germany.
In Japan, the Company entered into a Collaboration and License Agreement (the “Santen Agreement”) with the U.S. FoodSanten Pharmaceuticals Co., Ltd. (“Santen”) in October 2020 to advance its clinical development and Drug Administration (“FDA”) on February 28, 2017. The Prescription Drug User Fee Act goal date has been setultimately commercialize Rhopressa® and Rocklatan® in Japan and eight other countries in Asia. See Note 3 for February 28, 2018.additional information. The Company also intends to file for European regulatory approval ofinitiated a now fully enrolled RhopressaTM in the second half of 2018. Additionally, the Company has commenced® Phase 1 and Phase 23 clinical trial activities for RhopressaTM on Japanese patients in December 2020, the United States and anticipates conducting futurefirst of three expected Phase 3 clinical trials in Japan. The trial is expected to be completed by the end of 2021 and topline results are expected to be reported shortly thereafter. Clinical trials for Rocklatan® in Japan have not yet begun.
Glaucoma Product Manufacturing
The Company has a sterile fill production facility in Athlone, Ireland, for the production of its FDA approved products and clinical supplies. The Company received FDA approval to produce Rocklatan® and Rhopressa® at the Athlone manufacturing plant for commercial distribution in the United States in January 2020 and September 2020, respectively. The manufacturing plant began manufacturing commercial supplies of Rocklatan® during the first quarter of 2020 and Rhopressa® in the third quarter of 2020 for distribution to the United States. Shipments of commercial supply of Rocklatan® and Rhopressa® from the Athlone manufacturing plant to the United States commenced in the third quarter of 2020 and in the fourth quarter of 2020,
6
Table of Contents
respectively. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan.
Product Candidates and Pipeline
The Company is furthering the development of its product candidates and preclinical candidates, described below, focused on dry eye, AR-15512, retinal diseases, AR-1105, AR-13503 SR and AR-14034 SR, and a ROCK inhibitor-linked-steroid, AR-6121.
The active ingredient in AR-15512 is a potent and selective agonist of the TRPM8 ion channel, a cold sensor and osmolarity sensor that regulates tear production and blink rate. In addition, activating the TRPM8 receptor may reduce ocular discomfort by promoting a cooling sensation. The Investigational New Drug Application (“IND”) for AR-15512 eye drop for dry eye became effective in September 2020, allowing Aerie to initiate clinical studies in the treatment of dry eye. The Company is currently testing two concentrations of AR-15512 in an ongoing 90-day Phase 2b clinical trial with 369 subjects, which could potentially be considered pivotal. The Company initiated this now fully enrolled clinical trial, named COMET-1, in October 2020 and a topline readout is expected later in the third quarter of 2021.
The Company is currently developing three sustained-release implants focused on retinal diseases, AR-1105, AR-13503 SR, AR-14034 SR. In July 2020, the Company completed a Phase 2 clinical trial for AR-1105, a dexamethasone steroid implant, in patients with macular edema due to retinal vein occlusion (“RVO”) and reported topline results indicating sustained efficacy of up to six months, an important achievement in validating the capabilities of Aerie’s sustained release platform. The Company continues to have discussions with regulatory agencies in order to harmonize development plans across both Europe and the United States and continues to evaluate next steps regarding clinical and regulatory pathways for Phase 3 clinical trials along with commercialization prospects in both markets. The Company expects to start Phase 3 clinical trial activities for AR-1105 in the fourth quarter of 2021.
The Company is also developing AR-13503, a Rho kinase (“ROCK”) and Protein kinase C inhibitor that is the active ingredient in the AR-13503 sustained-release implant. The IND for AR-13503 SR became effective in April 2019, allowing the Company to initiate human studies in the treatment of wet age-related macular degeneration (age-related macular degeneration, “AMD”) and diabetic macular edema (“DME”). The Company initiated a first-in-human clinical safety study for AR-13503 SR in the third quarter of 2019. The Company currently expects to complete the dose escalation safety evaluation with the objectivecurrent implant design for AR-13503 SR in the first quarter of receiving regulatory approval2022.
The preclinical stage sustained-release implant AR-14034 SR is being designed to deliver the active ingredient axitinib, a potent small molecule pan-VEGF receptor inhibitor. AR-14034 SR has the potential to provide a duration of RhopressaTM in Japan. The second product candidate is once-daily RoclatanTM (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“RoclatanTM”),effect of approximately one year with a fixed-dose combinationonce per-year injection. It may potentially be used to treat DME, wet AMD and related diseases of RhopressaTMthe retina. IND-enabling preclinical studies are ongoing and latanoprost for which the Company plans to submitanticipates filing an NDAIND for AR-14034 SR with the FDA in the second quarterhalf of 2018. The Company is currently conducting a Phase 3 trial named Mercury 3 in Europe comparing RoclatanTMto Ganfort®, which if successful, is expected to improve its commercialization prospects in that region. Mercury 3 is not necessary for approval in the United States. 2022.
The Company is also conducting ongoing researchdeveloping AR-6121, a newly introduced preclinical stage ROCK inhibitor-linked-steroid, which is a proprietary class of potent ocular corticosteroids linked to evaluate injectable sustained release formulation technologiesROCK inhibitors. AR-6121 has the potential to leverage the anti-fibrotic and IOP-lowering activities of ROCK inhibitors to generate potent steroid effects with an improved safety profile. AR-6121 has the potential to meet an unmet need for effective and safer steroid treatment, specifically those that do not cause an increase in IOP or cataract formation. IND-enabling preclinical studies are underway and the Company anticipates filing an IND for AR-6121 with the potential capability of delivering Aerie’s preclinical molecule AR-13154 internallyFDA in the eye over several months forsecond half of 2022.
Liquidity
The Company commenced generating product revenues related to the treatment of retinal diseases such as wet age-related macular degeneration (“AMD”) and diabetic macular edema (“DME”), and is also evaluating possible uses for its existing proprietary portfolio of Rho kinase inhibitors beyond ophthalmology.
In 2015, the Company revised its corporate structure to align with its business strategy outside of North America by establishing Aerie Limited and Aerie Ireland Limited. Aerie assigned the beneficial rights to its non-U.S. and non-Canadian intellectual property for its lead product candidates to Aerie Limited (the “IP Assignment”). As part of the IP Assignment, Aerie and Aerie Limited entered into a research and development cost-sharing agreement pursuant to which Aerie and Aerie Limited will share the costs of the development of intellectual property and Aerie Limited and Aerie Ireland Limited entered into a license arrangement pursuant to which Aerie Ireland Limited will develop and commercialize the beneficial rights of the intellectual property assigned as part of the IP Assignment. In 2016, Aerie assigned the beneficial rights to certain of Aerie’s intellectual propertysales in the U.S.United States of Rhopressa® in the second quarter of 2018 and Canada to Aerie Distribution, and amended and restatedRocklatan® in the research and development cost-sharing agreement to transfer Aerie’s rights and obligations under the agreement to Aerie Distribution.
The Company has not yet commenced commercial operations and therefore has not generated product revenue.second quarter of 2019. The Company’s activities since inception haveprior to the commercial launch of Rhopressa® had 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 current product candidates. The Company has incurred losses and experienced negative operating cash flows since inception. The Company hashad previously funded its operations primarily through the sale of equity securities and issuance of convertible notes (Note 7).
Ifprior to generating product revenues. In September 2019, the Company does not successfully commercializeissued an aggregate principal amount of $316.25 million of 1.50% convertible senior notes due 2024 (the “Convertible Notes”) (Note 10). Further, in October 2020, the Company entered into the Santen Agreement, pursuant to which Santen paid an upfront payment of $50.0 million (Note 3).
The Company expects to incur ongoing operating losses until such a time when Rhopressa® or Rocklatan® or any of its current or future product candidates it may be unableor future product candidates, if approved, generate sufficient cash flows for the Company to generate product revenue or achieve profitability. Accordingly, the Company may be required to obtain further funding through other publicdebt or privateequity 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
7
Table of Contents
unable to raise capital when needed or on attractiveacceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts.

2. Significant Accounting Policies
Basis of Presentation
The Company’s interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 20162020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2017.February 26, 2021. The results for the three and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of Aerie and its wholly-owned subsidiaries. All intercompany accounts, transactions and profits have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, acquisitions, stock-based compensation and fair value measurements. On March 11, 2020, the valuationWorld Health Organization declared the coronavirus (“COVID-19”) outbreak a pandemic. The full extent to which COVID-19 will directly or indirectly impact the Company’s business, results of stock optionsoperations and operating expense accruals.financial condition, including net product revenue, cost and expenses, reserves and allowances, manufacturing and clinical trials, may still not be known and will depend on future developments that continue to be uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on eye-care professionals, patients, third parties and markets. Actual results could differ from the Company’s estimates.
InvestmentsAdoption of New Accounting Standards
The Company determinesIn December 2019, 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 Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting Standards Codificationfor Income Taxes (“ASC”ASU 2019-12”) 320, Investments—Debt, which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and Equity Securities.the recognition of deferred tax liabilities for outside basis differences. 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 datenew ASU also simplifies aspects of the investments is greater than one year.
Available-for-sale investments are recorded at fair value, with unrealized gains or losses included in comprehensive loss on the condensed consolidated statements of operationsaccounting for franchise taxes and comprehensive loss and in accumulated other comprehensive loss on the condensed 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 three and nine months ended September 30, 2017 or 2016.
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 andenacted changes in value subsequenttax laws or rates. These changes aim to period end. Asimprove the overall usefulness of September 30, 2017, there were no investments with a fair value thatdisclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance 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 and accounts payable, approximate their respective carrying values due to the short-term nature of these instruments. The estimated fair value of the 2014 Convertible Notes (as defined in Note 7) was $269.8 million and $209.6 million as of September 30, 2017 and December 31, 2016, respectively. The increase in the estimated fair value of the 2014 Convertible Notes was primarily attributable to the increase in the closing price of Aerie’s common stock on September 30, 2017 as compared to December 31, 2016.
Adoption of New Accounting Standards
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 new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired, or disposed of, is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The new standard is effective for the Company beginning on January 1, 2018; however, Aerie has elected to early adopt this standard as of July 1, 2017.2021 and prescribes different transition methods for the various provisions. The adoption of ASU 2017-01 had no2019-12 did not have a material impact on the Company’s consolidated financial statements for the three and nine months ended September 30, 2017, but may impact the accounting for subsequent business development transactions. See Note 12, “Subsequent Events,” for additional information.disclosures.
Recent Accounting Pronouncements
In May 2017,August 2020, the FASB issued ASU 2017-09, CompensationNo. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Stock Compensation (Topic 718): ScopeContracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to address the complexity associated with applying GAAP to certain financial instruments with characteristics of Modification Accounting, which clarifies when changesliabilities and equity. This ASU includes amendments to the terms or conditions of a share-based payment award must be accountedguidance on convertible instruments and the derivative scope exception for as modifications. Undercontracts in an entity’s own equity. ASU 2017-09, an entity2020-06 also simplifies the accounting for convertible instruments, which includes eliminating the cash conversion accounting model for convertible instruments. Additionally, ASU 2020-06 will not apply modification accountingrequire entities to a share-based payment award ifuse the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date.“if-converted” method when calculating diluted earnings per share for convertible instruments. The guidance is effective for the Company beginning
8
Table of Contents
on January 1, 2018. Early adoption is permitted. The Company is evaluating the impact of the adoption of this guidance on its consolidated financial statements but does not expect it to have a material impact.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which eliminates the exception to the principle in ASC 740, Income Taxes,that generally requires comprehensive recognition of current2022 and deferred income taxesfor all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The new standard is effective for the Company beginning on January 1, 2018, with early adoption permitted, and must be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. At September 30, 2017, the Company has deferred $2.3 million of income tax effects from past intercompany transactions that are recorded as other assets that it expects to adjust through opening accumulated deficit when the Company adopts the standard on January 1, 2018.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Currently, U.S. GAAP delays recognition of the full amount of credit losses until the loss is probable of occurring. Under this new standard, the income statement will reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses will be based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down of the security. The new standard is effective for the Company beginning on January 1, 2020. Early adoption is permitted for fiscal year beginning January 1, 2019. The new guidance prescribes different transition methods for the various provisions. The Company is currently evaluating the impact of this accounting standard updateASU 2020-06 on its consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date and for those leases that have lease terms of more than 12 months. The guidance is effective for the Company beginning on January 1, 2019, and all annual and interim periods thereafter, with early adoption permitted, and must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and provides for certain practical expedients. The Company is currently evaluating the impact of this accounting standard update on the its consolidated financial statements and disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance related to the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance is effective for the Company beginning on January 1, 2018, with early adoption permitted. The new guidance prescribes different transition methods for the various provisions. The Company is currently evaluating the impact of this accounting standard update on the its consolidated financial statements and disclosures, but does not expect it to have a material impact.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The standard states that an entity should recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has subsequently issued amendments to ASU 2014-09 that have the same effective date of January 1, 2018. The future impact of ASU 2014-09 will be dependent on the nature of the Company’s future revenue contracts and arrangements, if any.
Net Loss per Common Share
Basic net loss per common share (“Basic EPS”) is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities with the exception of warrants for common stock with a $0.05 exercise price, which are exercisable for nominal consideration and are therefore included in the calculation of the weighted-average number of shares of common stock as common stock equivalents.securities. Diluted net loss per share (“Diluted EPS”) gives effect to all dilutive potential shares of common stock outstanding during this period. For Diluted EPS, net loss used in calculating Basic EPS ismay be adjusted for certain items related to the dilutive securities.
For all periods presented, Aerie’s potential common stock equivalents have been excluded from the computation of Diluted EPS as their inclusion would have had an anti-dilutive effect.
The potential common stock equivalents that have been excluded from the computation of Diluted EPS consist of the following:
 THREE MONTHS ENDED 
JUNE 30,		SIX MONTHS ENDED 
JUNE 30,
 2021202020212020
Outstanding stock options8,720,650 8,628,753 8,720,650 8,628,753 
Stock purchase warrants0 4,500 0 4,500 
Non-vested restricted stock awards and performance share units692,180 578,923 692,180 578,923 
Non-vested restricted stock units96,742 30,827 96,742 30,827 
Total9,509,572 9,243,003 9,509,572 9,243,003 

 THREE MONTHS ENDED 
 SEPTEMBER 30,		 NINE MONTHS ENDED 
 SEPTEMBER 30,
 2017 2016 2017 2016
2014 Convertible Notes(1)
5,040,323
 5,040,323
 5,040,323
 5,040,323
Outstanding stock options6,237,959
 5,152,024
 6,237,959
 5,152,024
Stock purchase warrants157,500
 157,500
 157,500
 157,500
Unvested restricted common stock awards439,549
 171,734
 439,549
 171,734
(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 7 for further information regarding the 2014 Convertible Notes.

3. Other Income (Expense), NetRevenue Recognition
Other income (expense), net consists of the following:Product Revenues
 THREE MONTHS ENDED 
 SEPTEMBER 30,		 NINE MONTHS ENDED 
 SEPTEMBER 30,
(in thousands)2017 2016 2017 2016
Interest and amortization expense$(597) $(600) $(1,799) $(1,910)
Foreign exchange loss(163) (4) (565) (14)
Investment income619
 144
 1,293
 434
 $(141) $(460) $(1,071) $(1,490)

The foreign exchange loss duringNet product revenues for the three and ninesix months ended SeptemberJune 30, 20172021 and 2020 were generated from sales of Rhopressa® and Rocklatan®, the Company’s glaucoma franchise products, which were commercially launched in the United States in April 2018 and May 2019, respectively. Aerie’s customers include a limited number of national and select regional wholesalers (the “distributors”). For the six months ended June 30, 2021, 3 distributors accounted for 37%, 32% and 30% of total revenues, respectively. For the six months ended June 30, 2020, 3 distributors accounted for 37%, 33% and 29% of total revenues, respectively. Product affordability for the patient drives consumer acceptance, and this is primarilygenerally managed through coverage by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and such product may be subject to rebates and discounts payable directly to those Third-party Payers.
Product revenue is recorded net of trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, discussed below. These reserves are classified as either reductions of accounts receivable or as current liabilities. Amounts billed or invoiced are included in accounts receivable, net on the condensed consolidated balance sheets. The Company did not have any contract assets (unbilled receivables) as of June 30, 2021 or December 31, 2020, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract liabilities as of June 30, 2021 or December 31, 2020, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers. The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its distributors for Rhopressa® and Rocklatan® less provisions for (i) trade discounts and allowances, such as discounts for prompt payment and distributor fees, (ii) estimated rebates to Third-party Payers, estimated payments for Medicare Part D prescription drug program coverage gap (commonly called the “donut hole”), patient co-pay program coupon utilization, chargebacks and other discount programs and (iii) reserves for expected product returns. Provisions for revenue reserves reduced product revenues by $61.3 million and $112.1 million in aggregate for the three and six months ended June 30, 2021, respectively, a significant portion of which related to commercial and Medicare Part D rebates. Provisions for revenue reserves reduced product revenues by $46.1 million and $89.8 million in aggregate for the three and six months ended June 30, 2020, respectively.
Trade Discounts and Allowances: The Company generally provides discounts on sales of Rhopressa® and Rocklatan® to its distributors for prompt payment and pays fees for distribution services and for certain data that distributors provide to the
9
Table of Contents
Company. The Company expects its distributors to earn these discounts and fees, and accordingly deducts the full amount of these discounts and fees from its gross product revenues at the time such revenues are recognized.
Rebates, Chargebacks and Other Discounts: The Company contracts with Third-party Payers for coverage and reimbursement of Rhopressa® and Rocklatan®. The Company estimates the rebates and chargebacks it expects to be obligated to provide to Third-party Payers and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide to Third-party Payers based upon (i) the Company's contracts and negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa® and Rocklatan® based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.
Product Returns: The Company estimates the amount of Rhopressa® and Rocklatan® that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The Company currently estimates product returns based on historical information regarding returns of Rhopressa® and Rocklatan® as well as historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa® and Rocklatan® shipped to distributors, and contractual agreements with the Company's distributors intended to limit the amount of inventory they maintain. Reporting from the distributors includes distributor sales and inventory held by distributors, which provides the Company with visibility into the distribution channel to determine when the product would be eligible to be returned.
Santen Collaboration and License Agreement
In October 2020, Aerie Ireland Limited entered into a Collaboration and License Agreement with Santen Pharmaceutical Co., Ltd., a Japanese pharmaceutical company dedicated to ophthalmology that carries out research, development, marketing and sales of pharmaceuticals, over-the-counter products and medical devices. Pursuant to the Santen Agreement, Aerie Ireland Limited granted to Santen the exclusive right to develop, manufacture, market and commercialize Rhopressa® and Rocklatan® (the “Licensed Products”) in Japan, South Korea, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Taiwan (such jurisdictions collectively, the “Territories”). The Company is the sole manufacturer of the Licensed Products for Santen. Under the Santen Agreement, Aerie Ireland Limited granted Santen a first right of negotiation for the rights to the Licensed Products in any Asian countries other than the Territories.
Under the Santen Agreement, Santen made an upfront payment to Aerie Ireland Limited of $50.0 million (the “Upfront Payment”) and Aerie Ireland Limited will earn various development milestones of up to $39.0 million and sales milestones of up to $60.0 million upon the achievement of certain events. In addition, Santen will pay Aerie Ireland Limited a royalty in excess of 25% of the Licensed Products’ net sales, such consideration consisting of the cost of products supplied to Santen from Aerie Ireland Limited and a royalty for the Company’s intellectual property. Santen will be responsible for sales, marketing and pricing decisions relating to the Licensed Products. Santen is also responsible for all development and commercialization costs and activities related to the remeasurementLicensed Products in the Territories, except that Aerie Ireland Limited shares 50% of the Company’s Euro-denominated monetary liabilitycosts related to conducting the first Rhopressa® Phase 3 clinical trial in Japan, which commenced in the fourth quarter of 2020.
The term of the Santen Agreement varies on a country-by-country basis in the Territory until the later of (i) the expiration of the last to expire valid patent claim covering the Licensed Product and (ii) 12 years from the date of the first commercial sale of each Licensed Products under a New Drug Application approval, marketing authorization or the equivalent. The Santen Agreement may be terminated by either Aerie Ireland Limited or Santen upon the other party’s material breach or bankruptcy or insolvency. Aerie Ireland Limited may also terminate the Santen Agreement upon a patent challenge by Santen, and Santen may terminate the Santen Agreement in its build-to-suit leasediscretion if, following marketing authorization for Rhopressa® in Japan, Santen reasonably determines that the Licensed Products are not commercially viable in the Territory (effective upon 180 days’ prior written notice). In addition, in the event that patents are issued that may prevent the commercialization of the Licensed Products, Santen would have the right to terminate the Santen Agreement and require Aerie Ireland Limited’s repayment of up to approximately 85% of the Upfront Payment, all development milestone payments and 50% of the development expenses incurred by Santen. In the event of termination, the Licensed Products in the applicable Territories will revert to the Company.
Deferred revenue, non-current as of June 30, 2021 and December 31, 2020 was $52.8 million and $50.9 million, respectively, and included the Upfront Payment as well as Santen’s portion of shared costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan, which commenced in the fourth quarter of 2020. While the Company determined that the license was a right to use the Company’s intellectual property and as of the effective date of the Santen Agreement, the Company had provided all necessary information to Santen to benefit from the license and the license term had begun, revenue was not
10
Table of Contents
recognized upon satisfaction of the performance obligation (Note 8), whichdue to the uncertainty around potential termination in the event that patents are issued that may prevent the commercialization of the Licensed Products.
The Company will recognize the Upfront Payment, and any other potential future development milestones and sales milestones, when it is held byprobable that a subsidiary with a U.S. dollar functional currency.significant reversal in the amount of cumulative revenue recognized will not occur. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
4. Investments
Cash, cash equivalents and investments as of SeptemberJune 30, 20172021 included the following:
GROSSGROSS
AMORTIZEDUNREALIZEDUNREALIZEDFAIR
(in thousands)COSTGAINSLOSSESVALUE
Cash and cash equivalents:
Cash and cash equivalents$79,956 $0 $0 $79,956 
Total cash and cash equivalents$79,956 $0 $0 $79,956 
Investments:
Commercial paper (due within 1 year)$55,764 $0 $(20)$55,744 
Corporate bonds (due within 1 year)52,628 0 (41)52,587 
Total investments$108,392 $0 $(61)$108,331 
Total cash, cash equivalents and investments$188,348 $0 $(61)$188,287 
(in thousands)
AMORTIZED
COST
 
GROSS
UNREALIZED
GAINS
 
GROSS
UNREALIZED
LOSSES
 
FAIR
VALUE
Cash and cash equivalents:       
Cash and money market funds$194,078
 $—
 $—
 $194,078
Total cash and cash equivalents$194,078
 $—
 $—
 $194,078
Investments:       
Commercial paper (due within 1 year)$43,225
 $—
 $—
 $43,225
Corporate bonds (due within 1 year)44,125
 —
 (94) 44,031
Corporate bonds (due within 2 years)905
 —
 (4) 901
Total investments$88,255
 $—
 $(98) $88,157
Total cash, cash equivalents and investments$282,333
 $—
 $(98) $282,235



Cash, cash equivalents and investments as of December 31, 20162020 included the following:
GROSSGROSS
AMORTIZEDUNREALIZEDUNREALIZEDFAIR
(in thousands)COSTGAINSLOSSESVALUE
Cash and cash equivalents:
Cash and cash equivalents$151,570 $0 $0 $151,570 
Total cash and cash equivalents$151,570 $0 $0 $151,570 
Investments:
Commercial paper (due within 1 year)44,122 5 (23)44,104 
Corporate bonds (due within 1 year)44,724 3 (37)44,690 
Total investments$88,846 $8 $(60)$88,794 
Total cash, cash equivalents and investments$240,416 $8 $(60)$240,364 
Interest income earned on the Company’s cash, cash equivalents and investments was immaterial for the three and six months ended June 30, 2021, respectively, and $0.5 million and $1.6 million for the three and six months ended June 30, 2020, respectively. Realized gains or losses were immaterial during the three and six months ended June 30, 2021 and 2020.
As of June 30, 2021, the Company had 0 equity securities. As of December 31, 2020, the fair value of the equity securities held at the end of the period was $1.3 million. For the six months ended June 30, 2021, the Company had $1.0 million of losses on equity securities sold during the period.
11
(in thousands)
AMORTIZED
COST
 
GROSS
UNREALIZED
GAINS
 
GROSS
UNREALIZED
LOSSES
 
FAIR
VALUE
Cash and cash equivalents:       
Cash and money market funds$196,445
 $—
 $—
 $196,445
Commercial paper1,500
 —
 —
 1,500
Total cash and cash equivalents$197,945
 $—
 $—
 $197,945
Investments:       
Certificates of deposit (due within 1 year)$6,920
 $4
 $(1) $6,923
Corporate bonds (due within 1 year)27,615
 4
 (75) 27,544
Government agencies (due within 1 year)1,250
 —
 —
 1,250
Total investments$35,785
 $8
 $(76) $35,717
Total cash, cash equivalents and investments$233,730
 $8
 $(76) $233,662
Table of Contents
5. Fair Value Measurements
The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC 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.
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
JUNE 30, 2021
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and cash equivalents$79,956 $0 $0 $79,956 
Total cash and cash equivalents:$79,956 $0 $0 $79,956 
Investments:
Commercial paper$0 $55,744 $0 55,744 
Corporate bonds0 52,587 0 52,587 
Total investments$0 $108,331 $0 $108,331 
Total cash, cash equivalents and investments:$79,956 $108,331 $0 $188,287 
FAIR VALUE MEASUREMENTS AS OF
DECEMBER 31, 2020
(in thousands)LEVEL 1LEVEL 2LEVEL 3TOTAL
Cash and cash equivalents:
Cash and cash equivalents$151,570 $0 $0 $151,570 
Total cash and cash equivalents:$151,570 $0 $0 $151,570 
Investments:
Commercial paper$0 $44,104 $0 $44,104 
Corporate bonds0 44,690 0 44,690 
Total investments$0 $88,794 $0 $88,794 
Total cash, cash equivalents and investments:$151,570 $88,794 $0 $240,364 
 
FAIR VALUE MEASUREMENTS AS OF
SEPTEMBER 30, 2017
(in thousands)Level 1 Level 2 Level 3 Total
Cash and cash equivalents:       
Cash and money market funds$194,078
 $—
 $—
 $194,078
Total cash and cash equivalents$194,078
 $—
 $—
 $194,078
Investments:       
Commercial paper$—
 $43,225
 $—
 $43,225
Corporate bonds—
 44,932
 —
 44,932
Total investments$—
 $88,157
 $—
 $88,157
Total cash, cash equivalents and investments$194,078
 $88,157
 $—
 $282,235


 
FAIR VALUE MEASUREMENTS AS OF
DECEMBER 31, 2016
(in thousands)Level 1 Level 2 Level 3 Total
Cash and cash equivalents:       
Cash and money market funds$196,445
 $—
 $—
 $196,445
Commercial paper—
 1,500
 —
 1,500
Total cash and cash equivalents$196,445
 $1,500
 $—
 $197,945
Investments:       
Certificates of deposit$—
 $6,923
 $—
 $6,923
Corporate bonds—
 27,544
 —
 27,544
Government agencies—
 1,250
 —
 1,250
Total investments$—
 $35,717
 $—
 $35,717
Total cash, cash equivalents and investments$196,445
 $37,217
 $—
 $233,662

Convertible Notes
As of September 30, 2017 and December 31, 2016, the estimatedThe fair value of the 2014 Convertible Notes, was $269.8 millionwhich differs from their carrying value, is influenced by interest rates, stock price and $209.6 million, respectively.stock price volatility and is determined by prices observed in market trading. The market for trading of the Convertible Notes is not considered to be an active market and therefore the estimate of fair value is based on Level 2 inputs. The estimated fair value of the 2014 Convertible Notes was $316.2 million at June 30, 2021.
There were no transfers between the different levels of the fair value hierarchy during the six months ended June 30, 2021 and 2020.
6. Inventory
Inventory consists of the following:
(in thousands)JUNE 30, 2021DECEMBER 31, 2020
Raw materials$3,840 $1,875 
Work-in-process24,244 21,648 
Finished goods2,620 3,536 
Total inventory$30,704 $27,059 

For the three and six months ended June 30, 2021, $3.9 million and $8.3 million, respectively, of idle capacity cost associated with the Company’s Athlone manufacturing plant was recorded to costs of goods sold. For the three and six months ended
12
Table of Contents
June 30, 2020, $5.0 million and $8.5 million, respectively, of idle capacity cost associated with the Company’s Athlone manufacturing plant was recorded to costs of goods sold. The idle capacity results from the manufacturing plant having commenced operations earlier in 2020 and not having yet reached full capacity.
7. Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
(in thousands)JUNE 30, 2021DECEMBER 31, 2020
Manufacturing equipment$22,046 $21,705 
Laboratory equipment8,399 7,948 
Furniture and fixtures1,681 1,681 
Software, computer and other equipment7,877 7,836 
Leasehold improvements30,590 30,178 
Construction-in-progress1,891 1,481 
 Property, plant and equipment72,484 70,829 
Less: Accumulated depreciation(19,769)(16,569)
Property, plant and equipment, net$52,715 $54,260 

8. Leases
The Company has operating leases for corporate offices, research and development facilities and a fleet of vehicles. The properties primarily relate to the Company’s principal executive office and research facility located in Durham, North Carolina, regulatory, commercial support and other administrative activities located in Irvine, California, and clinical, finance and legal operations located in Bedminster, New Jersey. The Durham, North Carolina, facility consists of approximately 61,000 square feet of laboratory and office space under a lease that was renewed in the third quarter of 2021 and expires in June 2029. The Irvine, California, location consists of approximately 27,000 square feet of office space under a lease that was renewed in the third quarter of 2021 and expires in October 2027. The Bedminster, New Jersey, location consists of approximately 34,000 square feet of office space under a lease that expires in October 2029. There are also small offices in Ireland, the United Kingdom and Japan.
The Company is leasing approximately 30,000 square feet of interior floor space for its manufacturing plant in Athlone, Ireland. The Company is reasonably certain it will remain in the lease through the end of its lease term in 2037, however, the Company is permitted to terminate the lease as early as September 2027.
The Company’s operating leases have remaining lease terms of approximately 1 year to 16 years, some of which include options to extend the leases.
Balance sheet information related to leases was as follows:
(in thousands)JUNE 30, 2021DECEMBER 31, 2020
Operating Leases
Operating lease right-of-use assets$12,830 $14,084 
Operating lease liabilities$3,888 $4,923 
Long-term operating lease liabilities10,031 10,206 
Total operating lease liabilities$13,919 $15,129 

13
Table of Contents
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)JUNE 30, 2021DECEMBER 31, 2020
Accrued expenses and other current liabilities:
Accrued compensation and benefits$11,848 $15,207 
Accrued consulting and professional fees2,498 2,645 
Accrued research and development (1)
4,364 2,222 
Accrued revenue reserves(2)
73,724 66,552 
Accrued other (3)
4,327 4,097 
Total accrued expenses and other current liabilities$96,761 $90,723 
(1)Comprised primarily of accruals related to fees for investigative sites, contract research organizations and other service providers that assist in conducting preclinical research studies and clinical trials.
(2)Comprised primarily of accruals related to commercial and government rebates as well as returns.
(3)Comprised primarily of accruals related to interest payable as well as other business-related expenses.
10. Debt
Convertible Notes
In September 2019, the Company issued an aggregate principal amount of $316.25 million of Convertible Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The Convertible Notes, governed by an indenture between the Company and a trustee, are senior, unsecured obligations and do not include financial and operating covenants nor any restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by Aerie or any of its subsidiaries. Interest on the Convertible Notes is payable semi-annually in cash in arrears at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020. The Convertible Notes will mature on October 1, 2024 unless they are redeemed, repurchased or converted prior to such date. Prior to April 1, 2024, the Convertible Notes will be convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. On and after April 1, 2024, the Convertible Notes will be convertible at the option of the holders any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes may be settled in shares of Aerie common stock, cash or a combination, thereof, at the Company's election. The Company intends to settle the principal and interest amounts of the Convertible Notes in cash, and therefore, the Company currently would not expect the conversion to have a dilutive effect on the Company’s earnings per share, as applicable. However, the Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements and disclosures, in which the Company will soon no longer be eligible to use the treasury stock method to reflect the shares underlying the Convertible Notes in the Company’s dilutive earnings per share. See Note 2 for additional information.
The Convertible Notes have an initial conversion rate of 40.04 shares of Aerie common stock per $1,000 principal amount of the Convertible Notes, which will be subject to customary anti-dilution adjustments in certain circumstances. This represents an initial effective conversion price of approximately $24.98 per share, which represents a premium of approximately 35% to the $18.50 per share closing price of Aerie common stock on September 4, 2019, the date the Company priced the offering.
The Company may redeem all or any portion of the Convertible Notes, at its option, on or after October 3, 2022, at a cash redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price of Aerie common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately before the date the Company provides written notice of redemption; and the trading day immediately before the notice is sent.
Holders of Convertible Notes may require the Company to repurchase their Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
14
Table of Contents
During the three months ended June 30, 2021, the conditions allowing holders of the Convertible Notes to elect to convert had not been met. As of June 30, 2021, the if-converted value of the Convertible Notes did not exceed the principal amount of the Convertible Notes.
The estimated fair value of the liability component of the Convertible Notes at the time of issuance was $187.9 million, and was determined usingbased on a scenariodiscounted cash flow analysis and Monte Carlo simulation model to capture the various features of the 2014 Convertible Notes.a binomial lattice model. The scenario analysis and Monte Carlo simulation requirevaluation required the use of Level 3 unobservable inputs and subjective assumptions, including but not limited to the probability of conversion, stock price volatility the risk-freeand bond yield. The effective interest rate and credit spread. The increase in the estimated fair value of the 2014 Convertible Notes was primarily attributable to the increase in the closing price of Aerie’s common stock on September 30, 2017 as compared to December 31, 2016. 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.
6. Accounts Payable & Other Current Liabilities
Accounts payable and other current liabilities consist of the following:
(in thousands)SEPTEMBER 30, 2017 DECEMBER 31, 2016
Accounts payable$3,651
 $5,610
Accrued expenses and other current liabilities:   
Employee benefits and compensation related accruals(1)
4,585
 4,111
Selling, general and administrative related accruals(2)
6,853
 2,908
Research and development related accruals(3)
2,956
 6,191
 $18,045
 $18,820
(1)Comprised of accrued bonus, accrued vacation and other employee-related expenses.
(2)Comprised of accruals such as outside professional fees, accruals related to commercial manufacturing activities and other business-related expenses.
(3)Comprised of accruals such as fees for investigative sites, contract research organizations, contract manufacturing organizations and other service providers that assist in conducting preclinical research studies and clinical trials.


7. Convertible Notes
On September 30, 2014, Aerie issued $125.0 million aggregate principal amount of senior secured convertible notes (“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. 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. (together with the other Deerfield entities listed above, “Deerfield”). The 2014 Convertible Notes were issued pursuant to a note purchase agreement (as amended and supplemented from time to time, the “Note Purchase Agreement”), dated as of September 8, 2014, among Aerie and the Deerfield entities party thereto.
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 onliability component was 10.5% for the seventh anniversaryperiod from the date of issuance unless earlier converted.
through June 30, 2021. The 2014equity component of the Convertible Notes are guaranteed on a senior secured basis by Aerie Distribution. The 2014 Convertible Notes constitutewas recognized at issuance and represents the senior secured obligations of Aerie and Aerie Distribution, collateralized by a first priority security interest in substantially all of the assets of Aerie and Aerie Distribution. The Note Purchase Agreement provides that, upon the request of Aerie, Deerfield will release all of the liens on the collateral and the security agreement will terminate if both of the following occur: (i) beginning one month after FDA approval of either RhopressaTM or RoclatanTM, 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 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.
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 ofdifference between the principal amount of the 2014 Convertible Notes plus accrued and unpaid interest, or (ii) convert all or a portionthe fair value of the principal amountliability component of the 2014 Convertible Notes at issuance. The equity component was approximately $128.4 million at the time of issuance and its fair value is not remeasured as long as it continues to meet the conditions for equity classification.
In connection with the issuance of the Convertible Notes, the Company incurred debt issuance costs of $9.2 million for the three months ended December 31, 2019. In accordance with ASC Topic 470, Debt, these costs were allocated to debt and equity components in proportion to the allocation of proceeds. Issuance costs of $5.5 million were recorded as debt issuance costs in the net carrying value of Convertible Notes. The debt issuance costs are amortized on an effective interest basis over the term of the Convertible Notes. The remaining issuance costs of $3.7 million were recorded as additional paid-in capital, net with the equity component and such amounts are not subject to amortization.
The following table summarizes the carrying value of the Convertible Notes as of June 30, 2021:
(in thousands)JUNE 30, 2021DECEMBER 31, 2020
Gross proceeds$316,250 $316,250 
Unamortized debt discount(90,389)(101,565)
Unamortized issuance costs(3,838)(4,312)
Carrying value$222,023 $210,373 

The following table summarizes the interest expense recognized related to the Convertible Notes:
THREE MONTHS ENDED 
JUNE 30,		SIX MONTHS ENDED 
JUNE 30,
(in thousands)2021202020212020
Stated interest$1,186 $1,186 $2,372 $2,379 
Amortized debt discount5,694 5,107 11,176 10,078 
Amortized issuance costs242 217 474 428 
Interest Expense$7,122 $6,510 $14,022 $12,885 
Separately, in September 2019 the Company entered into privately negotiated capped call options with financial institutions. The capped call options cover, subject to customary anti-dilution adjustments, the number of shares of Aerie common stock or receivethat initially underlie the consideration Deerfield would have received had Deerfield converted the 2014 Convertible Notes immediately prior to the consummation of the transaction.Notes. 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 thecap price of the capped call options is $37.00 per share of Aerie common stock, priorrepresenting a premium of 100% above the closing price of $18.50 per share of Aerie common stock on September 4, 2019, and is subject to certain adjustments under the consummationterms of the significant corporate transactioncapped call options. The capped call options are generally intended to reduce or the value of the significant corporate transaction.
The Note Purchase Agreement 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 and its subsidiaries’ assets. As of September 30, 2017,offset potential dilution to Aerie was in compliance with the covenants. The Note Purchase Agreement also provides for certain events of default, including the failure to pay principal and interest when due; inaccuracies in Aerie’s or Aerie Distribution’s representations and warranties to Deerfield; failure to comply with any of the covenants; Aerie’s or Aerie Distribution’s insolvency or the occurrence of certain bankruptcy-related events; certain judgments against Aerie and its subsidiaries; 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 wouldwith such reduction and/ or offset, as the case may be, permittedsubject 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 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.
In connection with the IP Assignment, Aerie granted Deerfield a security interest in certain intercompany promissory notes and pledged 65% of the voting stock of Aerie Limited. Upon the request of Aerie, Deerfield will release the lien on the intercompany promissory notes under certain circumstances.
Unamortized debt discounts were $1.2 million as of September 30, 2017. Debt discounts are amortized using the effective interest method through the earlier of maturity or the conversion of the 2014 Convertible Notes.
The table below summarizes the carrying value of the 2014 Convertible Notes as of September 30, 2017:
(in thousands)SEPTEMBER 30, 2017
Gross proceeds$125,000
Initial value of issuance costs recorded as debt discount(2,146)
Amortization of debt discount and issuance costs915
Carrying value$123,769
For the three and nine months ended September 30, 2017 interest expense related to the 2014 Convertible Notes was $0.5 million and $1.6 million, respectively. For the three and nine months ended September 30, 2016 interest expense related to the 2014 Convertible Notes was $0.6 million and $1.6 million, respectively.
8. Build-to-Suit Lease
In January 2017, the Company entered into a Euro-denominated lease agreement, expiring in September 2037, for a new manufacturing plant in Athlone, Ireland, under which the Company is leasing approximately 30,000 square feet of interior floor space for build-out. The Company is permitted to terminate the lease beginning in September 2027. Total expected rental payments, using foreign exchange rates in effect at September 30, 2017, are approximately $2.7 million through September 2027 and approximately $6.4 million through the expiration of the lease.
The Company is not the legal owner of the leased space. However, in accordance with ASC 840, Leases, the Company is deemed to be the owner of the leased space, including the building shell, during the construction period because of the Company’s expected level of direct financial and operational involvement in the substantial tenant improvements required. As a result, the Company capitalized approximately $4.2 million as a build-to-suit asset within property, plant and equipment, net and recognized a corresponding build-to-suit facility lease obligation as a liability on its consolidated balance sheets equal to the estimated replacement cost of the building at the inception of the lease.

Additionally, construction costs incurred as part of the build-out and tenant improvements will also be capitalized within property, plant and equipment, net. Costs of approximately $10.0 million have been capitalized through September 30, 2017 related to both equipment purchases and the build-out of the facility. Rental payments made under the lease will be allocated to interest expense and the build-to-suit facility lease obligationcap based on the implicit rate of the build-to-suit facility lease obligation.cap price. The build-to-suit facility lease obligation was approximately $4.8 million as of September 30, 2017, of which $0.2 million was classified as other current liabilities as of September 30, 2017. The lease obligation is denominated in Euros and is remeasured to U.S. dollars at the balance sheet date with any foreign exchange gain or loss recognized within other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. Unrealized foreign currency loss related to the remeasurement of the lease obligation for the three and nine months ended September 30, 2017 was $0.2 million and $0.5 million, respectively.
9. Stockholders’ Equity
From the Company’s initial public offering (“IPO”) through December 31, 2016, the Company has issued and sold (1)paid a total of 5,933,712 shares of common stock under its “at-the-market” sales agreements and received net proceeds of approximately $146.6$32.9 million after deducting commissions atin premiums for the capped call options, which was recorded as additional paid-in capital, using a rate of up to 3%portion of the gross sales priceproceeds from the issuance and sale of the Convertible Notes. The capped call options are excluded from diluted earnings per share sold and other fees and expenses, and (2) 2,542,373 sharesbecause the impact would be anti-dilutive.
15
Table of common stock pursuant to an underwriting agreement, dated September 15, 2016, for which the Company received net proceeds of approximately $71.0 million, after deducting the underwriting discount, fees and expenses of approximately $4.0 million.
During the nine months ended September 30, 2017, the Company has issued and sold 906,858 shares of common stock under its “at-the-market” sales agreement, for which the Company received net proceeds of approximately $49.3 million, after deducting commissions, fees and expenses of $0.6 million. Further, on May 25, 2017, the Company entered into an underwriting agreement relating to the registered public offering of 1,395,349 shares of the Company’s common stock at a price to the public of $53.75 per share. The Company received net proceeds of approximately $72.7 million, after deducting underwriting discounts, fees and expenses of $2.3 million.
Warrants
As of September 30, 2017, the Company also has the following equity-classified warrants to purchase common stock outstanding:
Contents
NUMBER OF
UNDERLYING
SHARES
 
EXERCISE
PRICE PER
SHARE
 
WARRANT
EXPIRATION
DATE
75,000
 $5.00
 February 2019
75,000
 $5.00
 November 2019
7,500
 $5.00
 August 2020
223,482
 $0.05
 December 2019
The warrants outstanding as of September 30, 2017 are all currently exercisable with a weighted-average remaining life of 2.0 years.

10. Stock-based11. Stock-Based Compensation
Stock-based compensation expense for options andgranted, restricted stock awards (“RSAs”), RSAs with non-market performance and service conditions (“PSAs”), restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) is reflected in the condensed consolidated statements of operations and comprehensive loss as follows:
 THREE MONTHS ENDED 
JUNE 30,		SIX MONTHS ENDED 
JUNE 30,
(in thousands)2021202020212020
Cost of goods sold$431 $670 $938 $1,167 
Selling, general and administrative5,598 6,900 11,853 13,808 
Pre-approval commercial manufacturing0 22 0 316 
Research and development1,967 2,584 3,954 5,414 
Total$7,996 $10,176 $16,745 $20,705 
 THREE MONTHS ENDED 
 SEPTEMBER 30,		 NINE MONTHS ENDED 
 SEPTEMBER 30,
(in thousands)2017 2016 2017 2016
Selling, general and administrative

$4,995
 $3,406
 $14,032
 $9,295
Research and development1,562
 693
 4,040
 2,219
Total$6,557
 $4,099
 $18,072
 $11,514

The estimated fair value of options to purchase common stock 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 the required service is performed. The fair value of RSAs granted is based on the market value of Aerie’s common stock on the date of grant. Compensation expense related to time-based RSAs is expensed on a straight-line basis over the vesting period. For RSAs with non-market performance conditions, the Company evaluates the criteria for each grant to determine the probability that the performance condition will be achieved. Compensation expense for RSAs with non-market performance conditions is recognized over the respective service period when it is deemed probable that the performance condition will be satisfied.
As of September 30, 2017, the Company had $51.9 million of unrecognized compensation expense related to options granted under its equity plans. This expense is expected to be recognized over a weighted average period of 2.9 years as of September 30, 2017.
As of September 30, 2017, the Company had $10.8 million of unrecognized compensation expense, related to unvested RSAs. This expense is expected to be recognized over the weighted average contractual term period of 3.2 years as of September 30, 2017.


Equity Plans
The Company maintains three3 equity compensation plans, the 2005 Aerie Pharmaceutical Stock Plan (the “2005 Plan”), the 2013 Omnibus Incentive Plan (the “2013 Equity Plan”), which was amended and restated as the Aerie Pharmaceuticals, Inc. Second Amended and Restated Omnibus Incentive Plan (the “Amended“Second Amended and Restated Equity Plan”), as described below, and the Aerie Pharmaceuticals, Inc. Inducement Award Plan (the “Inducement Award Plan”), as described below. The 2005 Plan, the Second Amended and Restated Equity Plan and the Inducement Award Plan are referred to collectively as the “Plans.”
On October 30, 2013, the effective date of the 2013 Equity Plan, the The 2005 Plan was frozen in 2013 and no0 additional awards have been or will be made under the 2005 Plan. Any remaining shares available for future grant under the 2005 Plan were allocated to the 2013 Equity Plan.
On April 10, 2015,June 7, 2018, Aerie’s stockholders approved the adoption of the Second Amended and Restated Equity Plan and no additional awards have been or will be madeto increase the number of shares issuable under the 2013 Equity Plan. Any remaining shares available under the 2013 Equity Plan were allocated to the Amended and Restated Equity Plan.by 4,500,000. The Second Amended and Restated Equity Plan provides for the granting of up to 5,729,06810,229,068 equity awards in respect of Aerie common stock of Aerie, including equity awards that were available for issuance under the 2013 Equity Plan.stock.
On December 7, 2016, Aerie’s Board of Directors approved the Inducement Award Plan which provides for the granting of up to 418,000 equity awards in respect of common stock of Aerie which planand was subsequently amended during the year ended December 31, 2017 to increase the equity awards that may be issued by 463,500an additional 874,500 shares. On December 5, 2019, the Inducement Award Plan was further amended by the Company’s Board of Directors to increase the number of shares duringissuable under the nine months ended September 30, 2017.plan by 100,000 shares. Awards granted under the Inducement Award Plan are intended to qualify as employment inducement awards under NASDAQ Listing Rule 5635(c)(4).

Options to Purchase Common Stock
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, 20208,588,614 $27.36 
Granted605,896 17.33 
Exercised(90,930)3.30 
Canceled(382,930)37.65 
Options outstanding at June 30, 20218,720,650 $26.46 5.7$18,969 
Options exercisable at June 30, 20216,625,447 $26.81 4.8$18,131 

As of June 30, 2021, the Company had $33.7 million of unrecognized compensation expense related to options granted under its equity plans. This expense is expected to be recognized over a weighted average period of 2.0 years as of June 30, 2021.
16
Table of Contents
 NUMBER OF
SHARES		 WEIGHTED AVERAGE
EXERCISE PRICE		 WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)		 AGGREGATE
INTRINSIC
VALUE
(000’s)
Options outstanding at December 31, 20165,255,930
 $14.34
 
 

Granted1,203,459
 46.30
    
Exercised(202,134) 11.05
    
Canceled(19,296) 32.82
    
Options outstanding at September 30, 20176,237,959
 $20.56
 7.3 $176,569
Options exercisable at September 30, 20173,954,715
 $12.57
 6.4 $142,558

Restricted Stock Awards
The following table summarizes the RSA activity under the Plans:
NUMBER OF
SHARES		WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Non-vested RSAs at December 31, 2020809,527 $29.03 
Granted116,270 17.40 
Vested(175,336)42.43 
Canceled(58,281)22.94 
Non-vested RSAs at June 30, 2021692,180 $24.19 

 
NUMBER OF
SHARES
 
WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Nonvested RSAs at December 31, 2016164,194
 $19.87
Granted332,512
 47.61
Vested(54,591) 20.47
Canceled(2,566) 43.90
Nonvested RSAs at September 30, 2017439,549
 $40.64
As of June 30, 2021, the Company had $12.9 million of unrecognized compensation expense related to unvested RSAs. This expense is expected to be recognized over the weighted average period of 2.2 years as of June 30, 2021.
The vesting of time-basedthe RSAs is service-basedtime and service based with terms of one to four years. During the nine monthsyear ended September 30,December 31, 2017, the Company granted 98,817 RSAs with non-market performance conditions (PSAs) that vest upon the satisfaction of certain performance conditions and service conditions. As of the second quarter of 2020, all PSAs were vested.
Restricted Stock Units
11.The following table summarizes the RSU activity under the Plans:
NUMBER OF
SHARES		WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Non-vested RSUs at December 31, 2020107,182 $14.43 
Granted4,075 17.32 
Vested(11,146)19.25 
Canceled(3,369)14.08 
Non-vested RSUs at June 30, 202196,742 $14.01 
As of June 30, 2021, the associated unrecognized compensation expense totaled $2.0 million. This expense is expected to be recognized over the weighted average period of 2.5 years as of June 30, 2021.
Stock Appreciation Rights
The following table summarizes the SAR activity under the Plans:
NUMBER OF
SHARES		WEIGHTED 
AVERAGE
EXERCISE PRICE		WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)		AGGREGATE
INTRINSIC
VALUE
(000’s)
SARs outstanding at December 31, 2020212,044 $32.28 
Granted12,000 18.00 
Canceled(26,013)30.50 
SARs outstanding at June 30, 2021198,031 $31.64 3.1$161 
SARs exercisable at June 30, 202171,028 $44.67 2.3$4 

Holders of the SARs are entitled under the terms of the Plans to receive cash payments calculated based on the excess of Aerie’s common stock price over the exercise price in their award; consequently, these awards are accounted for as liability-classified awards and the Company measures compensation cost based on their estimated fair value at each reporting date, net of actual forfeitures, if any.
17
Table of Contents
12. Commitments and Contingencies
The Company may periodically become subject to legal proceedings and claims arising in connection with its business. The Company is not a party to any known litigation, is not aware of any material unasserted claims and does not have contingency reserves established for any litigation liabilities.
18
12. Subsequent Events
On October 4, 2017, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Envisia Therapeutics Inc. (“Envisia”) to acquire the rights to use PRINT® technology in ophthalmology, as well as rights relating to ENV1105, Envisia’s preclinical dexamethasone steroid product candidate for the treatment
Table of diabetic macular edema, which also utilizes the PRINT® technology. Under the terms of the Agreement, the Company (a) made an upfront cash payment of $10.5 million and issued 263,146 shares of Aerie’s common stock valued at approximately $14.3 million and (b) agreed to make contingent milestone payments, subject to achievement of certain product regulatory approvals. Under the provisions of ASU 2017-01, the Company expects to account for the transaction as an asset acquisition and expects that substantially all of the purchase price will be allocated to acquired in-process research and development and expensed as research and development in the consolidated statement of operations and comprehensive loss during the three months ended December 31, 2017.Contents


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this report and with our audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, as filed with the SEC on March 9, 2017February 26, 2021 (“20162020 Form 10-K”). This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements and see “Risk Factors” in our 20162020 Form 10-K and other documents we have filed or furnished with the SEC for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods.
Overview
We are a clinical-stagean ophthalmic pharmaceutical company focused on the discovery, development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma, ocular surface diseases and other diseases of the eye. retinal diseases.
U.S. Commercial Products
Our strategy is to advancesuccessfully commercialize our product candidates,U.S. Food and Drug Administration (“FDA”) approved products, RhopressaTM® (netarsudil ophthalmic solution) 0.02% (“RhopressaTM®”) and RoclatanTMRocklatan® (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“RoclatanTMRocklatan®”), to regulatory approvalwhich are sold in the United States and commercialize these products ourselves in North American markets. If approved, we plan to build acomprise our glaucoma franchise. We have obtained formulary coverage for Rhopressa® and Rocklatan® for the majority of lives covered under commercial plans and Medicare Part D plans. Our commercial team that will include approximately 100responsible for sales representatives to target approximately 12,000 high prescribingof Rhopressa® and Rocklatan® is targeting eye-care professionals throughout the United States and with the addition of both a contract sales organization and a telesales team, we are able to reach approximately 16,000 eye-care professionals.
aeri-20210630_g1.jpg
Rhopressa® is a once-daily eye drop designed to reduce elevated intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension. Rhopressa® is taken in the evening and has shown in preclinical and clinical trials to be effective in reducing IOP, with a favorable safety profile.
The active ingredient in Rhopressa®, netarsudil, is an Aerie-owned Rho kinase (“ROCK”) inhibitor. Rhopressa® increases the outflow of aqueous humor through the trabecular meshwork (“TM”), which accounts for approximately 80% of fluid drainage from the healthy eye and is the diseased tissue responsible for elevated IOP in glaucoma. Using this mechanism of action (“MOA”), we believe that Rhopressa® represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years.
aeri-20210630_g2.jpg
Rocklatan® is a once-daily fixed-dose combination of Rhopressa® and latanoprost, the most commonly prescribed drug for the treatment of patients with open-angle glaucoma. Rocklatan® is also taken in the evening, and similar to Rhopressa®, has shown in preclinical and clinical trials to be effective in reducing IOP, with a favorable safety profile.
Based on our clinical data, we believe that Rocklatan® has the potential to provide a greater IOP-reducing effect than any glaucoma medication currently marketed in the United States. We also believe that Rocklatan® competes with both prostaglandin analog (“PGA”) and non-PGA therapies and may over time become the product of choice for patients requiring maximal IOP reduction, including those with higher IOPs and those who present with significant disease progression despite using currently available therapies.
Outside the United States
Our strategy also includes developing business opportunities outside of the United States including the successful commercialization of Rhopressa® and Rocklatan® in Europe, Japan and other regions. At present, we have a development and commercialization partner for Japan and certain other Asian countries, and are evaluating potential collaborators for Europe and other regions.
19
Table of Contents
In Europe, Rhokiinsa® (marketed as Rhopressa® in the United States) was granted a Centralised Marketing Authorisation (“Centralised MA”) by the European Commission (“EC”) in November 2019. Roclanda® (marketed as Rocklatan® in the United States) was granted a Centralised MA by the EC in January 2021. In April 2021, Roclanda® received marketing authorisation from the Medicines and Healthcare Products Regulatory Agency (“MHRA”) in Great Britain. As the EC decision was received after the end of the Brexit transition period, we were required to complete a further administrative step in order to obtain authorisation in Great Britain.
We reported positive interim topline 90-day efficacy data in September 2020 for Mercury 3, our Phase 3b clinical trial for Roclanda®, which we believe is important to the execution of our strategy in Europe. As a result of the positive Mercury 3 results and the Roclanda® approval in Europe, discussions are underway with third parties who have expressed interest in a potential commercialization partnership in and potentially beyond Europe, while we are simultaneously preparing on our own for pricing discussions in Germany.
In Japan, we entered into a Collaboration and License Agreement (the “Santen Agreement”) with Santen Pharmaceuticals Co., Ltd. (“Santen”) in October 2020 to advance our clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan and eight other countries in Asia. We initiated a now fully enrolled Rhopressa® Phase 3 clinical trial in December 2020, the first of three expected Phase 3 clinical trials in Japan. The trial is expected to be completed by the end of 2021 and topline results are expected to be reported shortly thereafter. Clinical trials for Rocklatan® in Japan have not yet begun.
Glaucoma Product Manufacturing
We have a sterile fill production facility in Athlone, Ireland, for the production of our FDA approved products and clinical supplies with the goal of having the Athlone manufacturing plant supply our ophthalmic products in all markets for which we received regulatory approval and are commercialized. The Athlone manufacturing plant began manufacturing commercial supplies of Rocklatan® in the first quarter of 2020 and Rhopressa® in the third quarter of 2020 for distribution to the United States. Shipments of commercial supply of Rocklatan®and Rhopressa®from the Athlone manufacturing plant to the United States commenced in the third quarter of 2020 and in the fourth quarter of 2020, respectively. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan. As the Athlone manufacturing plant commenced operations in early 2020, it has not yet reached full capacity. We areexpect that the Athlone manufacturing plant will have adequate capacity to produce Rhopressa® and Rocklatan® in the United States as well as for both the European and Japanese commercial markets, if approved for commercial distribution in those markets. We expect that in 2021 the Athlone manufacturing plant will manufacture most of our ongoing needs for Rhopressa® and Rocklatan® in the United States. We may continue to use contract manufacturers to produce commercial supplies of Rhopressa® and Rocklatan® for distribution in the United States, but at reduced levels compared to before the Athlone manufacturing plant was operational.
Product Candidates and Pipeline
Our strategy also includes enhancing our longer-term commercial potential by identifying and advancing additional product candidates and drug delivery technologies, including through our internal discovery efforts, andour entry into potential research collaborations or in-licensing arrangements or acquisitionsour acquisition of additional ophthalmic products or technologies or product candidates that would complement our current product portfolio, including our recent collaboration with DSM whereby we have access to their bio-erodible polymer technology, and our acquisition of assets from Envisia Therapeutics Inc. (“Envisia”), designed to advance our progress in developing product candidates to treat retinal diseases, as discussed below.portfolio.
Our strategy also includes developing our business outside of North America, including obtaining regulatory approval in Europe and Japan on our own forAR-15512 is our product candidates. In 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 (“Aerie Limited”), and Aerie Pharmaceuticals Ireland Limited, a wholly-owned subsidiary (“Aerie Ireland Limited”). We assigned the beneficial rights to our non-U.S. and non-Canadian intellectual property for our lead product candidates to Aerie Limited (the “IP Assignment”). As part of the IP Assignment, we and Aerie Limited entered into a research and development cost-sharing agreement pursuant to which we and Aerie Limited will share the costs of the development of intellectual property and Aerie Limited and Aerie Ireland Limited entered into a license arrangement pursuant to which Aerie Ireland Limited will develop and commercialize the beneficial rights of the intellectual property assigned as part of the IP Assignment. In 2016, we assigned the beneficial rights to certain of our intellectual property in the U.S. and Canada to Aerie Distribution, Inc., a wholly-owned subsidiary (“Aerie Distribution”), and amended and restated the research and development cost-sharing agreement to transfer our rights and obligations under the agreement to Aerie Distribution.
In January 2017, we announced that we are building a new manufacturing plant in Athlone, Ireland, although we will continue to use product sourced from our current contract manufacturer based in the U.S. This will be our first manufacturing plant, expected to produce commercial supplies of our current product candidates, RhopressaTMand RoclatanTM. If we obtain regulatory approval, commercial product supply from the plant is expected to be available by 2020. We are also in the process of adding a second contract manufacturer, which we expect to produce commercial supply by as early as the end of 2018.
Product Candidate Overview
Our two advanced-stage product candidates are designed to lower intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension. Both product candidates are taken once-daily in the evening and have shown in preclinical and clinical trials to be effective in lowering IOP, with novel mechanisms of action (“MOAs”) and a favorable safety profile.
We own the worldwide rights to all indications for our current Aerie product candidates. Our intellectual property portfolio contains patents and pending patent applications related to composition of matter, pharmaceutical compositions, methods of use, and synthetic methods. We have patent protection for our current product candidates, RhopressaTM and RoclatanTM, in the United States through at least 2030.
RhopressaTM

Our first product candidate RhopressaTM,is a novel once-daily eye drop designed to lower IOP in patients with glaucoma or ocular hypertension. We are developing RhopressaTM as the first of a new class of compounds that is designed to lower IOP in patients through novel MOAs. We believe that, if approved, RhopressaTM will represent the first new MOAs for lowering IOP in patients with glaucoma in over 20 years. Based on preclinical studies and clinical data to date, we expect that RhopressaTM, if approved, will have the potential to compete with non-prostaglandin analogue products as a preferred adjunctive therapy to prostaglandin analogues (“PGAs”), due to its targeting of the diseased tissue known as the trabecular meshwork (“TM”), its demonstrated IOP-lowering ability across tested baselines with once-daily dosing, its potential synergistic effect with PGA products, and its lack of drug-related serious or systemic adverse events. Adjunctive therapies currently represent approximately one-half of the entire glaucoma therapy market in the United States, according to IMS. In addition, if approved, we believe that RhopressaTM may also potentially 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. Also, in a 24-hour, 12-patient pilot study comparing RhopressaTM efficacy to that of placebo, RhopressaTM demonstrated similar levels of IOP lowering during nocturnal and diurnal periods. This is potentially a further differentiating feature of RhopressaTM when considering that currently marketed products have demonstrated little or no efficacy at night and eye pressure is typically highest when patients are asleep.
We resubmitted our New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”) for RhopressaTMon February 28, 2017. Our initial submission, announced in September 2016, was withdrawn as a result of a contract manufacturer of our drug product not being prepared for pre-approval inspection by the FDA. The NDA submission included our second Phase 3 registration trial for RhopressaTM, named “Rocket 2,” as the pivotal clinical trial and our initial Phase 3 registration trial, named “Rocket 1,” as supportive in nature. Our Rocket 2 trial achieved its primary efficacy endpoint of demonstrating non-inferiority of RhopressaTM compared to timolol. In addition, the 12-month safety data from this registration trial also confirmed a favorable safety profile for the drug and demonstrated a consistent IOP-lowering effect throughout the 12-month period at the specified measurement time points. We also included as supportive data the 90-day efficacy resultstreatment of our Rocket 4 and Mercury 1 trials, each as further discussed below, with the NDA submission for RhopressaTM.
Our fourth Phase 3 registration trial for RhopressaTM, named “Rocket 4,” in the U.S., was designed to generate adequate six-month safety data for European regulatory approval,dry eye disease for which we expect to fileinitiated a now fully enrolled Phase 2b clinical trial named COMET-1 in October 2020. A topline readout is expected later in the second halfthird quarter of 2018. The six-month safety2021. Furthermore, we are developing three sustained-release implants focused on retinal diseases, AR-1105, AR-13503 SR and efficacy data were largely consistent with observations in the other RhopressaTMAR-14034 SR, and a ROCK inhibitor-linked-steroid, AR-6121. For AR-1105, we successfully completed a large Phase 3 registration trials and the 90-day efficacy results achieved the primary efficacy endpoint of demonstrating non-inferiority of RhopressaTM compared to timolol. A third Phase 3 registration trial for RhopressaTM, named “Rocket 3,” was a 12-month safety-only study in Canada. We have commenced Phase 1 and 2 clinical trial activitiesfor patients with macular edema due to retinal vein occlusion (“RVO”) in July 2020, which indicates sustained efficacy of up to six months, an important achievement in validating the potential capabilities of Aerie’s sustained release platform. With respect to future plans for AR-1105, we continue to have discussions with regulatory agencies in order to finalize the most efficient and effective Phase 3 pathway and continue to evaluate next steps regarding clinical and regulatory pathways for Phase 3 clinical trials along and commercialization prospects in both Europe and the United States relating to pursuing regulatory approval of RhopressaTM in Japan, andStates. We expect to initiate thestart Phase 3 clinical trialstrial activities for AR-1105 in the fourth quarter of 2017.
The RhopressaTM Phase 3 registration trial results have shown minimal drug-related serious adverse events or drug-related systemic adverse events, with the most common adverse event reported being conjunctival hyperemia, or eye redness, with incidence rates of approximately 50% across all Phase 3 registration trials for RhopressaTM, the majority of which was reported as mild.
On October 13, 2017, the FDA held an advisory committee meeting to discuss the RhopressaTM NDA. The advisory committee voted in favor of RhopressaTM regarding (a) whether the clinical trials supported the efficacy of RhopressaTM for reducing elevated IOP in patients with open-angle glaucoma or ocular hypertension and (b) whether the efficacy outweighs the safety risk. The FDA is not bound by the advice of the advisory committee, but takes the advice into consideration when reviewing investigational medicines. The Prescription Drug User Fee Act (“PDUFA”) goal date for the completion of the FDA’s review of the RhopressaTM NDA is set for February 28, 2018, which reflects a standard 12-month review period.
RoclatanTM
Our second product candidate is once-daily RoclatanTM, a fixed-dose combination of RhopressaTM and latanoprost. We believe, based on our preclinical studies and clinical trials to date, that RoclatanTM, if approved, will be the only glaucoma product that covers the full spectrum of currently known IOP-lowering MOAs, giving it the potential to provide a greater IOP-lowering effect than any currently marketed glaucoma product. Therefore, we believe that RoclatanTM, if approved, could compete with both PGA and non-PGA therapies for patients requiring maximal IOP lowering, including those with higher IOPs and those who present with significant disease progression despite currently available therapies.

We recently completed two Phase 3 registration trials for RoclatanTM. The first Phase 3 registration trial for RoclatanTM, named “Mercury 1,” was a 12-month safety trial with a 90-day efficacy readout. Mercury 1 achieved its primary efficacy endpoint of demonstrating superiority of RoclatanTM to each of its components. The safety and tolerability results for RoclatanTM from the 90-day efficacy period of Mercury 1 showed no drug-related serious adverse events or drug-related systemic adverse events. On July 19, 2017, we announced the results of the Mercury 1 12-month safety study, noting the safety results for RoclatanTM for the 12-month period were consistent with those observed for the 90-day efficacy period. There were no new adverse events that developed over the 12-month period, and there were no drug-related serious or systemic adverse events.
The second Phase 3 registration trial for RoclatanTM, named “Mercury 2,” was a 90-day efficacy and safety trial also designed to demonstrate superiority of RoclatanTM to each of its components. The Mercury 2 trial design was identical to that of Mercury 1, except that Mercury 2 was a 90-day trial without the additional nine-month safety extension included in Mercury 1. Both Mercury 1 and Mercury 2 achieved their 90-day primary efficacy endpoints of demonstrating statistical superiority over each of its components, including RhopressaTM and market-leading PGA, latanoprost, at all measured time points. The superiority of RoclatanTM over its components was consistently in the range of 1 to 3 mmHg (millimeters of mercury). We are permitted to submit the RoclatanTM NDA while the RhopressaTM NDA is still being reviewed by the FDA. We expect to submit an NDA for RoclatanTM in the second quarter of 2018.
Mercury 1 and Mercury 2 will also be used for European approval of RoclatanTM, and2021. For AR-13503 SR, we initiated a third Phase 3 registration trial for RoclatanTM, named “Mercury 3,”first in-human clinical safety study in Europe during the third quarter of 2017. Mercury 3 is designed to compare RoclatanTM to Ganfort®, a fixed-dose combination product of bimatoprost and timolol marketed in Europe, which if successful, is expected to improve our commercialization prospects in that region.
Pipeline Opportunities
Our stated objective is to build a major ophthalmic pharmaceutical company. In addition to our primary product candidates, RhopressaTM and RoclatanTM, we plan to continue exploring the benefits of RhopressaTM on 24-hour IOP lowering, normal tension glaucoma, as well antifibrotic effects on the diseased TM. We are also evaluating possible uses of our existing proprietary portfolio of Rho kinase inhibitors beyond glaucoma. Our owned preclinical small molecule, AR-13154, has demonstrated the potential2019 for the treatment of wet age-related macular degeneration (“AMD”(age-related macular degeneration, “AMD”) by inhibiting Rho kinase and Protein kinase C and 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, and even greater lesion size reduction in combination with the current market-leading wet AMD anti-VEGF product. Further, in our preclinical studies, we have seen a promising potential of this molecule to reduce neovascularization in a model of proliferative diabetic retinopathy. Pending additional studies, the active metabolite of AR-13154 and related molecules may have the potential to provide an entirely new mechanism and pathway to treat wet AMD and other diseases of the retina, such as diabetic macular edema (“DME”). This molecule has not yet been tested in humans in a clinical trial setting.
, which is currently ongoing. We have and may continuecurrently expect to enter into research collaboration arrangements, license, acquire or develop additional product candidates and technologies to broaden our presence in ophthalmology, and we continually explore and discuss potential additional opportunitiescomplete the dose escalation safety evaluation with the current implant design for new ophthalmic products, delivery alternatives and new therapeutic areas with potential partners. We are currently focused on the evaluation of technologies for the delivery of our owned molecules to the front and back of the eye over sustained periods.
On July 31, 2017, we announced that we entered into a collaborative research, development and licensing agreement with DSM, a global science-based company headquarteredAR-13503 SR in the Netherlands. The research collaboration agreement includes an option to license DSM’s bio-erodible polymer implant technology for evaluating its application to the deliveryfirst quarter of certain Aerie compounds, initially focused on retinal diseases. 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-13154, including demonstration of linear, sustained elution rates over several months and achievement of target retinal drug concentrations.2022.
On October 4, 2017, we acquired from Envisia the rights to use PRINT® technology in ophthalmology and certain other assets. The PRINT® technology is a proprietary system capable of creating precisely engineered sustained release products utilizing fully-scalable manufacturing processes. Our initial focus will be in using PRINT® to manufacture injectable implants containing AR-13154, potentially in conjunction with the biodegradable polymer from DSM. In addition, we acquired Envisia’s intellectual property rights relatingare also working to ENV1105, Envisia’sadvance our preclinical dexamethasone steroidsustained-release retinal implant, AR-14034 SR, and our preclinical ROCK inhibitor-linked-steroid, AR-6121. Investigational New Drug Application (“IND”) enabling preclinical studies are ongoing for AR-14034 SR and underway for AR-6121. We anticipate filing an IND for AR-14034 SR and AR-6121 with the FDA in the second half of 2022, respectively.
20
Table of Contents
We discovered and developed the active ingredient in Rhopressa® and Rocklatan®, netarsudil, and AR-13503 through a rational drug design approach that coupled medicinal chemistry with high content screening of compounds in proprietary cell-based assays. We selected and formulated netarsudil for preclinical in vivo testing following a detailed characterization of over 3,000 synthesized ROCK inhibitors, a number that has since grown to approximately 4,000.
Impact of the COVID-19 Pandemic
In December 2019, there was an outbreak of a new strain of coronavirus (“COVID-19”) and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation due to “shelter-in-place” restrictions by various governments worldwide and created significant volatility and disruption of financial markets.
The health and safety of our employees, patients, prescribers and community are of utmost importance during this time and we are complying with all requirements and mandates from various agencies and governments. We have taken precautionary measures to protect our employees and our stakeholders and adapted company policy to maintain the continuity of our business. We have continued to operate effectively as most of our manufacturing plant personnel are working at the manufacturing plant with precautionary measures in place, while the balance of our workforce has started to return to the office in accordance with state and local mandates or continues to primarily work from home.
We continue to see eye-care professionals’ offices returning to full capacity and are using traditional in-person office meetings to remain in contact with eye-care professionals. We have seen a majority of eye-care professionals’ offices back to pre-COVID-19 capacity. For those eye-care professionals’ offices that are operating at reduced capacity, we are using a combination of in-person and virtual tools and resources to remain in contact with eye-care professionals. Furthermore, Aerie territory managers are experiencing successful engagement with eye-care professionals through traditional face-to-face office meetings or, when necessary, virtual resources. Our sales force is interactively communicating with physicians via different technological platforms and local peer-to-peer educational meetings are primarily being implemented via webinars when in-person meetings are not available.
Many geographic communities have resumed in-person speaker programs, while adhering to strict national guidelines with social distancing, as appropriate. As part of the support of the eye-care community, our territory managers are either delivering or arranging for delivery of product candidatesamples to the eye-care professionals’ offices when needed.
Given the easing of certain COVID-19 restrictions during the second quarter of 2021, in accordance with state and local government mandates, traditional face-to-face office meetings and in-person peer-to-peer education meetings have increased. We expect that this will continue through the second half of 2021 provided that there are no additional restrictions from state and local government. Further, with the addition of a contract sales organization and a separate telesales team we are able to reach approximately 16,000 eye-care professionals.
We have not observed any disruptions to date in the supply chain for the treatmentproduction of DME, which also utilizesRhopressa® and Rocklatan®. We believe we have approximately three years of starting materials and active pharmaceutical ingredient (“API”) in inventory, and adequate supply of finished product on hand to support our commercial efforts for at least the PRINTnext six months. Production of Rhopressa® technology. and Rocklatan® is continuing.

Financial Overview
Our cash, cash equivalents and investments totaled $282.2$188.3 million as of SeptemberJune 30, 20172021. We believe that our cash, cash equivalents and are currently expected toinvestments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs.needs through at least the next twelve months, though there may be need for additional financing activity as we continue to grow. See “—Liquidity and Capital Resources” below and Note 10 to our condensed consolidated financial statements included in this report for further discussion.
We have incurred net losses since our inception in June 2005. To date,Until 2018, when we have not generatedcommenced commercial operations, our business activities were primarily limited to developing product revenuecandidates, raising capital and performing research and development activities. As of June 30, 2021, we do nothad an accumulated deficit of $1,159.8 million. We recorded net losses of $38.7 million and $80.7 million for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2020 we recorded net losses of $48.2 million and $97.3 million. Our capital resources and business efforts are largely focused on activities relating to the commercialization of Rhopressa® and Rocklatan®, advancing our product candidates and pipeline, global expansion and operating our manufacturing plant in Athlone, Ireland.
21
Table of Contents
We expect to incur operating losses until such a time when Rhopressa® or Rocklatan® or any current or future product candidates, if approved, generate sufficient cash flows for us to achieve profitability. Accordingly, we may be required to obtain further funding through debt or equity offerings or other sources. 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 may be forced to delay, reduce or eliminate our research and development programs or commercialization or manufacturing efforts.
Product Revenues, Net
Rhopressa® and Rocklatan®, our glaucoma franchise products, were launched in the United States in April 2018 and May 2019, respectively. We commenced generating product revenues from sales of Rhopressa® and Rocklatan® during the second quarter of 2018 and 2019, respectively. Product affordability for the patient drives consumer acceptance, and this is generally managed through coverage by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and such product may be subject to rebates and discounts payable directly to those Third-party Payers. 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, forecasted customer mix and lagged claims. 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 generate any revenue from any product candidates or future product candidates unless and until we obtain regulatory approval and commercialize such products.
Cost of Goods Sold
Cost of goods sold consists of direct and indirect costs to procure and manufacture product sold, including third-party manufacturing costs. Prior to receiving FDA approval, these costs for Rhopressa®and successfully commercialize one or moreRocklatan® were expensed as pre-approval commercial manufacturing expenses (as defined below). We began capitalizing inventory costs for Rhopressa® and Rocklatan® after receipt of our current product candidates. Our operationsFDA approval. In January 2020 and September 2020, we received FDA approval to date have primarily been limitedproduce Rocklatan® and Rhopressa®, respectively, at the Athlone manufacturing plant for commercial distribution in the United States. Shipments of commercial supply of Rocklatan® from the Athlone manufacturing plant to research and development and raising capital. Asthe United States commenced in the third quarter of September 30, 2017, we had an accumulated deficit2020. The Athlone manufacturing plant has manufactured clinical supplies of $403.2 million. We recorded net losses of $32.4 million and $86.6 millionRhopressa® for the threePhase 3 clinical trials in Japan and nine months ended September 30, 2017, respectively.has commenced shipping commercial supply of Rhopressa® to the United States in the fourth quarter of 2020. Production costs related to idle or underutilized capacity at the manufacturing plant in Athlone, Ireland, are not included in the cost of inventory but are charged directly to cost of goods sold on the condensed consolidated statements of operations and comprehensive loss in the period incurred. We recorded net lossesexpect cost of $23.8 million and $69.7 million for the three and nine months ended September 30, 2016, respectively. A substantial portion of our capital resources and efforts are focused on completing the development and obtaining regulatory approval and preparing for potential commercialization and manufacturing of our product candidates. As a result, we expectgoods sold in 2021 to continue to incur significant operating losses until suchbe unfavorably impacted by idle capacity costs due to the underutilization at the Athlone manufacturing plant as a result of the Athlone manufacturing plant having become operational in early 2020 and not yet reaching full capacity. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time when our product candidates are commercially successful, if at all. If we do not successfully commercialize any of our current product candidates, we may be unable to generate product revenue or achieve profitability.as the manufacturing plant reaches full capacity.
Selling, General and Administrative Expenses
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 pre-approval commercial-related manufacturing costs, pre-launch salesselling and marketing planning activities,expenses, facilities expenses, shipping and handling costs and professional fees for audit, tax, legal and other services.
We expect that our selling, generalPre-approval Commercial Manufacturing Expenses
Pre-approval commercial manufacturing expenses consist of costs incurred for commercial-related manufacturing activities for Rhopressa® and administrative expenses will increase with the continued advancement of our product candidates as we prepare for potential commercialization. We expect these increases will likely beRocklatan® prior to FDA approval. These costs include those associated with the hiringmanufacturing of additional employeesinventory in areas such as sales and marketing, and medical affairs, along with increased levelsanticipation of manufacturing activity and overheadcommercial launch, expenses associated with the growthestablishment of both our employee base.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.
We obtained regulatory approval to produce Rocklatan® and Rhopressa® in January 2020 and September 2020, respectively, in our Athlone, Ireland plant for commercial distribution in the United States as well as approval for our additional drug product
22
Table of Contents
contract manufacturers during early 2020. We do not expect any material pre-approval commercial manufacturing expenses in 2021.
Research and Development Expenses
The following table shows ourWe expense research and development (“R&D”) expenses for our advanced-stage product candidates for the three and nine months ended September 30, 2017 and 2016:
 THREE MONTHS ENDED 
 SEPTEMBER 30,		 NINE MONTHS ENDED 
 SEPTEMBER 30,
 2017 2016 2017 2016
 (in thousands)
RhopressaTM

$1,887
 $3,004
 $4,230
 $10,929
RoclatanTM

1,809
 4,920
 8,160
 12,211
Other research and development activities491
 183
 725
 1,290
Unallocated8,221
 4,581
 20,862
 13,871
Total research and development expense$12,408
 $12,688
 $33,977
 $38,301
We expense R&D costs to operations as incurred. OtherResearch and development expenses consist primarily of costs incurred for the research and development activities include direct costs associated with collaboration arrangementsof our preclinical and pipeline activities,clinical candidates, including our ongoing preclinical activities. Expenses relating to activities that support more than oneemployee-related expenses for research and development program or activity such as employee-related costs, including stock-based compensation, facilities expenses and depreciation expense for assets used in R&D are not allocated to specific product or potential product candidates and are separately classified as “unallocated.”

personnel.
Other (Expense) Income, (Expense), Net
Other (expense) income, (expense)net primarily includes investment income, interest expense, andinterest income, foreign exchange gains and losses. Investmentlosses and other income and expense. Interest expense consists of interest expense under the 1.50% convertible senior notes due 2024 (the “Convertible Notes”), including the amortization of debt discounts and issuance costs incurred. Interest income primarily consists of interest earned on our cash, and cash equivalents and investments,investments. See “—Liquidity and amortization or accretion of discountsCapital Resources” below and premiums onNote 10 to our investments. Interest expense consists of interest expense under the 2014 Convertible Notes, including the amortization of debt discounts and issuance costs.condensed consolidated financial statements included in this report for further discussion. Foreign exchange gains and losses are primarily due to the remeasurement of our Euro-denominated liability related to our build-to-suit lease obligation,liabilities, which isare denominated in a foreign currency and held by a subsidiary with a U.S. dollar functional currency. Also included in other income and expense are changes in the fair value of equity securities.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed 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, leases, acquisitions, stock-based compensation and operating expense accruals.fair value measurements. 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 critical accounting policies and the methodologies and assumptions we apply under themsignificant estimates have not materially changed since the date we filed our 20162020 Form 10-K. For more information on our critical accounting policies and estimates, refer to our 20162020 Form 10-K.
23
Table of Contents
Results of Operations
Comparison of the Three Months Ended SeptemberJune 30, 20172021 and 20162020
The following table summarizes the results of our operations for the three months ended June 30, 2021 and 2020: 
 THREE MONTHS ENDED 
JUNE 30,		CHANGE%
CHANGE
 20212020
 (in thousands, except percentages)
Product revenues, net$27,185 $18,033 $9,152 51 %
Total revenues, net27,185 18,033 9,152 51 %
Costs and expenses:
Cost of goods sold6,177 7,326 (1,149)(16)%
Selling, general and administrative expenses34,542 33,237 1,305 4 %
Pre-approval commercial manufacturing— 80 (80)(100)%
Research and development expenses17,967 19,943 (1,976)(10)%
Total costs and expenses58,686 60,586 (1,900)(3)%
Loss from operations(31,501)(42,553)11,052 (26)%
Other (expense) income, net(7,169)(5,634)(1,535)27 %
Loss before income taxes$(38,670)$(48,187)$9,517 (20)%

Product revenues, net
Product revenues, net were $27.2 million and $18.0 million for the three months ended June 30, 2021 and 2020, respectively, and related to sales of our U.S glaucoma franchise products, Rhopressa® or Rocklatan®. The year-over-year revenue increase is primarily due to higher volumes and higher net sales per unit, which was mostly attributable to renegotiating wholesaler agreements. In the second quarter of 2020, there was a decline in total prescription volumes, as seen within the entire pharmaceutical market, according to IQVIA data, primarily due to the impact of the COVID-19 pandemic. To the extent that the impact of the COVID-19 pandemic on the pharmaceutical industry continues to be mitigated, we would expect volumes to increase for the remainder of 2021.
Cost of goods sold
Cost of goods sold was $6.2 million and $7.3 million for the three months ended June 30, 2021 and 2020, respectively. Our gross margin percentage was 77.3% and 59.4% for the three months ended June 30, 2021 and 2020, respectively. Our cost of goods sold and gross margin percentage for the three months ended June 30, 2021 and 2020 were unfavorably impacted by idle capacity costs due to underutilization at the Athlone manufacturing plant which increased the cost of goods sold by $3.9 million and $5.0 million and lowered the gross margin percentage by 14.3% and 27.6%, respectively. Our cost of goods sold and gross margin percentage for the three months ended June 30, 2020 were also unfavorably impacted by inventory write-offs, which increased the cost of goods sold by $0.8 million and lowered the gross margin percentage by 4.8%. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time as the manufacturing plant reaches full capacity. We received FDA approval to produce Rocklatan® and Rhopressa® in January 2020 and September 30, 2017 and 2016:
 THREE MONTHS ENDED 
 SEPTEMBER 30,		 CHANGE 
%
CHANGE
 2017 2016  
 (in thousands, except percentages)
Selling, general and administrative$19,774
 $10,627
 $9,147
 86 %
Research and development12,408
 12,688
 (280) (2)%
Total operating expenses32,182
 23,315
 8,867
 38 %
Loss from operations(32,182) (23,315) (8,867) 38 %
Other income (expense), net(141) (460) 319
 (69)%
Net loss before income taxes$(32,323) $(23,775) $(8,548) 36 %
        
2020, respectively, at the Athlone manufacturing plant for commercial distribution in the United States. Prior to this approval, costs incurred for commercial-related manufacturing activities for both products were recorded to pre-approval commercial manufacturing expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses were $34.5 million and $33.2 million for the three months ended June 30, 2021 and 2020, respectively. Selling, general and administrative expenses increased by $9.1$1.3 million primarily due to higher sales and marketing expenses mostly due to higher travel expenses as a result of the easing of COVID-19 related travel restrictions. The increase was partially offset by lower employee-related expenses, including stock-based compensation. To the extent the impact of the COVID-19 pandemic on the pharmaceutical industry continues to be mitigated, we expect a continued increase of selling, general and administrative expenses to pre-COVID-19 levels, primarily due to an increase of sales and marketing expenses as well as travel expenses.
24
Table of Contents
Pre-approval commercial manufacturing expenses
Pre-approval commercial manufacturing expenses were zero and $0.1 million for the three months ended June 30, 2021 and 2020, respectively. We received regulatory approval in January 2020 and September 2020 to produce Rocklatan® and Rhopressa®, respectively, at our Athlone manufacturing plant. The cost of Rocklatan®and Rhopressa®produced by the Athlone manufacturing plant for commercial distribution following regulatory approval was capitalized as inventory or expensed to cost of goods sold. Further, we received regulatory approval for our additional Rocklatan® drug product contract manufacturer, which began to supply commercial product in the first quarter of 2020. The cost of commercial Rocklatan® produced by the additional contract manufacturer following regulatory approval was capitalized as inventory. We do not expect any material pre-approval commercial manufacturing expenses for the remainder of 2021.
Research and development expenses
Research and development expenses were $18.0 million and $19.9 million for the three months ended June 30, 20172021 and 2020, respectively. Research and development expenses decreased by $2.0 million primarily due to a decline of $2.2 million in expenses associated with Rocklatan®, due to lower costs related to the Mercury 3 registration trial in Europe and a decrease of $1.3 million related to the timing of the development of our retina programs, primarily AR-13503. Employee-related expenses, including stock-based compensation, were also lower for the three months ended June 30, 2021 as compared to the three months ended SeptemberJune 30, 2016. This increase was primarily associated with the expansion of our employee base and preparatory commercial operations and manufacturing activities. 2020.
Employee-related expenses increasedThese decreases were offset by $3.6a $1.9 million including an increase in salaries and other employee-related expenses of $2.0 million due to increased headcount and an increase in stock-based compensation of $1.6 million.

Total costs related to preparatory commercial operations and manufacturing were approximately $4.5 millionfor Rhopressa® for the three months ended SeptemberJune 30, 2017, an increase of $2.7 million2021 as compared to the three months ended SeptemberJune 30, 2016, and included scale-up2020, driven by ongoing costs for Rhopressa® Phase 3 clinical trial in Japan. Santen’s portion of our current manufacturing activities. Certain of our direct preparatory commercial operations and manufacturing activities are recognized in selling, general and administrative expenses untilsuch time when we determine suchshared costs should be capitalized as saleable inventory. Expenses related to our pre-launch sales and marketing planning activities increased by $1.1 million forconducting the first Rhopressa® Phase 3 clinical trial in Japan were recorded as deferred revenue, non-current on the condensed consolidated balance sheets. In addition, travel expenses were higher as a result of the easing of COVID-19 related travel restrictions.
Furthermore, costs related to the AR-15512 Phase 2b clinical trial were essentially flat during the three months ended SeptemberJune 30, 20172021 as compared to the three months ended SeptemberJune 30, 2016. In addition, professional fees increased by $0.8 million, primarily due2020 as these clinical trial costs began to consulting fees for compliance-related activitieswind down, and legal fees to support the growthaccordingly, were not a significant driver of our operations.
Researchresearch and development expensesexpense during this quarter. A topline readout of the clinical trial is expected in the third quarter of 2021.
Research and development expenses decreasedOther (expense) income, net
Other (expense) income, net consists of the following:
THREE MONTHS ENDED 
JUNE 30,		CHANGE
20212020
(in thousands)
Interest income$33 $524 $(491)
Interest expense(7,122)(6,513)(609)
Other (expense) income(80)355 (435)
Other (expense) income, net$(7,169)$(5,634)$(1,535)

Other (expense) income, net changed by $0.3$1.5 million for the three months ended SeptemberJune 30, 20172021 compared to the three months ended June 30, 2020.
This change was primarily due to a decrease of $0.5 million in interest income on our cash, cash equivalents and investments and a change of $0.4 million in other (expense) income during the three months ended June 30, 2021 as compared to the three months ended SeptemberJune 30, 2016. During the three months ended September 30, 2016, our research and development activity was primarily associated with Phase 3 registration trials for RhopressaTM and RoclatanTM. The Phase 3 registration trials for both RhopressaTM and RoclatanTM have been completed for purposes of applying for FDA approval in the U.S. As such, R&D costs for RoclatanTM and RhopressaTMdecreased2020.
Further, interest expense, which increased by $3.1$0.6 million and $1.1 million, respectively, for the three months ended SeptemberJune 30, 2017 as 2021compared to the three months ended June 30, 2020, relates to interest expense under the Convertible Notes issued in September 30, 2016. Unallocated expenses increased by $3.6 million primarily driven by increased employee-related expenses,2019, including stock-based compensation.the amortization of debt discounts and issuance costs incurred.
25
Table of Contents
Comparison of the NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
The following table summarizes the results of our operations for the ninesix months ended June 30, 2021 and 2020: 
 SIX MONTHS ENDED 
JUNE 30,		CHANGE%
CHANGE
 20212020
 (in thousands, except percentages)
Product revenues, net$50,155 $38,374 $11,781 31 %
Total revenues, net50,155 38,374 11,781 31 %
Costs and expenses:
Cost of goods sold12,877 13,418 (541)(4)%
Selling, general and administrative expenses67,140 70,139 (2,999)(4)%
Pre-approval commercial manufacturing— 2,194 (2,194)(100)%
Research and development expenses35,858 39,116 (3,258)(8)%
Total costs and expenses115,875 124,867 (8,992)(7)%
Loss from operations(65,720)(86,493)20,773 (24)%
Other (expense) income, net(14,883)(10,856)(4,027)37 %
Loss before income taxes$(80,603)$(97,349)$16,746 (17)%
Product revenues, net
Product revenues, net were $50.2 million and $38.4 million for the six months ended June 30, 2021 and 2020, respectively, and related to sales of our U.S glaucoma franchise products, Rhopressa® or Rocklatan®. The year-over-year revenue increase is primarily due to higher volumes and higher net sales per unit, which was mostly attributable to renegotiating wholesaler agreements. In the second quarter of 2020, there was a decline in total prescription volumes, as seen within the entire pharmaceutical market, according to IQVIA data, primarily due to the impact of the COVID-19 pandemic. To the extent that the impact of the COVID-19 pandemic on the pharmaceutical industry continues to be mitigated, we would expect volumes to increase for the remainder of 2021.
Cost of goods sold
Cost of goods sold was $12.9 million and $13.4 million for the six months ended June 30, 2021 and 2020, respectively. Our gross margin percentage was 74.3% and 65.0% for the six months ended June 30, 2021 and 2020, respectively. Our cost of goods sold and gross margin percentage for the six months ended June 30, 2021 and 2020 were unfavorably impacted by idle capacity costs due to underutilization at the Athlone manufacturing plant which increased the cost of goods sold by $8.3 million and $8.5 million and lowered the gross margin percentage by 16.5% and 22.2%, respectively. Our cost of goods sold and gross margin percentage for the six months ended June 30, 2020 were also unfavorably impacted by inventory write-offs, which increased the cost of goods sold by $2.3 million and lowered the gross margin percentage by 6.1%. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time as the manufacturing plant reaches full capacity. We received FDA approval to produce Rocklatan® and Rhopressa® in January 2020 and September 30, 2017 and 2016:
 NINE MONTHS ENDED SEPTEMBER 30, CHANGE 
%
CHANGE
 2017 2016  
 (in thousands, except percentages)
Selling, general and administrative$51,402
 $29,814
 $21,588
 72 %
Research and development33,977
 38,301
 (4,324) (11)%
Total operating expenses85,379
 68,115
 17,264
 25 %
Loss from operations(85,379) (68,115) (17,264) 25 %
Other income (expense), net(1,071) (1,490) 419
 (28)%
Net loss before income taxes

$(86,450) $(69,605) $(16,845) 24 %
        
2020, respectively, at the Athlone manufacturing plant for commercial distribution in the United States. Prior to this approval, costs incurred for commercial-related manufacturing activities for both products were recorded to pre-approval commercial manufacturing expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $21.6were $67.1 million and $70.1 million for the ninesix months ended SeptemberJune 30, 2017 as compared to the nine months ended September 30, 2016. This increase was primarily associated with the expansion of our employee base2021 and preparatory commercial operations2020, respectively. Selling, general and manufacturing activities. 
Employee-relatedadministrative expenses increaseddecreased by $9.0 million, including an increase in stock-based compensation expense of $4.7 million and an increase in salaries and other employee-related expenses of $4.3 million due to increased headcount.
Expenses related to our preparatory commercial operations and manufacturing activities were approximately $9.3 million for the nine months ended September 30, 2017, an increase of $5.6 million as compared to the nine months ended September 30, 2016, and included scale-up of our current manufacturing activities, as discussed above. Our pre-launch sales and marketing planning activities increased $3.2 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, and professional fees increased by $2.1$3.0 million primarily due to consulting feeslower sales and marketing expenses and lower employee-related expenses, including stock-based compensation, partially offset by higher travel expenses as a result of the easing of COVID-19 related travel restrictions. To the extent the impact of the COVID-19 pandemic on the pharmaceutical industry continues to be mitigated, we expect an increase of selling, general and administrative expenses to pre-COVID-19 levels, primarily due to an increase of sales and marketing expenses as well as travel expenses.
Pre-approval commercial manufacturing expenses
Pre-approval commercial manufacturing expenses were zero and $2.2 million for compliance-related activitiesthe six months ended June 30, 2021 and legal fees2020, respectively. We received regulatory approval in January 2020 and September 2020 to supportproduce Rocklatan® and Rhopressa®,
26
Table of Contents
respectively, at our Athlone manufacturing plant. The cost of Rocklatan®and Rhopressa®produced by the growthAthlone manufacturing plant for commercial distribution following regulatory approval was capitalized as inventory or expensed to cost of goods sold. Further, we received regulatory approval for our operations.

additional Rocklatan® drug product contract manufacturer, which began to supply commercial product in the first quarter of 2020. The cost of commercial Rocklatan® produced by the additional contract manufacturer following regulatory approval was capitalized as inventory. We do not expect any material pre-approval commercial manufacturing expenses for the remainder of 2021.
Research and development expenses
Research and development expenses decreased by $4.3were $35.9 million and $39.1 million for the ninesix months ended SeptemberJune 30, 20172021 and 2020, respectively, and decreased by $3.3 million for the six months ended June 30, 2021 as compared to the ninesix months ended SeptemberJune 30, 2016. During2020.
A significant part of our program expenses in the ninesix months ended SeptemberJune 30, 2016, our research and development activity was primarily associated with2021 related to the AR-15512 Phase 3 registration trials for RhopressaTM and RoclatanTM. The Phase 3 registration trials for both RhopressaTM and RoclatanTM have been completed for purposes of applying for FDA approval in the U.S. As such, R&D costs for RhopressaTM and RoclatanTMdecreased2b clinical trial which increased by $6.7$3.1 million and $4.1 million, respectively, for the nine months ended September 30, 2017 as compared to the ninesix months ended SeptemberJune 30, 2016. Unallocated2020. A topline readout of the clinical trial is expected in the third quarter of 2021.
Furthermore, expenses for Rhopressa® for the six months ended June 30, 2021 increased by $7.0$3.1 million primarilycompared to the six months ended June 30, 2020, driven by increasedongoing costs for Rhopressa® Phase 3 clinical trial in Japan. Santen’s portion of shared costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan were recorded as deferred revenue, non-current on the condensed consolidated balance sheets.
These increases were offset by a decline of $3.4 million in expenses associated with Rocklatan®, due to lower costs related to the Mercury 3 registration trial in Europe and a decrease of $3.2 million related to the timing of the development of our retina programs, primarily AR 13503 SR. In addition, employee-related expenses, including stock-based compensation.compensation, decreased by $2.7 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 and travel expenses were lower as a result of the easing of COVID-19 related travel restrictions.
Other (expense) income, net
Other (expense) income, net consists of the following:
SIX MONTHS ENDED 
JUNE 30,		CHANGE
20212020
(in thousands)
Interest income$84 $1,620 $(1,536)
Interest expense(14,023)(12,888)(1,135)
Other (expense) income(944)412 (1,356)
Other (expense) income, net$(14,883)$(10,856)$(4,027)

Other (expense) income, net changed by $4.0 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
This change was primarily due to a decrease of $1.5 million in interest income on our cash, cash equivalents and investments and a change of 1.4 million in other (expense) income during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The change in other (expense) income primarily consists of $1.0 million in realized loss on equity securities sold as of March 31, 2021.
Further, interest expense, which increased by $1.1 million for the six months endedJune 30, 2021 compared to the six months ended June 30, 2020, relates to interest expense under the Convertible Notes issued in September 2019, including the amortization of debt discounts and issuance costs incurred.
Liquidity and Capital Resources
Since our inception, we have funded operations primarily through the sale of equity securities and the issuance of convertible notes. In addition, we generate cash flow from product revenues related to sales of our glaucoma franchise products,
27
Table of Contents
Rhopressa® and Rocklatan®, in the United States. Further, we entered into the Santen Agreement, pursuant to which Santen paid a $50.0 million upfront payment to Aerie Ireland Limited (the “Upfront Payment”).
We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses until such a time when our current products and any future products, if commercialized, generate adequate revenues to render us profitable. We will not generate any revenue from any product candidates are commercially successful, if at all.or future product candidates unless and until we obtain regulatory approval and commercialize such products.
Sources of Liquidity
PriorOur product revenue, net amounted to our initial public offering (“IPO”), we raised net cash proceeds of $78.6$27.2 million fromfor the private placement of convertible preferred stock and convertible notes. Priorsix months ended June 30, 2021, which relate 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, fees and expenses.
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 certain expenses of $2.1 million, and
10.8 million sharessales of our common stock through Septemberglaucoma franchise products, Rhopressa® and Rocklatan®. Accounts receivable, net amounted to $59.2 million as of June 30, 2017, for which we received net proceeds of approximately $339.5 million, after deducting commissions and other fees and expenses. This includes $195.9 million raised from “at-the-market” sales agreements, of which $49.3 million in net proceeds was raised during the nine months ended September 30, 2017. Additionally, we raised net proceeds of $143.6 million from the issuance of shares of our common stock pursuant to underwriting agreements, of which approximately $72.7 million was raised during the nine months ended September 30, 2017.2021.
As of SeptemberJune 30, 2017,2021, our principal sources of liquidity were our cash, cash equivalents and investments, which totaled approximately $282.2$188.3 million. In September 2019, we issued an aggregate principal amount of $316.25 million of Convertible Notes. See Note 10 to our condensed consolidated financial statements included in this report for additional information. Further, in October 2020, we entered into the Santen Agreement. Pursuant to the Santen Agreement, Santen paid the $50.0 million Upfront Payment in the fourth quarter of 2020. See Note 3 to our condensed consolidated financial statements included in this report for additional information. We believe that our cash, cash equivalents and investments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through at least the next twelve months. See “—Operating Capital Requirements.”
Cash Flows
The following table summarizes our sources and uses of cash:
 SIX MONTHS ENDED 
JUNE 30,
 20212020
(in thousands)
Net cash (used in) provided by:
Operating activities$(50,194)$(64,693)
Investing activities(21,395)73,212 
Financing activities(25)(1,160)
Net change in cash and cash equivalents$(71,614)$7,359 
 NINE MONTHS ENDED 
 SEPTEMBER 30,
 2017 2016
 (in thousands)
Net cash (used in) provided by:   
Operating activities$(67,063) $(60,994)
Investing activities(59,594) 14,015
Financing activities122,790
 167,857
Net change in cash and cash equivalents$(3,867) $120,878


Operating Activities
During the ninesix months ended SeptemberJune 30, 2017 and 2016,2021, net cash used in operating activities was $67.1of $50.2 million related to a net loss of $80.7 million, adjusted for non-cash items of $36.2 million primarily related to stock-based compensation expense, amortization and $61.0accretion and depreciation, partially offset by a net cash outflow of $5.7 million respectively. related to changes in operating assets and liabilities. During the six months June 30, 2020, net cash used in operating activities of $64.7 million related to a net loss of $97.3 million, adjusted for non-cash items of $37.3 million primarily related to stock-based compensation expense, amortization and accretion, depreciation, offset by a net cash outflow of $4.6 million related to changes in operating assets and liabilities.
The increasedecrease in net cash used in operating activities during the ninesix months ended SeptemberJune 30, 20172021 as compared to the ninesix months ended SeptemberJune 30, 20162020 was primarily due to the expansion of our employee basehigher net cash collections generated from product revenues and commercial operationslower sales and manufacturing activities in preparation for the launch of RhopressaTM, assuming FDA approval. This is partially offset by a reduction in expenditures for clinical trials in 2017 compared to 2016.marketing spend.
Investing Activities
During the ninesix months ended SeptemberJune 30, 2017, our2021, net cash used in investing activities used net cash of $59.6$21.4 million primarily related to purchases of available-for-sale investments of $101.2$73.0 million and purchases of fixed assetsproperty, plant and equipment of $7.1$1.4 million primarily associated withrelated to the build-out of our manufacturing plant in Ireland. These purchases wereAthlone, Ireland partially offset by sales and maturities of available-for-sale investments of $48.7$53.0 million. During the ninesix months ended SeptemberJune 30, 2016, our2020, net cash provided by investing activities provided net cash of approximately $14.0$73.2 million primarily related to sales and maturities of available-for-sale investments of $35.4$118.4 million which were partially offset by purchases of available-for-sale investments of $19.9 million.$43.5
28
Table of Contents
million and purchases of property, plant and equipment of $1.7 million primarily related to the manufacturing plant in Athlone, Ireland.
Financing Activities
During the ninesix months ended SeptemberJune 30, 2017 and 2016, our2021, net cash used in financing activities provided net cash of $122.8 millionwas immaterial and $167.9 million, respectively. The net cash provided by financing activities for the nine months ended September 30, 2017 and 2016 was primarily related to thetax payments made on employees’ behalf through withholding of shares on restricted stock grants partially offset by proceeds from issuance and sale of common stock pursuant to our “at-the-market” sales agreementsupon exercise of stock purchase rights and underwriting agreement from which we received total net proceeds of approximately $122.0 million and $167.4 million duringstock options. During the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively.2020, net cash used in financing activities of $1.2 million primarily related to tax payments made on employees’ behalf through withholding of shares on restricted stock grants.
Operating Capital Requirements
We expect to incur ongoing operating losses until such a time when ourRhopressa®, Rocklatan®, Rhokiinsa® or Roclanda® or any product candidates are commercially successful,or future product candidates, if at all. approved, generate sufficient cash flows for Aerie to achieve profitability.
Our principal liquidity requirements are for: working capital; future increased operational expenses; pre-commercialization planningoperating expenses, including for commercialization and manufacturing activities; expenses associated with developing our pipeline opportunities, including pursuing strategic growth opportunities; costs associated with executing our global expansion strategy, to expand into Europeincluding clinical and Japan;potential commercialization activities outside the United States; contractual obligations; and capital expenditures, including completing our manufacturing plant in Ireland; and debt service payments.expenditures.
In January 2017, we entered into a lease agreement for a new manufacturing plant in Ireland under which we are leasing approximately 30,000 square feet of interior floor space for build-out. Estimated project-wide equipment, construction and other related project costs are expected to total approximately $39 million (excluding ongoing labor-related and lease expenses and the potential impact of foreign exchange rate fluctuations), of which approximately $16 million is expected to be spent in 2017.
We believe that our cash, and cash equivalents and investments as of September 30, 2017and projected cash flows from revenues, will provide sufficient resources to support our operations, including interest payments for our Convertible Notes, through at least the expected approval and planned commercialization of RhopressaTMandRoclatanTMin the U.S.next twelve months.
Our future funding requirements will depend on many factors, including, but not limited to the following:
•commercial performance of Rhopressa® and Rocklatan® or any current or future product candidates, if approved, including any effects associated with the COVID-19 pandemic;
•costs of commercialization activities for Rhopressa® and Rocklatan® and any current or future product candidates, if approved;
•costs of building inventory to support sales growth and other associated working capital needs;
•costs, timing and outcome of seeking regulatory approval;
the costs of commercialization activities for our product candidates, if we receive regulatory approval, including the costs and timing of establishing product sales, marketing, manufacturing and distribution capabilities;
the commercial performance of our future product candidates;
•timing and costs of our ongoing and future clinical trials and preclinical studies and clinical trials forincluding those related to our product candidates outside of the U.S.;global expansion;
costs to complete our new manufacturing plant in Ireland;
•costs of any follow-on development or products, including the exploration and/or development of any additional indications or additional opportunities for new ophthalmic products,product candidates, delivery alternatives and new therapeutic areas;
costs of any new business strategies;
costs of operating as a public company, including legal, compliance, accounting and investor relations expenses;

•terms and timing of any acquisitions, collaborations, licensing, consulting or other arrangements;
•costs related to the Convertible Notes; and
•costs related to filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims.
We based our projections on assumptions that may prove to be incorrect or unreliable or may change due to circumstances beyond our control, and as a result, we may consume our available capital resources earlier than we originally projected. WeAccordingly, we may needbe required to obtain additional financing to fund our future operationsfurther funding through debt or we may decide, based on various factors, that additional financings are desirable.equity offerings or other sources. If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.
Outstanding Indebtedness
As ofIn September 30, 2017, our total indebtedness consisted of our $125.0 million2019, we issued an aggregate principal amount of 2014$316.25 million of Convertible Notes.
The Convertible Notes are senior, unsecured obligations with interest payable semi-annually in cash in arrears at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020. The Convertible Notes will mature on October 1, 2024 unless they are due in September 2021. For a discussionredeemed, repurchased or converted prior to such date. Prior to April 1, 2024, the Convertible Notes will be convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. On and after April 1, 2024, the Convertible Notes will be convertible at the option of the 2014holders any time until the close of business on
29
Table of Contents
the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes seemay be settled in shares of our common stock, cash or a combination, thereof, at our election. We currently intend to settle the principal and interest amounts of the Convertible Notes in cash.
See Note 710 to our condensed consolidated financial statements included in this report.report for additional information.
Contractual Obligations and Commitments
The following table summarizesThere have been no material changes to our contractual obligations at September 30, 2017:and commitments as included in our 2020 Form 10-K.
 TOTAL 
LESS THAN
1 YEAR
 1 TO 3 YEARS 3 TO 5 YEARS 
MORE THAN
5 YEARS
(in thousands) 
Lease obligations(1)
$14,620
 $2,478
 $5,946
 $3,896
 $2,300
2014 Convertible Notes(2)
125,000
 —
 —
 125,000
 —
 $139,620
 $2,478
 $5,946
 $128,896
 $2,300

(1)Our lease obligations are primarily related to our principal executive office in Irvine, California, corporate offices in Bedminster, New Jersey, and Dublin, Ireland, and our research facility in Durham, North Carolina. Additionally, in January 2017, we entered into a lease agreement for a new manufacturing plant in Athlone, Ireland, under which we are leasing approximately 30,000 square feet of interior floor space for build-out. We are permitted to terminate the lease agreement beginning in September 2027. Obligations denominated in foreign currencies have been translated to U.S. dollars at the foreign exchange rates in effect at September 30, 2017.
(2)On September 30, 2014, we issued the 2014 Convertible Notes, which mature on the seventh anniversary from the date of issuance, unless earlier converted. Refer to Note 7 to our condensed consolidated financial statements included in this report for further information.

In October 2017, we entered into an Asset Purchase Agreement (the “Agreement”) with Envisia pursuant to which we made an upfront cash payment of $10.5 million and issued 263,146 shares of Aerie’s common stock valued at approximately $14.3 million. Under the terms of the Agreement, we may also be required to make additional milestone payments contingent upon the achievement of regulatory approval. Contingent milestone payments are excluded from the table above as the timing in which we may be required to make such payments in the future, if at all, is highly uncertain. We have no other contractual obligations or commitments that are not subject to our existing financial statement accrual processes.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.None.

Jumpstart Our Business Startups Act of 2012
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) provides that an emerging growth company can take advantage of certain exemptions from various reporting and other requirements that are applicable to public companies that are not emerging growth companies. We currently take advantage of some, but not all, of the reduced regulatory and reporting requirements that are available to us for as long as we qualify as an emerging growth company. 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 and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting for as long as we qualify as an emerging growth company.
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 $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; 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.
Since the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2017, as of the year ending December 31, 2017, we will cease to be an “emerging growth company.” As a result, beginning with our Annual Report on Form 10-K for the year ending December 31, 2017, we will be subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.
Recent Accounting Pronouncements
For a discussion of recently issued accounting standards, see Note 2 to our condensed consolidated financial statements included in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have market risk exposure to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash, and cash equivalents as of September 30, 2017, totaled $194.1 million and consisted of cash and money market funds. Our investments totaled $88.2 million as of September 30, 2017 and consisted of commercial paper and corporate bonds. We had cash, cash equivalents and investments of $233.7totaled $188.3 million and $240.4 million as of June 30, 2021 and December 31, 2016.2020, respectively. Given the short-term nature of our cash, cash equivalents and investments, and our investment policy,we do not believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition or results of operations. We do not currently engage in any hedging activities against changes in interest rates. The 2014 Convertible Notes carry a fixed interest rate and, as such, are not subject to interest rate risk.
Aerie willWe face market risks attributable to fluctuations in foreign currency exchange rates and exposure on the remeasurement of foreign currency-denominated monetary assets or liabilities into U.S. dollars. In particular, our operations and subsidiary in Ireland may enter into certain obligations or transactions in Euros or other foreign currencies but has a U.S. dollar functional currency. We currently do not currently have any derivative instruments or a foreign currency hedging program. To date and during the ninesix months ended SeptemberJune 30, 2017,2021, foreign currency exposure and foreign currency financial instruments have not been material.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer concluded that, as of SeptemberJune 30, 2017,2021, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file andor submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting
There have beenwere no significant changes in our internal control over financial reporting during our most recent fiscalthe quarter ended June 30, 2021 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

30
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We may periodically become subject to legal proceedings and claims arising in connection with our business. 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.
Item 1A. Risk Factors
You should consider carefully the risks described below and set forth under “Risk Factors” in our 20162020 Form 10-K, and other documents that we have filed or furnished with the SEC. Except as set forth below, there have been no material changes to these risk factors.
AsHealthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products.
In recent years, the United States has enacted or proposed legislative and regulatory actions and executive orders affecting the healthcare system that may impact our ability to profitably sell any product for which we obtain marketing approval. For example, the federal government has implemented reforms to government healthcare programs in the United States, including changes to the methods for, and amounts of, December 31, 2017, we will no longer be an “emerging growth company”Medicare reimbursement and aschanges to the Medicaid Drug Rebate Program. The implementation of certain of these policy changes has decreased our revenues and increased our costs, and federal and state legislatures, health agencies and third-party payers continue to focus on containing the cost of prescription drugs. Further legislative and regulatory changes, and increasing pressure from social sources, are likely to further influence the manner in which our products are priced, reimbursed, prescribed and purchased.
The Trump administration put forth a result, we will havenumber of proposals aimed at containing prescription drug prices and announced several Executive Orders that sought to comply with increased disclosure and governance requirements.
Asimplement a resultnumber of the significant increase in our market capitalization asadministration's proposals. For example, on November 20, 2020, the United States Department of June 30, 2017, we will ceaseHealth and Human Services finalized a regulation removing safe harbor protection under the Federal Anti-Kickback Statute for price reductions from pharmaceutical manufacturers to be an “emerging growth company” as definedplan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law or unless it is passed through to the dispensing pharmacy and reflected in the JOBS Act as of December 31, 2017. We will, as of December 31, 2017, be a large accelerated filer and, as such, will be subjectprice to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company. These requirements include:
the provisions of Section 404(b)patient. The implementation of the Sarbanes-Oxley Act requiring thatrule has been delayed by the Biden administration to January 1, 2023 in response to ongoing litigation. Further, in November 2020, the Centers for Medicare & Medicaid Services issued an interim final rule implementing the Trump administration's Most Favored Nation Executive Order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries. While the implementation of the interim final rule is currently enjoined, the Biden administration and Congress are expected to propose policies intended to reduce the prices of prescription drugs. Also, in the current climate, price increases on our independent registered public accounting firm provide an attestation report on the effectivenessproducts and negative publicity regarding drug pricing and price increases generally could negatively affect market acceptance, and sales, of our internalproducts and product candidates.
Also, some states have enacted or are considering legislation and ballot initiatives that would control over financial reporting;the prices and coverage and reimbursement levels of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the United States and laws intended to impose price controls on state drug purchases.
In addition, governments in countries outside the requirement to provide detailed compensation discussionUnited States control the costs of pharmaceuticals. Many European countries and analysis in proxy statementsCanada have established pricing and reports filed underreimbursement policies that contain costs by referencing the Exchange Act; and
the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation 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)price of the Dodd-Frank Act and somesame or similar products in other countries. In these instances, if coverage or the level of reimbursement is reduced, limited or eliminated in one or more countries, we may be unable to obtain or maintain anticipated pricing or reimbursement in other countries or in new markets. This may influence our decision whether to sell a product in one or more countries, thus adversely affecting our geographic expansion plans. It is also possible that governments may take additional action to reform the healthcare system in response to the evolving effects of the disclosure requirements ofcoronavirus pandemic.
Healthcare reforms that have been adopted, and that may be adopted in the Dodd-Frank Act relating to compensation of its chief executive officer.
Beginning with our Annual Report on Form 10-K for the year ending December 31, 2017, we will be subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. Compliance with Section 404 will be expensive and time consuming for management andfuture, could result in further reductions in coverage and levels of reimbursement for our products, increases in the detection of internal control deficiencies of whichrebates payable under U.S. government rebate programs and additional downward pressure on the prices that we are currently unaware. Moreover, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis, and our financial statements maycollaborators receive for our products. We cannot be certain as to the ultimate content, timing, or effect of future healthcare law and policy changes, nor is it possible at this time to estimate the impact of any such potential changes; however, such changes or the ultimate impact of changes could materially misstated. Weand adversely affect our revenue or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading pricesales of our common stock to fall. We expect that the losscurrent and or potential future products and product candidates, as well as those of “emerging growth company” status and compliance with the additional requirements will substantially increase our legal and financial compliance costs and make some activities more time consuming and costly.collaborators.
31
Table of Contents
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
On November 3, 2014, we filed a shelf registration statement on Form S-3 (the “2014 Registration Statement”) that permitted the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock and permits sales of common stock by certain selling stockholders.

On September 15, 2016, we filed a shelf registration statement on Form S-3 (Registration No. 333-213643), which was effective on September 15, 2016. The shelf registration statement permits the offering, issuance and sale by us of our common stock. In addition, on May 25, 2017, we filed a prospectus supplement to the base prospectus dated September 15, 2016 (the “2017 Prospectus Supplement”). The prospectus supplement permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $50.0 million of our common stock.
From November 10, 2014 through September 30, 2017, we issued and sold 6,840,570 shares of common stock under our “at-the-market” sales agreements, of which 906,858 shares were issued and sold during the nine months ended September 30, 2017, and received net proceeds of approximately $195.9 million, of which $49.3 million were received during the nine months ended September 30, 2017, in each case, after deducting commissions and other fees and expenses. Sales under the “at-the-market” sales agreements were made pursuant to the 2014 Registration Statement, the prospectus supplement (the “2016 Prospectus Supplement”), dated September 15, 2016, to the base prospectus dated September 15, 2016 and the 2017 Prospectus Supplement. As of September 30, 2017, no shares remain available for issuance under the 2014 Registration Statement, the 2016 Prospectus Supplement or the 2017 Prospectus Supplement.
Any remaining net proceeds from these sales are held as cash deposits and in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.

32
Table of Contents
Item 6. Exhibits
31.1*
31.2*
32.1***
32.2***
10.1101.INS***
Amended and Restated Employment Agreement, dated July 25, 2017, by and between Aerie Pharmaceuticals, Inc. and Vicente Anido, Jr., Ph.D. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on July 26, 2017).
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.
104***Cover Page Interactive Data File
*Filed herewith.
*Filed herewith.
**Furnished herewith.
***Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
(i) Condensed Consolidated Balance Sheets at SeptemberJune 30, 20172021 and December 31, 20162020 (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 (unaudited), (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 (unaudited) and (iv)(v) Notes to Condensed Consolidated Financial Statements (unaudited).
***Furnished herewith.

33

Table of Contents






SIGNATURES
Pursuant to the requirements 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: November 9, 2017August 5, 2021/s/ RICHARD J. RUBINOCHRISTOPHER STATEN
Richard J. RubinoChristopher Staten
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)











30
34