Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☐ No o☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o☐ No ý☒

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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. ~~(Check one):~~

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

o ~~(Do not check if a smaller reporting company)~~

☐

Smaller reporting company

o☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with

any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, ~~2017,~~2021, based upon the closing price of ~~$52.55~~$16.01 of the registrant’s common stock as reported on The NASDAQ Global Market, was ~~$1,868,270,790.~~$734,874,546.

As of February ~~14, 2018,~~18, 2022, the registrant had ~~39,492,900~~48,391,874 shares of common stock, $0.001 par value, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement (the “Proxy Statement”) for the ~~2018~~2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission (the “SEC”) within 120 days of the registrant’s fiscal year ended December 31, ~~2017.~~

2021.

~~TABLE OF CONTENTS~~

TABLE OF CONTENTS


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii

PART I
Item 1.	Business	1
	Overview	1
	Our Strategy	3
	Status, Achievements and Regulatory Approvals	8
	Our Products, Product Candidates and Pipeline	5
	Glaucoma Overview	10
	Dry Eye Overview	13
	Retinal Diseases Overview	13
	Competition	14
	Sales and Marketing	16
	Major Customers	16
	Manufacturing	16
	Intellectual Property	17
	Regulatory Matters	18
	Environmental, Social and Governance and Human Capital	32
	Corporate and Available Information	36
Item 1A.	Risk Factors	2637
Item 1B.	Unresolved Staff Comments	5975
Item 2.	Properties	5975
Item 3.	Legal Proceedings	6075
Item 4.	Mine Safety Disclosures	6075

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6176
Item 6.	~~Selected Financial Data~~[Reserved]	6477
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	6578
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	7893
Item 8.	Financial Statements and Supplementary Data	7893
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7894
Item 9A.	Controls and Procedures	7894
Item 9B.	Other Information	7995
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	95
~~PART III~~
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	8096
Item 11.	Executive Compensation	8096
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	8096
Item 13.	Certain Relationships and Related Transactions, and Director Independence	8096
Item 14.	Principal Accountant Fees and Services	8096

PART IV
Item 15.	Exhibits, Financial Statement Schedules	8197
Item 16.	Form 10-K Summary	8197

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 commercial launch and potential future sales of Rhopressa~~^®~~(netarsudil ophthalmic solution) 0.02% (“Rhopressa~~^®~~”) and Roclatan~~^TM ~~(netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“Roclatan~~^TM~~”) and any future product candidates, if approved;~~

•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;~~strategies in and outside of the United States;


•	~~third-party payer coverage and reimbursement for Rhopressa~~^®~~and Roclatan~~^TM ~~and any future product candidates, if approved;~~


•	~~the glaucoma patient market size and the rate and degree of market adoption of Rhopressa~~^® ~~and Roclatan~~^TM ~~and any future product candidates, if approved, by eye-care professionals and patients;~~


•	~~the timing, cost or other aspects of the commercial launch of Rhopressa~~^® ~~and Roclatan~~^TM ~~and any future product candidates, if approved;~~


•	~~the success, timing and cost of our ongoing and anticipated preclinical studies and clinical trials for Rhopressa~~^®~~, with respect to regulatory approval outside the United States, Roclatan~~^TM ~~and any future product candidates, including statements regarding the timing of initiation and completion of the studies and trials;~~


•	~~our expectations regarding the effectiveness of Rhopressa~~^®~~, Roclatan~~^TM ~~and any future product candidates and results of our clinical trials and any potential preclinical studies;~~

•

the timing of and our ability to request, obtain and maintain U.S. Food and Drug Administration (“FDA”) or other regulatory authority approval of, or other action with respect to, as applicable, Rhopressa^®~~, Roclatan~~^TM and any future product candidates in the United States, Canada, Europe, Japan and elsewhere, including the expected timing of, and regulatory and/or other review of, filings for, as applicable, Rhopressa^®~~, Roclatan~~^TM ~~and any future product candidates;~~

•third-party payer coverage and reimbursement for our products, 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, 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, product candidates and any future product candidates, if approved;

•the success, timing and cost of our ongoing and anticipated preclinical studies and clinical trials for our product candidates and any future product candidates, including statements regarding the timing of initiation and completion of the studies and trials;

•our expectations regarding the effectiveness of our products, product candidates and any future product candidates and our expectations regarding the results of any clinical trials and preclinical studies;

•the timing of and our ability to request, obtain and maintain FDA or other regulatory authority approval of, or other action with respect to our products, product candidates and any future product candidates in the United States, Europe, Japan and elsewhere, including the expected timing of, and regulatory and/or other review of, filings for such 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;


•	~~our plans to pursue development of additional product candidates and technologies in ophthalmology, including development of Rhopressa~~^® ~~and Roclatan~~^TM ~~for additional indications, our preclinical retina programs and other therapeutic opportunities;~~


•	~~the potential advantages of Rhopressa~~^®~~, Roclatan~~^TM ~~and any future product candidates;~~

•our plans to ~~explore possible uses~~pursue development of additional product candidates and technologies in ophthalmology, including development of our ~~existing proprietary compounds beyond glaucoma~~products or product candidates for additional indications, and ~~ophthalmology;~~our preclinical retinal programs and other therapeutic opportunities;

•the potential advantages of our products, product candidates and any future product candidates;

•our ability to protect our proprietary technology and enforce our intellectual property rights; and

•our expectations regarding existing and future collaborations, licensing, acquisitions and strategic operations, including our ability to in-license or acquire additional ophthalmic products, product candidates or ~~technologies; 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 this report and elsewhere in this report.

In particular, FDA approval of Rhopressa^® and Rocklatan®does not ~~constitute~~guarantee FDA approval of ~~Roclatan~~^TM,our product candidates under development or any future product candidates in the United States, and there can be no assurance that we will receive FDA approval for ~~Roclatan~~^TMour product candidates or any future product candidates. ~~FDA~~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®does not guarantee European Medicines Agency (“EMA”) or MHRA approval of ~~Rhopressa~~^®~~also does not constitute regulatory approval of Rhopressa~~^®our product candidates under development or any future product candidates in ~~jurisdictions outside the United States,~~Europe, and there can be no assurance that ~~Rhopressa~~^®we will ~~obtain~~receive EMA or MHRA approval for our product candidates or any future product candidates. FDA, EMA and MHRA approval of Rhopressa® and Rocklatan® does not guarantee regulatory approval of these products in ~~other~~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 ~~preclinical research~~clinical trials discussed in this report isare preliminary and the outcome of such ~~preclinical studies~~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 ~~preclinical research~~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. 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 a~~the result of new information, future events or otherwise, after the date of this report.

iii

could adversely affect the sales of our products. If third-party payers do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our potential products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.

As noted above, in the United States, we are subject to complex laws and regulations pertaining to healthcare “fraud and abuse,” including, but not limited to, the Federal Anti-Kickback Statute, the Federal False Claims Act, and other state and federal laws and regulations. The Federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the Federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, ~~the absence of guidance in the form of regulations or court decisions,~~ and the potential for additional legal or regulatory change in this area, it is possible that our future sales and marketing practices and/or our future relationships with eye-care professionals might be challenged under anti-kickback laws, which could harm us. Because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs, we have developed a comprehensive compliance program that establishes internal controls to facilitate adherence to the rules and program requirements to which we will or may become subject.

The Federal False Claims Act prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payers, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the Federal False Claims Act in connection with their off-label promotion of drugs. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties ofcurrently between ~~$10,000~~$11,803 and ~~$25,000~~$23,607 for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the Federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the Federal False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.

There are also an increasing number of state laws with requirements for manufacturers and/or marketers of pharmaceutical products. Some states require the reporting of expenses relating to the marketing and promotion of drug products and the reporting of gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals. Still other states require the reporting of certain pricing information, including information pertaining to and justification of price ~~increases, or prohibit prescription drug price gouging.~~increases. In addition, states such as California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, as discussed in “—Patient Protection and Affordable Care Act” below, a similar federal requirement requires manufacturers to track and report to the federal government certain payments made to physicians, physician assistants, certain types of advanced practice nurses, and teaching hospitals made in the previous calendar year. These laws may affect our sales, marketing and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and ~~soon~~ federal authorities.

Numerous U.S. federal and state laws, including state security breach notification laws, state health information privacy laws and U.S. federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Other countries also have, or are developing, laws governing the collection, use and transmission of personal information. In addition,

most healthcare providers who are expected to prescribe our products and from whom we obtain patient health information, are subject to privacy and security requirements under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and its implementing regulations, which imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” such as independent contractors or agents of covered entities that receive or obtain protected health information while providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities and business associates. In addition, HITECH also gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing these actions. As a result of HIPAA, we could be subject to criminal penalties if we obtain and/or disclose individually identifiable health information from a HIPAA-covered entity, including healthcare providers, in a manner that is not authorized or permitted by HIPAA. In addition, many U.S. states and foreign governments have enacted comparable laws addressing the privacy and security of health information, such as the General Data Protection Regulation (the “GDPR”) enacted by the European Union, some of which are more stringent than HIPAA. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to disrupt our operations, including recently enacted laws in a majority of states requiring security breach notification. If there are any violations of these laws, we could face significant administrative and monetary sanctions as well as reputational damage, which may have a material adverse effect on our business.

The failure to comply with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, exclusion of company products from coverage under federal health care programs, or refusal to allow a firm to enter into supply contracts, including government contracts.

Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by ~~required,~~requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

Government Programs for Marketed Drugs

Medicaid, the 340B Drug Pricing Program, and Medicare

Federal law requires that a pharmaceutical manufacturer, as a condition of having its products receive federal reimbursement under Medicaid and Medicare Part B, must pay rebates to state Medicaid programs for all units of its covered outpatient drugs dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under either a fee-for-service arrangement or through a managed care organization. This federal requirement is effectuated through a Medicaid drug rebate agreement between the manufacturer and the Secretary of Health and Human Services. CMS administers the Medicaid drug rebate agreements, which provide, among other things, that the drug manufacturer will pay rebates to each state Medicaid agency on a quarterly basis and report certain price information on a monthly and quarterly basis. The rebates are based on prices reported to CMS by manufacturers for their covered outpatient drugs. For innovator products, that is, drugs that are marketed under approved NDAs, the basic rebate amount is the greater of 23.1% of the average manufacturer price (“AMP”) for the quarter or the difference between such AMP and the best price for that same quarter. The AMP is the weighted average of prices paid to the manufacturer (1) directly by retail community pharmacies and (2) by wholesalers for drugs distributed to retail community pharmacies. The best price is essentially the lowest price available to non-governmental entities. Innovator products are also subject to an additional rebate that is based on the amount, if any, by which the product’s current AMP has increased over the baseline AMP, which is the AMP for the first full quarter after launch, adjusted for inflation. To date, the rebate amount for a drug has been capped at 100% of the AMP; however, effective January 1, 2024, this cap will be eliminated, which means that a manufacturer could pay a rebate amount on a unit of the drug that is greater than the average price the manufacturer receives for the drug. For non-innovator products, generally generic drugs marketed under approved abbreviated new drug applications, the basic rebate amount is 13% of the AMP for the quarter. ~~Until recent amendments to the statute, this was the only rebate applicable to non-innovator products. However, as a result of a November 2015 amendment, non-innovator~~Non-innovator products are also subject to an additional rebate. The additional rebate is similar to that discussed above for innovator products, except that the baseline AMP quarter is the fifth full quarter after launch (for non-innovator multiple source drugs launched on April 1, 2013 or later) or the third quarter of 2014 (for those launched before April 1, 2013). The statutory definition of AMP was amended in 2010 by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, “PPACA”). In February 2016, CMS published a final rule to further define AMP and provide clarification on other parts of the rebate program.

~~The~~.The terms of participation in the Medicaid drug rebate program impose an obligation to correct the prices reported in previous quarters, as may be necessary. Any such corrections could result in additional or lesser rebate liability, depending on the direction of the correction. In addition to retroactive rebates, if a manufacturer were found to have knowingly submitted false information to the government, federal law provides for civil monetary penalties for failing to provide required information, late submission of required information, and false information.

A manufacturer must also participate in a federal program known as the 340B drug pricing program in order for federal funds to be available to pay for the manufacturer’s drugs under Medicaid and Medicare Part B. Under this program, the participating manufacturer agrees to charge certain federally funded clinics and safety net ~~healthcare providers~~hospitals no more than an established discounted price for its covered outpatient drugs. The formula for determining the discounted price is defined by statute and is based on the AMP and the unit rebate amount as calculated under the Medicaid drug rebate program, discussed above. Manufacturers ~~have not been~~are required to report ~~any~~ pricing information to the Health Resources and Services Administration (“HRSA”)~~, but HRSA issued a notice proposing to collect such information from manufacturers~~ on a quarterly ~~basis and is in the process of preparing a system to operationalize this requirement.~~basis. HRSA has also issued regulations relating to the calculation of the ceiling price as well as imposition of civil monetary penalties for each instance of knowingly and intentionally overcharging a 340B covered entity.

Federal law also requires that manufacturers report data on a quarterly basis to CMS regarding the pricing of drugs that are separately reimbursable under Medicare Part B. These are generally drugs, such as injectable products, that are administered “incident to” a physician service and are not generally self-administered. The pricing information submitted by manufacturers is the basis for reimbursement to physicians and suppliers for drugs covered under Medicare Part B. As with the Medicaid drug rebate program, federal law provides for civil monetary penalties for failing to provide required information, late submission of required information, and false information.

Medicare Part D provides prescription drug benefits for seniors and people with disabilities. Medicare Part D beneficiaries ~~have~~once had a gap in their coverage (between the initial coverage limit and the point at which catastrophic coverage begins) where Medicare ~~does~~did not cover their prescription drug costs, known as the coverage gap. However, ~~by 2020,~~beginning in 2019, Medicare Part D beneficiaries ~~will~~ pay 25% of brand drug costs after they reach the initial coverage limit - the same percentage they were responsible for before they reached that limit - thereby closing the coverage gap. ~~The~~Most of the cost of closing the coverage gap is being borne by innovator companies and the government through subsidies. ~~Beginning in 2011, each~~Each manufacturer of ~~drugs~~a drug approved under ~~NDAs was~~an NDA is required to enter into a Medicare Part D coverage gap discount agreement and provide a ~~50%~~70% discount on those drugs dispensed to Medicare beneficiaries in the coverage gap, in order for its drugs to be reimbursed by Medicare Part D. ~~The Bipartisan Budget Act of 2018 increased the manufacturer’s subsidy under this program from 50% to 70% of the negotiated price, beginning in 2019.~~

Federal Contracting/Pricing Requirements

Manufacturers are also required to make their covered drugs, which are generally drugs approved under NDAs, available to authorized users of the Federal Supply Schedule (“FSS”), of the General Services Administration. The law also requires manufacturers to offer deeply discounted FSS contract pricing for purchases of their covered drugs by the Department of Veterans Affairs, the Department of Defense (“DoD”), the Coast Guard, and the Public Health Service (including the Indian Health Service) in order for federal funding to be available for reimbursement or purchase of the manufacturer’s drugs under certain federal programs. FSS pricing to those four federal agencies for covered drugs must be no more than the Federal Ceiling Price (“FCP”), which is at least 24% below the Non-Federal Average Manufacturer Price (“Non-FAMP”) for the prior year. The Non-FAMP is the average price for covered drugs sold to wholesalers or other middlemen, net of any price reductions.

The accuracy of a manufacturer’s reported Non-FAMPs, FCPs, or FSS contract prices may be audited by the government. Among the remedies available to the government for inaccuracies is recoupment of any overcharges to the four specified federal agencies based on those inaccuracies. If a manufacturer were found to have knowingly reported false prices, in addition to other penalties available to the government, the law provides for civil monetary penalties of $100,000 per incorrect item. Finally, manufacturers are required to disclose in FSS contract proposals all commercial pricing that is equal to or less than the proposed FSS pricing, and subsequent to award of an FSS contract, manufacturers are required to monitor certain commercial price reductions and extend commensurate price reductions to the government, under the terms of the FSS contract Price Reductions Clause. Among the remedies available to the government for any failure to properly disclose commercial pricing and/or to extend FSS contract price reductions is recoupment of any FSS overcharges that may result from such omissions.

Tricare Retail Pharmacy Network Program

The DoD provides pharmacy benefits to current and retired military service members and their families through the Tricare healthcare program. When a Tricare beneficiary obtains a prescription drug through a retail pharmacy, the DoD reimburses the pharmacy at the retail price for the drug rather than procuring it from the manufacturer at the discounted FCP discussed above. In order for the DoD to realize discounted prices for covered drugs (generally drugs approved under NDAs), federal law requires manufacturers to pay refunds on utilization of their covered drugs sold to Tricare beneficiaries through retail pharmacies in DoD’s Tricare network. These refunds are generally the difference between the Non-FAMP and the FCP and are due on a quarterly basis. Absent an agreement from the manufacturer to provide such refunds, DoD will designate the manufacturer’s products as Tier 3 (non-formulary) and require that beneficiaries obtain prior authorization in order for the products to be dispensed at a Tricare retail network pharmacy. However, refunds are due whether or not the manufacturer has entered into such an agreement.

Branded Pharmaceutical Fee

A branded pharmaceutical fee is imposed on manufacturers and importers of branded prescription drugs, generally drugs approved under NDAs. In each year between 2011 and 2018, the aggregate fee for all such manufacturers ~~will range~~ranged from $2.5 billion to $4.1 billion, and ~~then will remain~~has remained at $2.8 billion in 2019 and subsequent years. This annual fee is apportioned among the participating companies based on each company’s sales of qualifying products to or utilization by certain U.S. government programs during the preceding calendar year. The fee ~~became effective January 1, 2011, and~~ is not deductible for U.S. federal income tax purposes. Utilization of generic drugs, generally drugs approved under ANDAs, is not included in a manufacturer’s sales used to calculate its portion of the fee.

~~Patient Protection and Affordable Care Act~~Healthcare Reform

~~In March 2010, the PPACA was enacted, which includes measures~~Healthcare reforms that have ~~or will significantly change~~been adopted, and that may be adopted in the ~~way healthcare is financed~~future, could result in further reductions in coverage and levels of reimbursement for pharmaceutical products, increases in rebates payable under U.S. government rebate programs and additional downward pressure on pharmaceutical product prices. On September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried out by ~~both governmental~~Congress, to reduce drug prices and ~~private insurers. Among the provisions of PPACA of greatest importance~~drug payment. The HHS plan includes, among other reform measures, proposals to ~~the pharmaceutical industry are the following:~~

~~As discussed above, effective in 2010, PPACA made several~~lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes ~~to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription~~that strengthen supply chains, promote biosimilars and generic drugs, and ~~biologic agents~~increase price transparency. Many similar proposals, including the plans to 23.1% of AMP and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP. PPACA also expanded the universe of Medicaid utilization subjectgive Medicare Part D authority to negotiate drug ~~rebates by requiring pharmaceutical~~prices, require drug manufacturers to pay rebates on ~~Medicaid managed care utilization~~drugs whose prices increase greater than the rate of inflation, and cap out-of-pocket costs, have already been included in policy statements and legislation currently being considered by ~~expanding the population potentially eligible for Medicaid drug benefits. CMS expanded Medicaid rebate liability~~Congress. It is unclear to ~~the territories of the United States as well, effective April 1, 2020. In addition, PPACA provides for the public availability of retail survey prices~~what extent these and certain weighted average AMPs under the Medicaid program. The implementation of this requirement by the CMS, beginning in April 2016, also provided for the public availability of pharmacy acquisition of cost data, which could negatively impact our sales.other statutory, regulatory, and administrative initiatives will be enacted and implemented.

Effective in 2010, PPACA expanded the types of entities eligible to receive discounted 340B pricing, although, under the current state of the law, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs when used for the orphan indication.

Effective in 2011, PPACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D patients in the coverage gap (i.e., “donut hole”). The Bipartisan Budget Act of 2018 increased the manufacturer’s subsidy under this program from 50% to 70% of the negotiated price, beginning in 2019.

Effective in 2011, PPACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications.

PPACA requires pharmaceutical manufacturers to track certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” made or distributed to such entities, as well as any investment interests held by physicians and their immediate family members. Manufacturers were required to track this information beginning in 2013, and the first reports were due in 2014. The information reported each year is made publicly available on a searchable website.

As of 2010, a new Patient-Centered Outcomes Research Institute was established pursuant to PPACA to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.

PPACA created the Independent Payment Advisory Board, which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.

PPACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation from 2011 to 2019.

There have been efforts by the Trump Administration and Congress to seek repeal of all or portions of PPACA. There is uncertainty with respect to the impact these changes, if any, may have, and any changes likely will take time to unfold.European Union

European Union Drug Development

In the European Union, ~~(“EU”),~~ our products and product candidates will also be subject to extensive regulatory requirements. Regulatory laws for pharmaceuticals are largely harmonized throughout the European Union, so that applicable E.U. law is most significant and national laws have less importance. As in the United States, medicinal products can only be marketed if either a ~~marketing authorization~~Centralised MA has been obtained from the European Medicines Authority (“EMA”) or national authorizations have been obtained from the competent regulatory ~~agencies has been obtained, and the~~agencies.

The various phases of preclinical and clinical research in the EUEuropean Union are subject to significant regulatory controls. Phases 1 to 3 of clinical trials in humans are comparable to those regulated in the United States, and GCP requirements in the European Union for these studies follow internationally accepted standards.

Although the EUE.U. Clinical Trials Directive 2001/20/EC has sought to harmonize the EUE.U. clinical trial regulatory framework for pharmaceuticals by setting out common rules for the control and authorization of clinical trials in the European Union, the EUE.U. Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the member state regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EUE.U. countries where the trial is to be conducted by two distinct bodies: the National Competent

Authority (“NCA”) and one or more Ethics Committees (“ECs”). All suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial must be reported to the ~~NCA and ECs~~competent authorities of the Member State ~~where~~in which they occurred. All clinical trials ~~will have to~~must conform to current ~~Good Clinical Practice~~GCP guidelines issued by the EUEuropean Union and the International Council on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, in particular when the results of such trials are being used in marketing ~~authorization~~authorisation procedures, and audits by EUE.U. inspectors on regulatory conformance of such clinical trials are likely.

In 2014, the new EUE.U. Clinical Trial Regulation 546/2014 was ~~enacted. When~~enacted (the “Regulation”) and became applicable on January 31, 2022. From that date, it ~~becomes applicable (currently expected beginning in 2019), it will govern~~governs all newly-commenced clinical ~~trials.~~trials in the EU and European Economic (“EEA”). The new Regulation aims to make more uniform and streamline the clinical trials ~~authorization~~authorisation process, ensure consistent rules for conducting clinical trials throughout the ~~EU,~~European Union, increase the efficiency of clinical trials, and increase the transparency of authorization, conduct and results of clinical trials. All ~~currently conducted~~ clinical trials initiated before the Regulation became effective remain ~~subjected~~subject to the Clinical Trials Directive of 2001.

Generally, in the ~~European Economic Area (“EEA”),~~EEA, for every product candidate, a pediatric investigation plan (“PIP”) will have to be submitted and approval be obtained, unless a waiver is obtained where justified, in addition to clinical trials conducted in adults. The clinical studies that sponsoring companies must carry out on children are to be set out in detail in the ~~PIP.~~PIP where the indication is one

found in children. In most cases, the PIP will become a commitment when applying for a marketing ~~authorization~~authorisation for a product candidate. A PIP may entail significant cost.

European Union Drug Review and Approval

In the EEA, which is currently comprised of the 2827 Member States of the European Union plus Norway, Iceland and Liechtenstein (together forming the EEA), medicinal products can only be commercialized after obtaining a Marketing ~~Authorization~~Authorisation (“MA”). which is comparable to an NDA in the United States. There are two types of marketing ~~authorizations~~authorisations in the EEA: the ~~Community~~Centralised MA, which is issued by the European Commission through the Centralized Procedure based on the opinion of the Committee for Medicinal Products for Human Use (“CHMP”), a body of the EMA, and which is valid throughout the entire territory of the EEA; and the National MA, which is issued by the competent authorities of each Member State of the EEA and only authorizes marketing in that Member State’s national territory and not in the EEA as a whole.

The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the European Union. The National MA is for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Member ~~States~~State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State (“RMS”). If the RMS proposes to authorize the product, and the other Member States do not raise objections, the product is granted a national MA in all the Member States where the authorization was sought. Before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. A third alternative system is mutual recognition in which member states “mutually recognize” an authorization already granted in another member state, which shortens the application process.

~~Brexit~~The EMA is responsible for the validation and scientific evaluation of the application, but the European Commission will decide upon our application. The EMA's CHMP will carry out a scientific assessment of the application and will give a recommendation on whether the medicine should be authorized or not. A favorable opinion is accompanied by a draft summary of the product's characteristics, the package leaflet and the proposed text for the packaging.

~~Unless otherwise~~The time limit for the evaluation procedure is 210 days, subject to extensions if additional questions need to be addressed. Within 15 days of the adoption, the EMA will forward its opinion to the European Commission to start the decision-making phase. Within 15 days a draft implementing decision is sent by the Commission to the Standing Committee on Medicinal Products for Human Use, allowing for its scrutiny by E.U. countries. These have 15 days to return their linguistic comments, and 22 days for substantial ones. Once a favorable opinion is reached, the draft decision is adopted via an empowerment procedure. The adoption of the decision should take place within 67 days of the opinion of the EMA. The Commission's Secretariat-General then notifies the marketing authorisation holder of the decision. The decision is subsequently published in the Community Register. In practice, the procedure is expected to take at least one year.

Marketing authorisations are initially valid for five years. Applications for renewal must be made to the EMA at least six months before this five-year period expires. Marketing authorisations lapse if the authorized products are not placed on the market for a period of 3 consecutive years.

In November 2019, we received a Centralised MA for Rhokiinsa®, and in January 2021, we received a Centralised MA for Roclanda®. We will complete a further administrative step to have the Roclanda® authorisation accepted in the United Kingdom, subject to the agreement of the MHRA.

Files Required for Obtaining an E.U. Marketing Authorisation

Similar to the United States, applications for MAs in the European Union must be supported by an extensive dossier that shows the product candidate has the required quality, efficacy and safety suitable for the intended use, and additional administrative documents. The content and format of the dossier must follow the so-called Common Technical Document (“CTD”) format. Amongst other things, the applicant must submit all relevant data from pharmaceutical, preclinical and clinical trials, and all relevant information as regards the composition, quality and manufacturing process of the product. These requirements are laid down in applicable E.U. legislation and very detailed EMA guidelines.

In the course of the MAA process, an inspection of the veracity and the compliance of the clinical trials that form the basis of the MAA may be conducted by E.U. inspectors. If it turns out that a clinical trial does not meet GCP and other applicable regulatory standards, it may not serve as a basis for proving efficacy and safety of the product at issue.

Also, the manufacturing sites for the active ingredients of the product candidate may be inspected by the European Union in order to establish that the manufacturing indeed complies with cGMP standards.

Applicants are responsible for ensuring the safety profile of their medicine is adequately characterized at the time of submitting their MAA. Applicants are required to submit a risk management plan as part of their MAA. Risk management plans describe existing knowledge on the safety of a medicine and future pharmacovigilance activities designed to further study or monitor the product's safety. Part of that plan will be that a qualified person responsible for pharmacovigilance is being retained.

Post-approval Obligations of an MA Holder in the European Union

Even after approval of a product candidate by the EC, an MA holder will face various ongoing actions and obligations and must ensure that it has a suitable organization in place that is able to meet these obligations.

Reportable suspected adverse events must be reported to competent authorities via EudraVigilance, a centralized European information system of suspected adverse reactions to medicines. EudraVigilance will re-route the case safety reports to E.U. member states. The EMA will make the reports of individual cases of suspected adverse reactions also available to the WHO Uppsala Monitoring Centre. Patients and healthcare professionals will continue to report adverse reactions to national competent authorities.

For public health reasons, the EMA may require the MA holder to provide additional data post-authorization, as necessary to provide additional data about the safety and, in certain cases, the efficacy or quality of authorized medicinal products.

The EMA is responsible for harmonizing and coordinating pharmacovigilance inspections at E.U. level, which involves, among others:

•Preparing a risk-based program of routine pharmacovigilance inspections in relation to centrally authorised products.

•Preparing and developing guidance on pharmacovigilance inspections.

•Coordinating advice on the interpretation of pharmacovigilance requirements and related technical issues.

National competent authorities are responsible for coordinating inspections to verify compliance with cGMP, GCP, good laboratory practice and good pharmacovigilance practice within their own territories, and any other aspects of the supervision of authorized medicinal products, subject to laws and guidance provided by the EMA. Where a manufacturing site outside the European Union supplies product in more than one E.U. country, the EMA facilitates cooperation between those concerned competent authorities.

Member States and the Commission must inform other member states, the EMA and the Commission if concerns result from the evaluation of data from pharmacovigilance activities. This may result in the suspension or revocation of the marketing authorisation.

Member states have systems in place which aim at preventing dangerous medicinal products from reaching the patient and cover the receipt and handling of notifications of suspected falsified medicines or quality defects. Rapid alerts must be sent to all member states and a recall may be initiated if such medicines have already reached patients.

An MA holder must:

•Continuously operate a pharmacovigilance system, part of which requires a permanently and continuously available appropriately qualified person responsible for pharmacovigilance.

•Establish a risk management system, take account of scientific and technical progress and adapt accordingly, and continuously provide the competent authorities with information which might involve amendment of its marketing authorisation.

•Inform the competent authorities of positive and negative results in clinical trials or studies and any defects, and on request have at its disposal details regarding, for example, the volume of sales.

•Ensure that a package information leaflet is made available on request from patients' organizations, in formats appropriate for the blind and partially-sighted.

•Inform the EMA of changes related to the placement of the medicinal product on the market, for example withdrawal or suspension.

Data Exclusivity and Similar Protection in the European Union

An innovator company enjoys a period of “data exclusivity” during which its preclinical and clinical trials data may not be referenced in the regulatory filings of another company (typically a generic company) for the same drug substance.

The period of data exclusivity in Europe has been harmonized as eight years from the date of first authorization in Europe. There is an additional period of two years of “market exclusivity”. This is the period of time during which a generic company may not market an equivalent generic version of the originator's pharmaceutical product (although their application for authorization may be processed during this period, such that they are in a position to market their product on the expiry of this additional two-year period).

After that ten-year period, generic companies can market their “essentially similar” products by referencing the innovator’s data, unless the innovator product qualifies for a further one year of exclusivity. This additional one year may be obtained if the innovator company is granted an MA for a significant new indication for the relevant medicinal product within the first eight years of its marketing. In such a situation, the generic companies can only market their copy products after 11 years from the grant of the innovator company's initial MA.

Separately, the innovator company may be eligible to receive a Supplementary Protection Certificate (“SPC”). This is an intellectual property right that serves as an extension to a patent right within the scope of the marketing authorisation, comparable to a PTE in the United States. SPCs aim to offset the loss of patent protection for pharmaceutical products that occurs due to the compulsory lengthy testing and clinical trials these products require prior to obtaining regulatory marketing approval.

An SPC can extend an eligible patent right for a maximum of five years. An additional six-month extension is available in accordance with Regulation (EC) No 1901/2006 if the SPC relates to a medicinal product for children for which data has been submitted according to a PIP, as outlined above.

Manufacture of pharmaceuticals in the European Union

As a manufacturer of pharmaceutical products in the European Union, we are subject to extensive E.U. and national legislation that intends to ensure that only safe products will come into circulation. As a manufacturer, we have to comply with GMP.

Current GMP describes the minimum standard that medicines manufacturers must meet in their production processes. The EMA coordinates inspections to verify compliance with these standards and plays a key role in harmonizing GMP activities at E.U. level. GMP requires that medicines:

•are of consistent high quality;

•are appropriate for their intended use;

•meet the requirements of the marketing authorisation or clinical trial authorization.

GMP in the European Union is based on several E.U. regulations and directives, as well as on extensive EMA guidance. These GMP guidelines provide interpretation of GMP principles and guidelines, supplemented by a series of annexes that modify or augment the detailed guidelines for certain types of product, or provide more specific guidance on a particular topic.

Manufacturers and importers located in the European Union must hold an authorization issued by the national competent authority of the Member State where they carry out these activities. They must show that they comply with E.U. GMP to obtain a manufacturing authorisation.

In the European Union, national competent authorities are responsible for inspecting manufacturing sites located within their own territories. Competent authorities plan routine inspections following a risk-based approach, or if there is suspicion of non-compliance. After inspecting a manufacturing site, E.U. competent authorities issue a GMP certificate or a non-compliance statement, which is entered in a publicly available database (EudraGMDP).

Reimbursement in the European Union

The European Union does not have a centralized healthcare system. Healthcare is provided through very different systems at the national level. Most E.U. citizens have government-sponsored healthcare coverage. Constant budgeting pressures and the jurisdictional divide may lead to delayed or restricted patient access. Generally, the reimbursement prices must be negotiated with national healthcare carriers on a state-by-state process. Therefore, the receipt of a marketing authorisation will not be equivalent to full market access in all E.U. member states. Reimbursement prices may depend on the level of innovation and improvement of patient care that the product brings about, as evaluated, e.g., by public bodies like the Institute for Quality and Efficiency in Health Care (“IQWiG”) in Germany. It may take one to two years from the issuance of a marketing authorisation before market access in all E.U. member states with full reimbursement is achieved, if at all.

E.U. and national laws impose a number of restrictions on pricing. Directive 89/105/EEC relating to the transparency of measures regulating the prices of medicinal products (“Transparency Directive”) aims to ensure the transparency of national pricing and reimbursement. It sets procedural requirements to help monitor national decisions and their compatibility with pharmaceutical trade in the E.U. internal market. For example, member states must ensure that decisions on prices are made within a certain timeframe and communicated to the applicant with a statement of reason based on objective and verifiable criteria. Member states must also ensure that such decisions are open to an administrative law process for review.

Another important restriction on pricing is Article 102 of the Treaty on the Functioning of the European Union (“TFEU”), which prohibits dominant pharmaceutical companies from abusing this dominance in their relevant markets.

EU Regulation 2021/2282 on health technology assessment came into effect on December 15, 2021, and will be fully applicable in January 2025. This regulation provides for a member state coordination group on health technology assessment to be established to carry out joint product assessments according to a common set of rules and methodologies. Member states will retain the right to make decisions at the national level on clinical added value in the healthcare context of the member country. This regulation will reduce the burden of having to submit different data and analyses to different member states for the assessment of clinical effectiveness.

E.U. Privacy Laws

The GDPR came into effect in the European Union on May 25, 2018 and has changed the way that personal data can be held and processed. Non-compliance can lead to substantial fines, amounting to up to 4% of annual global revenue or €20 million, whichever is greater.

The GDPR expands and formalizes many rights that existed under former laws. It also requires that organizations inventory their data and document the legal basis for processing personal information. Further, the GDPR provides E.U. data subjects with rights they may exercise in connection with their data such as the “right to be forgotten” and to access to their data.

Generally, personal data of third parties must only be held and used by a company (the “Data Controller”) when covered by an informed consent of the person concerned, or by a legitimate and vital interest, as defined in the GDPR. Any consent must be informed, freely given and specific, and, if applicable, also include the right to transfer personal data to a country outside of the European Union. The Data Controller is responsible for GDPR compliance, but can outsource certain tasks to third parties, so-called “Data Processors”. Affected third parties must be informed in some detail on the storage and use of their data, e.g. as clinical trial subjects, or as prescribers, and have the right to deny their consent.

It is important for companies to ensure they have a nominated data protection officer. They must also brief and train their staff, so they are aware and aligned. Companies should keep records of their approach to GDPR and how they have prepared for it. Preparation should also extend to a response in the event of an access request or complaint from a data subject, or with regards to a GDPR breach.

United Kingdom

United Kingdom Drug Review and Approval

In the United Kingdom, the drug approval process is currently very similar to the process in the European Union. The United Kingdom is made up of Great Britain (England, Scotland and Wales) and Northern Ireland. Due to the Northern Ireland Protocol, agreed with the ~~other member states~~European Union to protect the integrity of trade in the ~~EU,~~island of Ireland, Northern Ireland is to remain in the E.U. regulatory system for drugs.

The United Kingdom is currently considering how it might develop its regulatory processes since the United Kingdom ~~will leave~~left the ~~EU in March 2019~~European Union on January 31, 2020 (“Brexit”)~~. As~~, with a transition period that ended on December 31, 2020. Rhokiinsa® has

been grandfathered into a UK national authorization under the country’s Brexit legislation and will continue to be authorised in the United Kingdom as long as we provide the MHRA with the required additional information.

For new products, the option in the United Kingdom is to apply for one of three types of National MAs: the ~~Brexit consequences,~~United Kingdom as a whole, Great Britain or Northern Ireland. New centralised applications in the ~~EMA will relocate from London~~European Union are to ~~Amsterdam. It is unclear what impacts Brexit will have with respect~~be notified to the ~~cross-border acknowledgment~~MHRA together with the timetable and a dossier submitted (because the MHRA does not have access to the E.U. regulatory systems). These applications might until December 31, 2022 be used for a procedurally simplified application for a Great Britain MA through what is known as the EC Decision Reliance Procedure. Because the Centralised MA for Roclanda® was received after December 31, 2020, it was subject to this process, which has been successfully completed.

The MHRA is obliged under this procedure to make a decision (positive or negative) within 67 days. Alternatively, a separate application might be made to the MHRA for a Great Britain National MA. Similarly, where the mutual recognition or decentralised process is used in the European Union for applications for national marketing authorisations, there is an option in the United Kingdom to apply under a different reliance procedure, which again requires the MHRA to take a decision within 67 days. Alternatively, the application in the United Kingdom (or Great Britain) can be made separately from the one in Europe. There are then two options for Northern Ireland – including it either in a European mutual recognition or decentralised application process or as part of a U.K. national application. The assessment made by the United Kingdom is on the same basis as in the European Union, focusing on quality, safety and efficacy.

Reimbursement in the United Kingdom

Reimbursement in the United Kingdom is determined for new medicinal products by the National Institute for Health and Care Excellence (“NICE”). NICE reviews health economic data and, in particular, efficacy data in the target population and the cost/ benefit in qualified life years (“QUALY”). If the process runs smoothly there is a 245-day timetable to final decision, although the process can take longer, particularly if there are any appeals. NICE determines whether drug products are recommended for use in the National Health Service (“NHS”) and for which indications and price that the NHS might pay for the product.

The United Kingdom, although no longer covered by GDPR, has included the same rules within its separate national laws.

Japan

Right of Reference

In Japan, clinical trial data collected for obtaining an approval in foreign countries can be used for obtaining an approval for a drug in accordance with the requirements stipulated in the notification by Ministry of Health, Labor and Welfare (the “MHLW”). The collection of such clinical data and drafting of the submission must meet the requirements under the normal Japanese regulations (Article 43 of the Enforcement Regulations of Pharmaceuticals and Medical Devices Law). The clinical trial data are required to include (i) pharmacodynamics, dose response, efficacy and safety in the foreign countries, (ii) clinical test data clearly exhibiting dose response, efficacy and safety (planned and performed in accordance with Japan rules, such as the Ministerial Ordinance on Good Clinical Practice for Drugs, and GCP; well-managed and using proper test controls; and using proper endpoints, and (iii) pharmacodynamics characteristic in the Japanese population. Further, the MHLW usually requests that a company submit bridging data from testing that is performed in Japan so that the clinical test data in foreign countries are demonstrated to be able to be generalized to the Japanese population. Generally, when the bridging data demonstrate that the dose response, efficacy and safety in Japan are similar to those in the foreign countries, the MHLW recognizes that the test results in the foreign countries can be generalized to the Japanese population. When the dose of the Japanese population in the bridging data is different from that of the test in the foreign countries, the MHLW will request that a company submit pharmacodynamics test results. When the number of samples in the bridging study or studies is limited, the MHLW will request that a company further submit test data demonstrating safety. When the bridging data cannot demonstrate efficacy and safety, the MHLW will request that a company submit clinical test results for the Japanese population.

Obtaining Approval

In practice, there are three basic ways for a non-Japanese company to obtain approval for pharmaceuticals manufactured overseas:

•Option 1—establish a Japanese corporation that obtains the necessary approvals and licenses. This provides the most durable presence in Japan. It also entails high initial time and expense (including hiring staff) and must be done in compliance with the provisions of the Pharmaceuticals and Medical Devices Law.

•Option 2—designate an existing Japanese company to obtain the necessary approvals and licenses. The manufacturing/sales approval for the drug will be registered in the Japanese company's name. This can raise potential problems if the overseas company does not strictly control the Japanese approval holder.

•Option 3—use the designated marketing ~~authorizations.~~approval holder (“DMAH”) system under Article 19-2 of the Pharmaceuticals and Medical Devices Law and select a Japanese company approved by the MHLW to act as a DMAH. This option provides several benefits, including the manufacturing/sales approval being held directly by the non-Japanese company. In addition, the costs for obtaining/maintaining drug approval are lower than in the first two options. Since the approval is under the non-Japanese company's name, there are fewer concerns about the Japanese company acting on its own. If there are problems with the DMAH, the non-Japanese company can designate another company as the DMAH. Compared with the first option, the costs for a DMAH are lower, since there is no need to establish a new company. DMAHs are authorized by the MHLW, licensed for manufacture/sales of pharmaceuticals and provide full support in the drug approval process.

Japan Privacy Laws

Japan has regulatory provisions for privacy protection for personal information, including of patients in clinical trials. Most importantly, the Act on the Protection of Personal Information covers the protection of personal information. Personal information as used in the Act means information about a living individual that can identify the specific individual by name, date of birth or other description contained in such information (including such information as will allow easy reference to other information and will thereby enable the identification of the specific individual).

Pharmaceutical companies in Japan typically adopt their own internal privacy policies based on this law. The requirements tend to be general and leave a good deal of discretion to individual companies, but typically pharmaceutical companies establish policies covering appropriate safeguarding of personal information, prior consent for disclosure, and protection of personal data from leaks or other unauthorized access or disclosure.

The Clinical Research Act establishing clinical research guidelines, similarly, requires persons conducting clinical studies to obtain informed consent of participants and protect participants’ personal data.

Other Countries

In addition to regulations in the United States, the European Union, Japan, and potentially the ~~EU,~~United Kingdom, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our potential products. Whether or not we obtain FDA approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required to obtain FDA approval. In addition, the requirements governing the conduct of clinical trials, commercial sales, product licensing, pricing and reimbursement vary greatly from country to country.

Other Regulations

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. In addition, our international operations and relationships with partners, collaborators, contract research organizations, vendors and other agents are subject to anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”), which prohibits U.S. companies and their representatives from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Failure to comply with the FCPA, or similar applicable laws and regulations in other countries, could expose us and our personnel to civil and criminal sanctions. We may incur significant costs to comply with such laws and regulations now or in the future.

~~Employees~~

Environmental, Social and Governance (“ESG”) and Human Capital

ESG

We ~~had 160 full-time~~are dedicated to the principles of environmental stewardship, social responsibility, and good corporate governance. We consider these ESG principles to be among our most important values and therefore integrate them in our ongoing and strategic activities. We believe incorporating these values and practices into our operations not only improves our performance but also creates a sustainable and growth-oriented culture that benefits our employees, our customers and our investors. Our Nominating and Governance Committee of the Board of Directors regularly reviews our operations with senior management to assess our

progress in realizing these values. With our Board of Directors’ leadership, we continue to evaluate our practices and will continue to integrate sustainability into our business.

We recognize our responsibility to be environmentally conscious and to contribute to the global effort of tackling climate change, moving toward a low-carbon economy and expanding our renewable energy production. We employ green processes, materials, practices, equipment and technologies where possible throughout our operations to foster conservation and reduce waste, as discussed below.

Renewable energy is an important part of our commitment to sustainability and we are operating our manufacturing facilities using renewable energy through renewable sources. At our research facility in Durham, North Carolina, we source our energy from Duke Energy, a leader in renewable energy, including solar and wind, and Duke Energy is adding additional renewable solutions such as microgrids and battery storage. At our Athlone manufacturing plant in Ireland we receive 100% of our electricity from renewable sources and the electric supply is 100% carbon neutral.

We minimize energy consumption using various power-saving technologies designed to consume electrical power only when needed. The majority of our office space in the U.S. is Leadership in Energy and Environmental Design (“LEED”) Certified, and both our manufacturing plant in Athlone, Ireland, and our research facility in Durham, North Carolina, were built from end-to-end with sustainability and good manufacturing practices in mind. We have also instituted environmentally conscious programs into the work environment for our employees by implementing recycling and composting programs, offering water dispensers to reduce plastic bottle waste, and providing electric automobile charging stations in our employee parking areas, as examples. In 2021, we (i) recycled 76% and (ii) recycled and recovered 99.5% of the non-hazardous waste produced at our Athlone manufacturing plant. Through these programs and continuous improvement, we strive to reduce our waste while maximizing the proportion that may be recycled. Looking to the future, we plan to continue to further enhance our sustainability posture through detailed monitoring and management.

From a social responsibility perspective, although we have not yet attained profitability as a company, we have donated hundreds of thousands of dollars to causes that we believe are important to society. These donations were directed to support glaucoma research and glaucoma patient education through ongoing collaborations with the Glaucoma Research Foundation, to help fund free cataract surgery for 1,186 indigent patients in the United States over the past four years through a continuing match program with the American Society of Cataract Refractive Surgery Foundation and promote the empowerment of women in ophthalmology as a lead sponsor of Women in Ophthalmology. In addition, these donations were also directed to accelerate treatments and cures for retinal diseases for the next generation through the Foundation Fighting Blindness and expand opportunities for young physicians from groups that are underrepresented in medicine or who want to work in underserved communities through support of the National Medical Association’s Rabb-Venable Excellence in Ophthalmology Research Program. We are also involved with the Association for Research in Vision and Ophthalmology Leadership Development Program and have been named a 2022 Association for Research in Vision and Ophthalmology Foundation Honoree. Additionally, we have promoted diversity in the ophthalmic industry as a corporate partner of Ophthalmic World Leaders.

We also strive to be socially conscious in our employment practices. We support diversity in our hiring practices and follow a management philosophy that integrates social responsibility and the highest governance standards. We established an Affirmative Action Plan in 2018 as an Office of Federal Contract Compliance Programs compliance requirement. We are committed to make a good faith effort to improve the incumbency of targeted areas over time when the opportunity is available. All managers are trained in Equal Employment Opportunity compliant recruiting and interviewing practices. See “Human Capital—Diversity and Inclusion” below.

Our Audit Committee of the Board of Directors has consistently received very high ratings for independence and competency. As we continue to build our company, we will continue to implement policies and procedures to further strengthen our stated intent on our ESG objectives.

Human Capital

In order to successfully attract and retain highly professional and skilled employees, it is crucial that we offer a diverse, inclusive and safe workplace. Our recruitment process begins with hiring individuals that we believe fit well with our strong culture and our shared values. In 2021, we hired Raj Kannan as our new Chief Executive Officer, who we believe personifies our shared values and exhibits behaviors that fit well with our culture. We have a philosophy of investing in our employees by providing the necessary resources to grow professionally through our training and development programs, which will ultimately help drive company success. We reward our employees by offering a competitive compensation and benefits package, which includes incentive-based awards, which we believe motivates our employees and drives company performance. We also seek to engage and give back to the community through donations and fundraising for organizations providing help for those with glaucoma, as discussed in “—ESG” above.

As of December 31, ~~2017.~~2021, we employed approximately 376 full-time employees, of which 294 were employed in the United States and 82 were outside the United States. The majority of our employees outside of the United States primarily support our manufacturing operations in Athlone, Ireland. Of our total employee population, there were 146 sales force and marketing employees, 108 in research and development and medical affairs, 68 in product manufacturing and 54 in general and administrative support roles such as human resources, finance, legal and information technology. We are committed to providing our employees with a positive work environment that helps them realize their full potential and helps them contribute to the success of our company. None of our employees are represented by any collective bargaining unit. We believe that we maintain good relations with our employees.

Diversity, Equity and Inclusion

We have a strong commitment to continue to build a diverse, equitable and inclusive work environment that fosters a positive culture. We believe our diverse workforce brings a wide array of skills and experiences that help increase innovation and strategic thinking and ultimately contribute to the success of our company. All of our ongoing and planned clinical studies have no exclusions to participation based on race, sexual orientation or gender. In addition, we are committed to exploring options to encourage diversity and accessibility to our clinical trials.

As part of our commitment to racial equity, we have conducted field listening programs, a pilot diversity seminar as well as an analysis of progress in line with racial equity goals. We take deliberate measures to ensure we lead by example in promoting racial equity in hiring, promotion and opportunities within the Company.

Our hiring practices reflect our commitment to increase diversity and inclusion among our employees. We strive to achieve and maintain pay equity for employees of all races and for both female and male employees within our organization. From a governance perspective, our Compensation Committee of the Board of Directors provides oversight of our policies, programs and initiatives focusing on workforce diversity and inclusion. As of December 31, 2021, over a quarter of our employees in the United States identify as a racial or ethnic minority, with approximately a quarter of management identifying as minority employees in the United States. The female to male ratio for our total employee population was approximately 50:50.

Talent and Development

The success of our company is highly dependent on the performance, skills and industry knowledge of our employees. A significant proportion of our employee base is comprised of professionals who have had prior experience with pharmaceutical and biotechnology companies. In order to attract and retain such highly qualified talent, we invest significant resources to further develop our employees and provide opportunities that help them achieve career goals and lead our organization. All employees have access to technical and soft skill career development materials online and materials designed in-house to help support them throughout their career.

We maintain a robust technical training curriculum for all our employees and executives based on function. These curricula incorporate training addressing specific regulatory requirements germane to the performance of specific functions. The training for our scientific and quality personnel, for example, includes modules focusing on our good manufacturing and laboratory practices as well as proper documentation and reporting.

Through our soft skill training and development programs, we provide training that helps employees increase their performance and productivity. We also provide focused development for managers, directors and aspiring leaders of the future who are designated as “key talent” based on performance and leadership potential.

In addition to technical and soft skill training, all of our employees are required to regularly train on our Code of Business Conduct and Ethics (the “Code”), receive cyber security training and receive harassment training. We believe a well-trained employee base is the best way to ensure proper business operations and to best ensure the establishment of a collaborative and supportive corporate culture.

In keeping with our commitment to the highest standards of honest and ethical behavior and integrity in carrying out our business activities, all of our employees who interact with health care professionals on behalf of our company are required to be trained in, and knowledgeable of, not only our Code but also our Healthcare Compliance Manual (the “HCM”). The HCM is a compendium of our standards intended to not only help ensure continued compliance with the prevailing laws, regulations and standards of our industry, but also to provide a framework for our expectations for employee behavior, operational excellence and risk mitigation to help us achieve our broader organizational goals of discovering and delivering new technologies and safe and efficacious therapies to those in medical need. The HCM builds on the Code and governs how our employees engage with the healthcare community when conducting promotional activities and scientific exchanges as well as financial interactions. All such employees or those in areas who support those activities are required to follow these policies.

Health and Safety

We are dedicated to creating and maintaining a work environment where our employees feel safe to carry on their responsibilities. We regularly review health and safety legislation to ensure compliance with current standards, we identify and monitor potential health and safety hazards, we coordinate emergency and fire drills and we train our employees to avoid or minimize any potential risks within the workplace. 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 value the patient volunteers who participate in clinical trials and we are committed to protecting their rights and well-being. As such, we have policies and procedures in place to ensure our clinical trial practices comply with laws and regulations in all countries in which we operate clinical trials and meet our high ethical standards. We also have protocols in place to obtain informed consent from patients participating in our clinical trials. In addition, we have procedures in place specific to the COVID-19 pandemic allowing us to adapt to the needs of participants, clinical sites and employees, as changes may occur, to ensure first and foremost safety while protecting data integrity.

In our research and manufacturing facilities, we maintain a safety-first culture and seek to eliminate workplace incidents and minimize risks and hazards. We have created and implemented processes to help eliminate safety events by reducing their frequency and severity. These programs include an Illness and Injury Prevention Program and a Safety Committee. We also review and monitor our performance closely. We monitor and constantly seek to reduce safety incidents each year. Through our efforts, we had a recordable incident rate of 1.1 (recordable incidents per 100 employees, as defined by the U.S. Occupational Safety and Health Administration, (“OSHA”) at our Athlone manufacturing plant in 2021. This compares to an OSHA incident rate of 1.6 for the U.S. pharmaceutical and medicine manufacturing industry in 2020.

In response to the coronavirus (“COVID-19”) pandemic, we have taken precautionary measures to protect our employees and our stakeholders by adapting company policy to maintain the continuity of our business. We have adapted our facilities and work practices and implemented all necessary safety controls in line with government health policy guidelines. In taking measures intended to protect our employees, customers and vendors from contracting and spreading COVID-19, we have established an employee vaccination/ weekly testing policy based on guidance from the Centers for Disease Control (“CDC”) and Prevention, OSHA and the Equal Employment Opportunity Commission (“EEOC”) that is designed to comply with all applicable federal, state, and local laws. We also continue to encourage our employees to work remotely to the extent feasible and to limit air travel to essential business meetings or events to minimize the risk of infection among our employees. In addition, we have formed interdisciplinary teams to (i) focus on company-wide communication about the COVID-19 pandemic, including initiatives implemented to address the COVID-19 pandemic and its impact on our business and (ii) discuss, recommend and supervise the implementation of physical measures at our sites to best ensure employee safety. For example, to further support our employees at the Athlone manufacturing plant, we have implemented a Well-being Program to boost communication, engagement and wellness initiatives. With precautionary measures in place company-wide, we continue to operate effectively as most of our manufacturing plant personnel are working on site and the balance of our total workforce has the flexibility to work remotely through a hybrid work environment. Especially important in light of the COVID-19 pandemic, we provide all of our employees with excellent healthcare benefits and we make every effort to provide high levels of coverage at the most affordable cost possible.

Compensation and Benefits

To compete in a highly competitive job market and attract, retain and reward outstanding talent, we offer our employees a comprehensive compensation package which includes competitive salaries and benefit programs. Our well-designed compensation package includes salaries, annual bonuses, equity compensation, 401(k) plan with 401(k) plan match, premium health and dental insurance, life insurance, short-term and long-term disability insurance and workers’ compensation insurance. In addition, our generous time off policy includes paid time off, paid sick leave, holidays, personal leave of absence, military leave and family medical leave.

We proactively advocate and support programs that benefit our employees’ well-being and flexibility to help our employees sustain high performance, productivity and engagement. Our comprehensive health and benefits programs, including employee assistance programs, offer a wide range of resources and tools, covering areas including preventive health, mental and physical health, fitness, nutrition, financial support and personal well-being.

Our equity compensation plans, pursuant to which we may grant stock options, restricted stock and equity-based awards, are designed to align employees’ interests with our stockholders’ interests and motivate effective performance which drives company success. We also adopted an Employee Stock Purchase Plan under which substantially all employees may purchase Aerie common stock through payroll deductions and lump sum contributions at a price equal to 85% of the lower of the fair market value of the stock as of the beginning or end of the offering periods.

Corporate and Available Information

Our principal executive offices are located at 4301 Emperor Boulevard, Suite 400, Durham, North Carolina 27703 and our telephone number is (919) 237-5300. We were incorporated in Delaware in June 2005. Our internet address is www.aeriepharma.com. We make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports and our Global Code of Business Conduct and Ethics can be accessed through the Investors section of our website. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov. The information found on our website is not incorporated by reference into this report or any other report we file with or furnish to the SEC.



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

~~____________________~~


~~(1)~~	~~Prior to 2014, net loss per common share reflects the accretion on convertible preferred stock and, where applicable, preferred stock dividends.~~

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

The following management’s discussion and analysis should be read in conjunction with our audited financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements, and see “Risk Factors” in Part I, Item 1A of this report for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods. Refer to Item 7. of our Form 10-K issued on February 26, 2021 for prior year discussion related to fiscal 2020.

Overview

We are ~~an ophthalmic~~a pharmaceutical company focused on the discovery, development and commercialization of first-in-class ophthalmic therapies for the treatment of patients with eye diseases and conditions including open-angle glaucoma, dry eye, DME and ~~other diseases~~wet AMD.

U.S. Commercialization of the ~~eye.~~ Glaucoma Franchise

Our strategy is to ~~commercialize~~grow the market share of our ~~FDA-approved product,~~FDA approved glaucoma franchise products, Rhopressa^®~~, in North American markets~~ and ~~advance our product candidate, Roclatan~~^TM~~, to regulatory approval. We are~~Rocklatan® in ~~the process of building a commercial team that will include approximately 100 sales representatives to target approximately 12,000 high prescribing eye-care professionals throughout~~ the United States. ~~This sales force of 100 sales representatives will initially be~~Both Rhopressa® and Rocklatan® are being sold to national and regional U.S. pharmaceutical distributors, and patients have access to them through pharmacies across the United States. We have obtained broad formulary coverage for Rhopressa® and Rocklatan® for the lives covered under commercial plans and Medicare Part D plans. Our commercial team responsible for sales of Rhopressa^® and Rocklatan® is targeting select eye-care professionals who treat glaucoma throughout the United States.


						Rhopressa® is a once-daily eye drop designed to reduce elevated 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 ROCK inhibitor. Rhopressa® increases the outflow of aqueous humor through the 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 MOA, we believe that Rhopressa® represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years.
						Rocklatan® is a once-daily fixed-dose combination of Rhopressa® and latanoprost, a commonly prescribed drug for the treatment of patients with open-angle glaucoma or ocular hypertension. Rocklatan® is also taken in the evening, and similar to Rhopressa®, has shown in preclinical and clinical trials to be highly 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.

Efforts Outside the United States

In addition to growing the market share of Rhopressa® and Rocklatan® in the United States, our strategy also includes developing business opportunities outside of the United States and we continue to make progress in our efforts to commercialize Rhopressa® and Rocklatan® in Europe, Japan and other regions of the world.

We have partnered and have collaboration agreements in place with Santen to develop and commercialize our products in Japan, East Asia, as well as Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries. The First Santen Agreement was executed in October 2020 to advance our clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan and East Asia. The Second Santen Agreement was executed in December 2021 to develop and commercialize Rhopressa® and Rocklatan® in Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries.

In Europe, Rhopressa® and Rocklatan® will be marketed under the names Rhokiinsa® and Roclanda®, respectively. Rhokiinsa®and Roclanda® were granted a Centralised MA by the EC in November 2019 and January 2021, respectively. In April 2021, Roclanda® received marketing authorisation from the MHRA in Great Britain.

In Japan, we reported positive topline results for our Phase 3 clinical trial of netarsudil ophthalmic solution 0.02% in October 2021, the first of three expected Phase 3 clinical trials in Japan. The results evaluated netarsudil 0.02% versus ripasudil 0.4% and showed that netarsudil 0.02% once daily was superior to ripasudil 0.4% twice daily in lowering IOP after four weeks (p<0.0001), the primary endpoint of the study. The medications were safe and well tolerated. The most common treatment emergent adverse event was conjunctival hyperemia, which is treatable. A second, confirmatory Phase 3 study, required for approval in Japan, is underway. Santen is taking the lead on next steps in preparation for registration in Japan. Clinical trials for Rocklatan® 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 intent 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 second half of 2020, respectively. In addition, the Athlone manufacturing plant has manufactured clinical supplies of Rhopressa® for the Phase 3 clinical trials in Japan as well as registration batches to support product approval in Japan. We expect to commence shipments of Rhopressa® to Santen pursuant to the Second Santen Agreement in the fourth quarter of 2022 for its sales to third parties in early 2023.

As the Athlone manufacturing plant commenced operations in early 2020, it has not reached full capacity. We expect that the Athlone manufacturing plant will ~~also be responsible~~have adequate capacity to produce for ~~sales~~the markets included in the Santen Agreements, as needed, which include Europe, Japan, East Asia and certain other regions of ~~Roclatan~~^TM,the world, if ~~approved.~~approved for commercial distribution in those markets. The Athlone manufacturing plant manufactures most of our ongoing needs for Rhopressa® and Rocklatan®in the United States. We ~~also seek~~may continue to ~~enhance~~use contract manufacturers to produce commercial supplies of Rhopressa® and Rocklatan® for distribution in the United States, but at reduced levels as a result of the Athlone manufacturing plant commencing manufacturing operations.

Product Candidates and Pipeline

Our strategy includes enhancing our longer-term commercial potential by identifying and advancing additional product ~~candidates. This may be accomplished~~candidates through our internal discovery efforts, our entry into potential research collaborations or in-licensing arrangements or our acquisition of additional ophthalmic products, or technologies or product candidates that complement our current product ~~portfolio, such as~~portfolio.

Dry Eye Program

We are developing AR-15512 ophthalmic solution for the treatment of patients with dry eye disease. In September 2021, we reported topline results of our ~~recent collaboration~~Phase 2b clinical study, named COMET-1, for AR-15512. We completed a dose ranging study evaluating two concentrations of AR-15512 (0.0014% and 0.003%) in a 90-day trial with ~~DSM, whereby~~369 subjects. The COMET-1 clinical study achieved statistical significance for multiple pre-specified and validated signs and symptoms. The greatest efficacy was demonstrated with the higher concentration 0.003% formulation, which we ~~have access to their bio-erodible polymer technology, and our acquisition of assets from Envisia, designed~~plan to advance ~~our progress~~to Phase 3 studies. The study did not achieve statistical significance at the pre-determined primary endpoints at Day 28. We gained alignment with the FDA in ~~developing potential future product candidates to treat retinal diseases, as discussed below.~~

~~Our strategy also includes developing our business outside~~the first quarter of ~~North America, including obtaining regulatory approval in Europe~~2022 on the results of the Phase 2b clinical trial and ~~Japan on our own for Rhopressa~~^® ~~and Roclatan~~^TM~~. If we obtain regulatory approval,~~confirmed the design of the Phase 3 trials, which we currently expect to ~~commercialize Rhopressa~~^®initiate in the second quarter of 2022.

Retina Program

Furthermore, we are currently developing two sustained-release implants focused on retinal diseases, AR-1105 and ~~Roclatan~~^TMAR-14034 SR. For AR-1105, we completed a large Phase 2 clinical trial for patients with macular edema due to RVO in July 2020 and reported topline results indicating sustained efficacy of up to six months. We have received advice from regulatory agencies in both Europe ~~on our own,~~ and likely partner for commercialization in Japan. In 2015, we revised our corporate structure to align with our business strategy outside of North America by establishing Aerie Limited and Aerie Ireland Limited. We assigned the beneficial rights to our non-U.S. and non-Canadian intellectual property for Rhopressa^® ~~and Roclatan~~^TM to Aerie Limited. 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 United States regarding clinical and ~~Canada to Aerie Distribution and amended and restated the research and~~regulatory pathways for Phase 3 clinical trials. We are currently evaluating Phase 3 development ~~cost-sharing agreement to transfer our rights and obligations under the agreement to Aerie Distribution.~~

options as well as partnership opportunities. In ~~January 2017, we announced that~~addition, we are ~~building a new manufacturing plant in Athlone, Ireland, although we will continue~~also working to ~~use product sourced from~~advance our ~~current contract manufacturer based in the United States. This will be our first manufacturing plant, which is expected to produce commercial supplies of Rhopressa~~^®~~and, if approved, Roclatan~~^TM~~. Our current contract manufacturer started producing commercial supply of Rhopressa~~^®~~prior to Rhopressa~~^® obtaining FDA approval in anticipation of such approval. Commercial supply from our own manufacturing plant is expected to be available by 2020. We are also in the process of adding a second contract manufacturer,preclinical sustained-release retinal implant, AR-14034 SR, for which we ~~expect may produce commercial supply by as early as the end of 2018.~~

~~We own the worldwide rights to all indications for Rhopressa~~^® ~~and Roclatan~~^TM~~. We have patent protection for Rhopressa~~^® ~~and Roclatan~~^TM in the United States through at least 2030 and internationally, through dates ranging from 2030 to 2037. Our intellectual property portfolio contains patents and pending patent applications related to composition of matter, pharmaceutical compositions, methods of use, and synthetic methods.

~~Product and Product Candidate Overview~~

Rhopressa®, our product approved by the FDA, has demonstrated that it reduces IOP through ROCK inhibition, its MOA, by which Rhopressa® increases the outflow of aqueous humor through the TM, which accounts for approximately 80% of fluid drainage from the eye. Our late-stage pipeline consists of RoclatanTM, a single-drop fixed-dose combination of Rhopressa® and latanoprost, which reduces IOP through the same MOA as Rhopressa® and, through a second MOA, utilizing the ability of latanoprost to increase the outflow of aqueous humor through the uveoscleral pathway, the eye’s secondary drain. Both are

~~taken once-daily in the evening and have shown in preclinical and clinical trials to be effective in reducing IOP, with a favorable safety profile.~~

~~Rhopressa~~^®

~~Our FDA-approved product, Rhopressa~~^®~~, is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension. The active ingredient in Rhopressa~~^®~~, netarsudil, is a Rho kinase inhibitor. We believe that Rhopressa~~^® ~~represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years. Based on clinical data, we expect that Rhopressa~~^® will have the potential to compete with non-PGA products as a preferred adjunctive therapy to PGAs, due to its targeting of the diseased TM, its demonstrated ability to reduce IOP at consistent levels across tested baselines, and its preferred once-daily dosing relative to currently marketed non-PGA products. Adjunctive therapies currently represent nearly one-half of the glaucoma prescription market in the United States, according to IQVIA. We believe that Rhopressa^® ~~may also become a preferred therapy where PGAs are contraindicated, for patients who do not respond to PGAs and for patients who choose to avoid the cosmetic issues associated with PGA products.~~

~~We resubmitted our NDA for Rhopressa~~^® ~~to the FDA~~on February 28, 2017, and received approval from the FDA on December 18, 2017, two months earlier than the scheduled PDUFA date of February 28, 2018. FDA approval was based on efficacy data from three Phase 3 registration trials for Rhopressa^®~~, Rocket 1, Rocket 2 and Rocket 4, in which once-daily Rhopressa~~^® was demonstrated to be non-inferior to twice-daily timolol. In addition, the 12-month safety data from the Rocket 2 registration trial confirmed a favorable safety profile for the drug and demonstrated a consistent IOP-reducing effect throughout the 12-month period at the specified measurement time points. We also included as supportive data the 90-day efficacy results of our Mercury 1 trial for Roclatan^TM~~, further discussed below,~~anticipate filing an IND with the ~~NDA submission for Rhopressa~~^®.

~~Our Rocket 4 trial for Rhopressa~~^® ~~was designed to generate adequate six-month safety data for European regulatory approval, along with efficacy and safety data from our other Phase 3 registration trials for Rhopressa~~^®~~, Rocket 1 and Rocket 2. We expect to file an MAA for Rhopressa~~^®~~with the EMA~~FDA in the second half of ~~2018.~~ 2022.

Pipeline

We ~~also initiated Phase 1~~own over 4,000 ROCK inhibitor molecules that provide a basis for further research and ~~Phase 2 clinical trials~~development opportunities. We discovered and developed the active ingredient in Rhopressa® and Rocklatan® and netarsudil 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. We evaluate this library on an ongoing basis for additional development opportunities. Early-stage evaluations of these molecules are underway for other ophthalmic indications. We continue to evaluate external business development opportunities to provide access to technologies developed outside of Aerie to complement our internal research and development efforts.

Impact of the COVID-19 Pandemic

In December 2019, there was an outbreak of a new strain of 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. We are complying with all requirements and mandates from various agencies and governments and we continue to monitor applicable federal and state regulations, including with respect to vaccination mandates and required weekly testing of unvaccinated employees. 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 the option to work remotely or to return to the office in accordance with state and local mandates. We may take further actions as government authorities require or recommend or as we determine to be in the ~~United States~~best interest of our employees.

We continue to see eye-care professionals’ offices returning to full capacity and are using traditional in-person office meetings to remain in ~~the fourth quarter~~contact with eye-care professionals, while adhering to strict national guidelines with social distancing, as appropriate. We have seen a majority of ~~2017, which are designed~~eye-care professionals’ offices back to ~~meet the requirements of Japan’s PMDA for potential regulatory submission of Rhopressa~~^® ~~in Japan. These clinical trials enrolled Japanese and Japanese-American subjects to support subsequent Phase 3 registration trials~~pre-COVID-19 capacity. For those eye-care professionals’ offices that are ~~expected to be conducted in Japan.~~

~~Roclatan~~^TM

~~Our advanced-stage product candidate, Roclatan~~^TM~~, is~~operating at reduced capacity, we are using a ~~once-daily fixed-dose~~ combination of ~~Rhopressa~~^®in-person and ~~latanoprost. We believe, based on~~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 ~~clinical data, that Roclatan~~^TM ~~has the potential to provide a greater IOP-reducing effect than any currently marketed glaucoma medication. Therefore, we believe that Roclatan~~^TM~~, if approved, could compete with both PGA and non-PGA therapies and become the~~territory managers are either delivering or arranging for delivery of product ~~of choice for patients requiring maximal IOP reduction, including those with higher IOPs and those who present with significant disease progression despite use of currently available therapies.~~

~~We have completed two Phase 3 registration trials for Roclatan~~^TM~~. The first Phase 3 registration trial for Roclatan~~^TM~~, named “Mercury 1,” was a 12-month safety trial with a 90-day efficacy readout. Mercury 1 achieved its primary efficacy endpoint of demonstrating statistical superiority of Roclatan~~^TM ~~to each of its components, including Rhopressa~~^® and the market-leading PGA, latanoprost, and the safety and tolerability results showed no drug-related serious adverse events. On July 19, 2017, we announced the Mercury 1 12-month safety results, noting the safety results for Roclatan^TM ~~showed no treatment-related serious adverse events and minimal evidence of treatment-related systemic effects. There were no new adverse events that developed over the 12-month period relative~~samples to the ~~90-day results, and there were no drug-related serious or systemic adverse events.~~eye-care professionals’ offices when needed.

~~The second Phase 3 registration trial for Roclatan~~^TM~~, named “Mercury 2,” was a 90-day efficacy and safety trial also designed to demonstrate statistical superiority~~Given the easing of ~~Roclatan~~^TM 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 of Roclatan^TM ~~over each of its components at all measured time points in patients with maximum baseline IOPs of above 20 mmHg to below 36 mmHg. We expect to submit an NDA for Roclatan~~^TM ~~to the FDA in~~certain COVID-19 restrictions during the second quarter of ~~2018.~~

~~Mercury 1~~2021, in accordance with state and ~~Mercury 2 will also be used for European approval of Roclatan~~^TM,local government mandates, traditional face-to-face office meetings and ~~we initiated a third Phase 3 registration trial for Roclatan~~^TM~~, named “Mercury 3,” in Europe~~in-person peer-to-peer education meetings have increased during the ~~third quarter of 2017. Mercury 3, a six-month safety trial, is designed~~period to ~~compare Roclatan~~^TMnear pre-COVID levels.

We have not observed any disruptions to ~~Ganfort~~^®~~, a fixed-dose combination product of bimatoprost, a PGA, and timolol marketed~~date in ~~Europe. If successful, Mercury 3 is expected to improve our commercialization prospects in Europe. We currently expect to read out topline 90-day efficacy data~~the supply chain for the ~~trial~~production of Rhopressa® and Rocklatan®. We believe we have more than two years of starting materials and API in ~~the first half of 2019 and to submit an MAA~~inventory, with the ~~EMA for Roclatan~~^TM ~~by the end~~exception of ~~2019.~~

~~Pipeline Opportunities~~

~~Our stated objective is to build a major ophthalmic pharmaceutical company. We are evaluating possible uses~~starting material 6AIQ which we currently have one year of ~~our existing proprietary portfolio of Rho kinase inhibitors beyond glaucoma~~supply and ophthalmology. Our owned preclinical small molecule, AR-13503 (an earlier generation of which was known as AR-13154), has demonstrated the potential for the treatment of diabetic retinopathy and wet AMD by inhibiting Rho kinase and Protein kinase C. As the active metabolite of AR-13154(S), AR-13503 has shown lesion size decreases in an ~~in vivo~~ preclinical model of wet AMD at levels similar to the current market-leading wet AMD anti-VEGF product. When used in combination with the market-leading anti-VEGF product, AR-13503 produced greater lesion size reduction than the anti-VEGF product alone in a model of proliferative diabetic retinopathy. This molecule has not yet been tested in humans in a clinical trial setting. Pending additional studies, AR-13503 may have the potential to provide an entirely new mechanism and pathway to treat diabetic retinopathy, wet AMD and related diseases of the retina, such as DME. We expect to submit an IND for AR-13503 in 2019. Since AR-13503 is a small molecule with a short half-life, and the aforementioned diseases are located in the back of the eye, a delivery mechanism is neededtwo years on order to deliver in 2022, and adequate supply of finished product on hand to support our commercial efforts for at least the ~~molecule to the back~~next six months. Production of ~~the eye for a sustained delivery period.~~Rhopressa® and Rocklatan® is continuing.

To that end, on July 31, 2017, we announced that we entered into a collaborative research, development and licensing agreement with DSM, a global science-based company headquartered in the Netherlands. The research collaboration agreement includes an option to license DSM’s bio-erodible polymer implant technology for sustained delivery of certain Aerie compounds to treat ophthalmic diseases. This technology uses polyesteramide polymers to produce an injectable, thin fiber that is minute in size. Preclinical experiments have demonstrated early success in conjunction with AR-13503, including demonstration of linear, sustained elution rates over several months and achievement of target retinal drug concentrations.

~~Further, on October 4, 2017, we acquired the rights to use PRINT~~^® ~~technology in ophthalmology and certain other assets from Envisia. The PRINT~~^® technology is a proprietary system capable of creating precisely-engineered sustained release products utilizing fully-scalable manufacturing processes. In addition, we acquired Envisia’s intellectual property rights relating to Envisia’s preclinical dexamethasone steroid implant for the potential treatment of DME that also utilizes the PRINT^® ~~technology, which we refer to as AR-1105. We expect to submit an IND for AR-1105 in late 2018. We will also focus on using PRINT~~^® ~~to manufacture injectable implants containing AR-13503, potentially in conjunction with the bio-erodible polymer from DSM.~~

We may continue 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 opportunities 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 back of the eye over sustained periods. We are also currently screening our owned library of Rho kinase inhibitors for indications beyond ophthalmology, considering third-party studies and trials have demonstrated potential for Rho kinase inhibition in treating certain disease categories. We are initially focused on exploring potential opportunities for our molecules in pulmonary health, dermatology and cancers.

Financial Overview

Our cash, cash equivalents and investments totaled ~~$249.7~~$139.8 million as of December 31, ~~2017, and~~2021. In January 2022, we ~~have subsequently raised an additional $136.2~~received a $90 million ~~through a now-completed “at-the-market” offering and through sales of our common stock pursuant to an underwriting agreement dated January 23, 2018 related to a registered public offering.~~payment from Santen in connection with the Second Santen Agreement. We believe that our cash, cash equivalents and investments ~~balances are adequate to~~and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through at least the next twelve months from the date of this filing, though there may be need for additional financing activity as we continue to grow, ~~including the potential use~~in addition to our aggregate principal amount of ~~a line~~$316.25 million of ~~credit~~Convertible Notes which mature on October 1, 2024. We continue to ~~finance the potential growth in~~evaluate our ~~inventories~~product candidates and ~~accounts receivable once Rhopressa~~^® ~~is launched, which we expect to be in the mid-second quarter of 2018.~~pipeline for collaboration and licensing opportunities. See “—Liquidity and Capital Resources” below and Note 10 to our consolidated financial statements included elsewhere 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 generated any revenue. We received FDA approval for Rhopressa~~^® ~~on December 18, 2017, and expect~~commenced commercial operations, our business activities were primarily limited to ~~launch Rhopressa~~^®~~in the United States in mid-second quarter of 2018. As a result, we expect to commence generating product revenues from sales of Rhopressa~~^®~~in mid-2018. We will not generate any revenue from Roclatan~~^TM ~~or any future~~developing product candidates, ~~unless~~raising capital and ~~until we obtain regulatory approval and commercialize such products.~~

~~Historically, our operations have primarily been limited to~~performing research and development ~~and raising capital.~~activities. As of December 31, ~~2017,~~2021, we had an accumulated deficit of ~~$461.7~~$1,153.9 million. We recorded net losses of ~~$145.1~~$74.8 million, ~~$99.1~~$183.1 million and ~~$74.4~~$199.6 million for the years ended December 31, ~~2017, 2016~~2021, 2020 and ~~2015,~~2019, respectively. Our capital resources and business efforts are largely focused on ~~preparation for~~activities relating to the commercialization of Rhopressa^® and Rocklatan®, advancing our product candidates and pipeline, international expansion

and ~~construction of~~operating our manufacturing ~~facility~~plant in Athlone, Ireland. ~~As a result, we~~

We expect ~~to continue~~ to incur operating losses until such a time when Rhopressa^® ~~is,~~ or ~~Roclatan~~^TMRocklatan® or any ~~other products that may be approved in the future are, commercially successful, if at all. If we do not successfully commercialize Rhopressa~~^®current or ~~Roclatan~~^TM~~or any~~ future product candidates, if approved, ~~we may be unable~~or proceeds in connection with collaboration and licensing arrangements, generate sufficient cash flows for us to ~~generate product revenue or~~ achieve profitability. WeAccordingly, we may be required to obtain further funding through ~~public~~debt or ~~private~~equity offerings ~~debt financing, collaboration and licensing arrangements~~ 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 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 revenues from any product candidates or future product candidates unless and until we obtain regulatory approval and commercialize such products.

Licensing Revenues

Licensing revenues consist of the upfront license fee and supplemental upfront payment earned from the licensing of our intellectual property. We recognize revenues from license fees when the license is considered a right to use the intellectual property and we have provided all necessary information to the licensee to benefit from the license and the license term had begun. If it is probable that a significant reversal in the amount of cumulative revenue recognized will occur, we record the upfront license fees in deferred revenue, non-current until the uncertainty is resolved.

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 Rocklatan® were expensed as pre-approval commercial manufacturing expenses (as defined below). We began capitalizing inventory costs for Rhopressa® and Rocklatan® after receipt of FDA approval. In January 2020 and September 2020, we received FDA approval to produce Rocklatan® and Rhopressa®, respectively, at the Athlone manufacturing plant for commercial distribution in the United States. Shipments of commercial supply of Rocklatan® and Rhopressa® from the Athlone manufacturing plant to the United States commenced in the second half of 2020. Production costs related to 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 in our consolidated statements of operations and comprehensive loss in the period incurred. We expect cost of goods sold in 2022 to continue to be unfavorably impacted by production 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 has not reached full capacity. 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.

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, ~~manufacturing,~~ finance and administration. Other significant expenses include ~~pre-approval commercial-related manufacturing costs, pre-launch sales~~selling 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, general and administrative~~Pre-approval Commercial Manufacturing Expenses

Pre-approval commercial manufacturing expenses ~~will increase due to the commercialization efforts~~consist of costs incurred for commercial-related manufacturing activities for Rhopressa^®~~, including~~ and Rocklatan® prior to FDA approval. These costs include those associated with the ~~expected hiring~~manufacturing of ~~sales representatives~~inventory in anticipation of commercial launch, expenses associated with the establishment of both our manufacturing plant in Athlone, Ireland, and our additional ~~employees focused on sales, marketing~~API and drug product contract manufacturers as well as employee-related expenses, which includes salaries, benefits and stock-based compensation for commercial-related manufacturing ~~activities.~~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 contract manufacturers during early 2020.

Research and Development Expenses

We expense research and development costs to operations as incurred. Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, which include:

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

•expenses incurred under agreements with CROs, contract manufacturing organizations and service providers that assist in conducting clinical trials and preclinical studies;

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

•costs associated with preclinical activities and development activities;

•costs associated with regulatory operations; and

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

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

~~Excluding the $24.8 million of~~Other expense, ~~recognized in 2017 related to the Envisia asset acquisition, we expect that our research and development expenses will increase in 2018 due to clinical trial activities for both Rhopressa~~^® ~~and Roclatan~~^TM ~~for jurisdictions outside of the United States and for research initiatives aimed at advancing our pipeline, including our preclinical molecules and technologies focused on retinal diseases.~~net

Other ~~Income (Expense), Net~~

~~Other income (expense)~~expense, net primarily includes interest ~~income,~~expense, interest ~~expense, and~~income, foreign exchange gains and ~~losses.~~losses and other income and expense. Interest expense consists of interest expense under 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 discounts~~Capital Resources” below and ~~premiums on~~Note 10 to our ~~investments. Interest expense consists of interest expense under the 2014 Convertible Notes, including the amortization of debt discounts and issuance costs.~~consolidated financial statements included elsewhere 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 and research and development tax credit refunds.

Income Tax Expense

Income tax expense primarily includes branch taxes of our non-U.S. subsidiaries.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. 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 and stock-based ~~compensation, fair value measurements and certain research and development expenses.~~compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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

~~Accrued Expenses~~Revenue Recognition

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

~~fees paid to CROs in connection with clinical trials;~~

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

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

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

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

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

~~Fair Value Measurements~~

We record certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The estimated fair value of the 2014 Convertible Notes was $327.6 million and $209.6 million as of December 31, 2017 and 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 our common stock on December 31, 2017 as compared to December 31, 2016.

~~Acquisitions~~

~~We evaluate acquisitions to determine whether the acquisition is a business combination or an acquisition of assets~~ under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic ~~805:~~ ~~Business Combinations~~ 606, Revenue from Contracts with Customers (“ASC Topic ~~805”~~606”). ~~Business combinations~~In accordance with ASC Topic 606, we recognize revenue when our customers obtain control of our product for an amount that reflects the consideration we expect to receive from our customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to our customer. Once the contract is determined to be within the scope of ASC Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

Product Revenues

Aerie’s customers include a limited number of national and select regional wholesalers (the “distributors”). These distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Product affordability for the patient drives consumer acceptance, and this is generally managed through coverage by Third-party Payers and such product may be subject to rebates and discounts payable directly to those Third-party Payers.

Net product revenues for the year ended December 31, 2021 were generated through sales of Rhopressa® and Rocklatan® in the United States. Product revenue is recorded net of trade discounts, allowances, commercial and government rebates, co-pay program coupons, chargebacks, U.S. government funding requirements for the coverage gap (commonly called the “donut hole”) portion of the Medicare Part D program and estimated returns and other incentives, discussed below. These reserves are classified as either reductions of accounts receivable or as current liabilities. Amounts billed or invoiced are included in accounts receivable, net on the consolidated balance sheet. We did not have any contract assets (unbilled receivables) at December 31, 2021, as customer invoicing generally occurs before or at the time of revenue recognition. We did not have any contract liabilities at December 31, 2021, as we did not receive payments in advance of fulfilling our performance obligations to our customers.

Net product revenue is typically recognized when the distributors obtain control of our products, which occurs at a point in time, typically upon delivery of products to the distributors. For the year ended December 31, 2021, three distributors accounted for ~~using~~36.9%, 31% and 30.9% of total revenues, respectively. We evaluate the creditworthiness of each of our distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. We do not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 days.

We calculate our net product revenue based on the wholesale acquisition ~~method~~cost that we charge our 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 donut hole, patient co-pay program coupon utilization, chargebacks and other discount programs and (iii) reserves for expected product returns. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data, forecasted customer mix and lagged claims. Provisions for revenue reserves reduced product revenues by $247.1 million and $202.2 million in aggregate for the years ended December 31, 2021 and 2020, respectively, a significant portion of which related to commercial and Medicare Part D rebates. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment.

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

Rebates, Chargebacks and Other Discounts: We contract with Third-party Payers for coverage and reimbursement of Rhopressa® and Rocklatan®. We estimate the rebates and chargebacks we expect to be obligated to provide to Third-party Payers and deduct these estimated amounts from our gross product revenue at the time the revenue is recognized. We estimate the rebates and chargebacks that we expect to be obligated to provide to Third-party Payers based upon (i) our contracts and negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa® and 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 our co-pay assistance programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to pay associated with product that has been recognized as revenue.

Product Returns: We estimate the amount of Rhopressa® and Rocklatan® that will be returned and deduct these estimated amounts from our gross revenue at the time the revenue is recognized. We currently estimate product returns based on historical 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 our distributors intended to limit the amount of inventory they maintain. Reporting from the distributors includes distributor sales and inventory held by distributors, which provide us with visibility into the distribution channel to determine when product would be eligible to be returned.

Contract Revenues from License Agreements

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

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

Upfront license fees: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from upfront license fees allocated to the license when the

license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time.

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

Clinical or commercial supply services: Arrangements that ~~does not constitute~~include a ~~business, no goodwill is recognized, and~~promise for the ~~net assets acquired~~future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally ~~recorded~~considered as customer options. We assess if these options provide a material right to the licensee and if so, they would be accounted for as separate performance obligations.

Sales-based milestone payments and royalties: For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate and if such is the case, we will recognize revenue at ~~cost. In January 2017,~~ the ~~FASB issued Accounting Standards Update (“ASU”) 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying~~later of (i) when the ~~Definition of a Business~~ ~~(“ASU 2017-01”). The ASU clarifies~~related sales occur, or (ii) when the ~~definition of a business and provides a screen~~performance obligation to ~~determine when an integrated set of assets and activities is not a business. The screen requires that when substantially~~which some or all of the ~~fair value~~royalty has been allocated has been satisfied (or partially satisfied).

Upfront payments and fees may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements or when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with any variable consideration is subsequently resolved. Amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the ~~gross assets acquired,~~promised goods or ~~disposed of, is concentrated~~services to the customer will be one year or less.

See Note 3 to our consolidated financial statements included elsewhere in ~~a single identifiable asset or a group of similar identifiable assets, the set is not a business. The new standard was effective~~this report for us beginning on January 1, 2018; however, we elected to early adopt this ASU as of July 1, 2017. Under ASC Topic 805, including the provisions of ASU 2017-01, the October 4, 2017 transaction to acquire assets from Envisia was determined to meet the criteria of an asset acquisition rather than a business combination, resulting in a $24.8 million charge to research and development expense on the consolidated statement of operations and comprehensive loss in the three months ended December 31, 2017 for acquired in-process research and development (“IPR&D”). Significant judgment is required in estimating the fair value of intangible assets and in a determination of whether an acquisition is a business combination or an acquisition of assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain.further discussion.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees ratably over the requisite service period, which in most cases is the vesting period of the award for employees, based on the estimated fair value of the awards on the date of grant. The estimated fair value of stock options is determined using the Black-Scholes option pricing model. Compensation expense for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of ~~the awards granted to non-employees is remeasured each period until the related service is complete. The fair value of~~ restricted stock awards (“RSAs”) and restricted stock units (“RSU”), including restricted stock awards with non-market performance and service conditions (“PSAs”) is, are determined based on the fair value of our common stock on the date of grant. Compensation expense related to RSAs isand RSUs are recognized ratably over the vesting period. As the PSAs have multiple performance conditions, compensation expense is recognized for each vesting tranche over the respective requisite service period of each tranche if and when we deem it probable that the performance conditions will be satisfied. Compensation expense for stock purchase rights under our employee stock purchase plan is measured and recognized on the date that we become obligated to issue shares of our common stock and is based on the difference between the fair value of our common stock and the purchase price on such date. The fair value of the stock appreciation rights (“SARs”) is estimated using the Black-Scholes option pricing model and is marked to market through stock-based compensation expense. SARs are liability-based awards as they may only be settled in cash.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value

Determining the appropriate fair value measurement of stock-based awards requires the use of subjective assumptions. We estimate the fair value of options to purchase common stock using the Black-Scholes option pricing model, which is affected by our common stock fair values as well as assumptions regarding a number of other subjective variables. These other variables include the expected term of the options, our expected stock price volatility over the expected term of the options, risk-free interest rates and expected dividends.

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

•Fair Value of our Common Stock. The fair value for our underlying common stock is determined using the closing price on the date of grant as reported on The ~~NASDAQ~~Nasdaq Global Market.

~~Tax Valuation Allowance~~

A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized. Realization of future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Due to our history of operating losses and lack of available evidence supporting future taxable income, we maintain a valuation allowance on all of our deferred tax assets as of December 31, 2017, with the exception of a release of valuation allowance during the year on a deferred tax asset related to a $1.7 million AMT refund that we expect to receive under the Tax Act. The amount of refund expected to be received is recorded as a non-current receivable.

Results of Operations

Comparison of the Years Ended December 31, ~~2017~~2021 and ~~2016~~2020

The following table summarizes the results of our operations for the years ended December 31, ~~2017~~2021 and ~~2016:~~2020:


	YEAR ENDED DECEMBER 31,				CHANGE		% CHANGE
	2021		2020
	(in thousands, except percentages)
Product revenues, net	$	112,134	$	83,138	$	28,996	35	%
Licensing revenues	82,000		—		82,000		*
Total revenues, net	194,134		83,138		110,996		*
Costs and expenses:
Cost of goods sold	26,846		25,333		1,513		6	%
Selling, general and administrative	137,805		137,184		621		—	%
Pre-approval commercial manufacturing	—		2,304		(2,304)		(100)	%
Research and development	75,837		74,007		1,830		2	%
Total costs and expenses	240,488		238,828		1,660		1	%
Loss from operations	(46,354)		(155,690)		109,336		(70)	%
Other expense, net	(27,863)		(22,166)		(5,697)		26	%
Loss before income taxes	$	(74,217)	$	(177,856)	$	103,639	(58)	%
Income tax expense	$	593	$	5,245	$	(4,652)	(89)	%
Net loss	$	(74,810)	$	(183,101)	$	108,291	(59)	%

*Percentage not meaningful

Product revenues, net

Product revenues, net were $112.1 million and $83.1 million for the years ended December 31, 2021 and 2020, respectively. Revenues recorded during the year ended December 31, 2021 relate to sales of our U.S. glaucoma franchise products, Rhopressa® and 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. Our sales volumes have increased each successive quarter in 2021 compared to the volumes in the corresponding quarters in 2020 for our glaucoma franchise products.

Licensing revenues

Licensing revenues were $82.0 million for the year ended December 31, 2021 and consisted of (i) $80.0 million of the $88.0 million upfront license fee associated with the Second Santen Agreement (“Europe Upfront Payment”) and (ii) the $2.0 million supplemental upfront payment earned in connection with the Second Santen Agreement. We recorded $8.0 million of the total $88.0 million Europe Upfront Payment in deferred revenue, non-current in our consolidated balance sheet until we have certainty around events that permit the commercialization of our franchised products in China as required under the Second Santen Agreement.

Cost of goods sold

Cost of goods sold was $26.8 million and $25.3 million for the years ended December 31, 2021 and 2020, respectively. Our gross margin percentage (over product revenues, net) was 76.1% and 69.5% for the years ended December 31, 2021 and 2020, respectively. Our cost of goods sold and gross margin percentage for the years ended December 31, 2021 and 2020 were unfavorably impacted by costs due to underutilized capacity at the Athlone manufacturing plant which increased cost of goods sold by $17.0 million and $17.0 million and lowered the gross margin percentage by 15.1% and 20.4%, respectively. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time as the Athlone manufacturing plant reaches full capacity. We received FDA approval to produce Rocklatan® and Rhopressa® in January 2020 and September 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.

YEAR ENDED
DECEMBER 31,
CHANGE
%
CHANGE
2017 2016
(in thousands, except percentages)
Selling, general and administrative expenses $ 73,615
$ 44,478
$ 29,137
66 %
Research and development expenses 72,078
52,394
19,684
38 %
Total operating expenses 145,693
96,872
48,821
50 %
Loss from operations (145,693 ) (96,872 ) (48,821 ) 50 %
Other income (expense), net (1,170 ) (1,994 ) 824
(41 )%
Net loss before income taxes $ (146,863 ) $ (98,866 ) $ (47,997 ) 49 %

Selling, general and administrative expenses

Selling, general and administrative expenses were $137.8 million and $137.2 million for the years ended December 31, 2021 and 2020, respectively. Selling, general and administrative expenses increased by ~~$29.1~~$0.6 million primarily due to higher sales and marketing expenses as well as travel expenses as a result of the easing of COVID-19 related travel restrictions, partially offset by lower overall employment-related expenses, including stock-based compensation.

Pre-approval commercial manufacturing expenses

Pre-approval commercial manufacturing expenses were zero and $2.3 million for the years ended December 31, 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.

Research and development expenses

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates, which include but are not limited to: (1) expenses incurred under agreements with contract research organizations, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies; (2) costs associated with any collaboration arrangements, licenses or acquisitions of preclinical molecules, product candidates or technologies; and (3) costs associated with our preclinical activities, development activities and regulatory operations. We do not allocate employee-related expenses, stock-based compensation or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs.


	YEAR ENDED DECEMBER 31,				CHANGE		% CHANGE
	2021		2020
	(in thousands, except percentages)
Direct research and development expenses by program:
Rhopressa®	$	6,327	$	3,199	$	3,128	98	%
Rocklatan®	376		6,009		(5,633)		(94)	%
AR-15512	9,867		5,948		3,919		66	%
Retina programs (1)	7,273		4,943		2,330		47	%
Other direct research and development program costs (2)	1,601		334		1,267		*
Total direct research and development program costs	25,444		20,433		5,011		25	%
Employee-related costs	25,080		27,831		(2,751)		(10)	%
Stock-based compensation	7,573		10,221		(2,648)		(26)	%
Other indirect costs (3)	17,740		15,522		2,218		14	%
Research and development expenses	$	75,837	$	74,007	$	1,830	2	%

*Percentage not meaningful

(1) Consists of AR-1105, AR-13503 SR and AR-14034 SR in 2021. Consists of AR-1105 and AR-13503 SR in 2020.

(2) Other direct research development program costs primarily includes AR-6121.

(3) Consists primarily of other indirect costs incurred for the research and development of preclinical and clinical product candidates, including expenses associated with our research facilities such as lab supplies, depreciation and other research facility related costs. Also included in these costs are travel expenses, which were higher in 2021 as a result of the easing of COVID-19 related travel restrictions.

Research and development expenses were $75.8 million and $74.0 million for the years ended December 31, 2021 and 2020, respectively, and increased by $1.8 million for the year ended December 31, ~~2017 as~~2021 compared to the year ended December 31, ~~2016. This~~2020. The increase primarily relates to a $3.9 million increase in spend for the development of AR-15512 due to our Phase 2b clinical study, COMET-1, which we reported topline results in September 2021. Additionally, there was ~~primarily~~an increase of $3.1

million in expenses associated with ~~the expansion of our employee base to support~~

~~the growth of our operations~~Rhopressa®, respectively, as described below, as well as ~~expenses incurred in connection with preparatory commercial manufacturing activities, which commenced in 2016.~~

~~Employee-related expenses increased by $15.0~~a $2.3 million ~~including an~~ increase in ~~employee stock-based compensation expense of $7.0 million. Our preparatory commercial manufacturing activities have primarily been~~spend related to the ~~validation and scale-up~~development of our ~~current manufacturing activities for which we incurred $10.6~~retina program.

These increases were partially offset by a decrease of $5.6 million ofin expenses ~~during the year ended December 31, 2017. Certain of our direct preparatory commercial operations and manufacturing activities were recognized in selling, general and administrative expenses prior~~associated with Rocklatan® due to ~~receiving FDA approval of Rhopressa~~^®~~. Going forward, certain of these~~lower costs ~~will be capitalized as inventory. Expenses~~ related to ~~our pre-launch sales~~the Mercury 3 registration trial in Europe and ~~marketing planning activities~~a decrease of $5.4 million in employee-related expenses, including stock-based compensation.

Furthermore, expenses for Rhopressa® increased by ~~$5.2~~$3.1 million for the year ended December 31, ~~2017 as~~2021 compared to the year ended December 31, ~~2016.~~ 2020, driven by ongoing costs for the Rhopressa® Phase 3 clinical trial in Japan. Santen’s portion of these shared costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan were recorded as deferred revenue, non-current in the condensed consolidated balance sheets. In October 2021, we reported positive topline results in this Phase 3 clinical trial, which is the first of three expected in Japan. Under the terms of the First Santen Agreement, Santen is responsible for the development and cost of the remaining two Phase 3 studies.

~~Research and development expenses~~Other expense, net

~~Research and development expenses~~Other expense, net consists of the following:


	YEAR ENDED DECEMBER 31				CHANGE		% CHANGE
	2021		2020
	(in thousands, except percentages)
Interest income	$	139	$	1,984	$	(1,845)	(93)	%
Interest expense	(28,904)		(26,476)		(2,428)		9	%
Other income	902		2,326		(1,424)		(61)	%
Other expense, net	$	(27,863)	$	(22,166)	$	(5,697)	26	%

Other expense, net increased by ~~$19.7~~$5.7 million for the year ended December 31, ~~2017 as~~2021 compared to the year ended December 31, ~~2016. The increase was primarily related to the acquisition of assets from Envisia in which $24.8~~2020.

Interest expense increased by $2.4 million ~~of acquired IPR&D was expensed~~ during the year ended December 31, ~~2017. Excluding~~2021 due to the ~~impact~~amortization of debt discounts and issuance costs associated with the ~~Envisia asset acquisition, research and development expenses~~Convertible Notes which were issued in September 2019.

Other income decreased by ~~$5.1~~$1.4 million ~~primarily related to~~during the ~~completion of the Phase 3 registration trials for Rhopressa~~^® ~~and Roclatan~~^TM~~forU.S. approval, partially offset by expenses incurred for Roclatan~~^TM ~~registration trials for European approval and for Rhopressa~~^® ~~clinical trials designed for potential future approval in Japan. Research and development expenses for Rhopressa~~^® ~~totaled $5.3 million and $12.0 million for the years~~year ended December 31, ~~2017~~2021 primarily due to $2.3 million in realized loss on equity securities sold as of March 31, 2021 offset by an increase in the unrealized gain from foreign exchange and ~~2016, respectively. Research and development expenses for Roclatan~~^TM ~~totaled $7.5~~an increase in the realized gain from foreign exchange.

Interest income decreased by $1.8 million ~~and $15.4 million for~~during the ~~years~~year ended December 31, ~~2017~~2021 and ~~2016, respectively. In addition, employee-related expenses increased~~related to interest income on our cash, cash equivalents and investments.

Income tax expense

Income tax expense consists of the following:


	YEAR ENDED DECEMBER 31				CHANGE		% CHANGE
	2021		2020
	(in thousands, except percentages)
Income tax expense	$	593	$	5,245	$	(4,652)	(89)	%

Income tax expense decreased by ~~$6.4~~$4.7 million for the year ended December 31, ~~2017 as~~2021 compared to the year ended December 31, ~~2016~~2020, primarily due to ~~an increase~~$5.0 million in ~~headcount to support~~withholding taxes incurred in the ~~growth~~fourth quarter of ~~our operations.~~

~~Other income (expense), net~~

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

YEAR ENDED
DECEMBER 31
CHANGE % CHANGE
2017 2016
(in thousands, except percentages)
Interest income $ 1,753
$ 639
$ 1,114
NM
Interest expense (2,368 ) (2,537 ) 169
(7 )%
Other income (expense) (555 ) (96 ) (459 ) NM
$ (1,170 ) $ (1,994 ) $ 824
(41 )%

Other income (expense), net decreased by $0.8 million for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The decrease was primarily related to additional interest income for the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to the increase in our cash, cash equivalents and investments, partially offset by an increase in unrealized foreign exchange loss included in other expense2020 related to the ~~remeasurement of our Euro-denominated build-to-suit lease obligation, which is held~~$50.0 million upfront payment made by ~~a subsidiary with a U.S. dollar functional currency.~~

~~Comparison of the Years Ended December 31, 2016 and 2015~~

~~The following table summarizes the results of our operations for the years ended December 31, 2016 and 2015:~~

YEAR ENDED
DECEMBER 31,
CHANGE % CHANGE
2016 2015
(in thousands, except percentages)
Selling, general and administrative expenses $ 44,478
$ 30,635
$ 13,843
45 %
Research and development expenses 52,394
44,451
7,943
18 %
Total operating expenses 96,872
75,086
21,786
29 %
Loss from operations (96,872 ) (75,086 ) (21,786 ) 29 %
Other income (expense), net (1,994 ) 862
(2,856 ) NM
Net loss before income taxes $ (98,866 ) $ (74,224 ) $ (24,642 ) 33 %

~~Selling, general and administrative expenses~~

~~Selling, general and administrative expenses increased by $13.8 million for the year ended December 31, 2016 as compared~~Santen pursuant to the year ended December 31, 2015. This increase was primarily associated with the expansion of our employee base to support the growth of our operations as well as expenses incurred in connection with preparatory commercial manufacturing activities, which commenced in 2016.

Employee-related expenses increased by $6.2 million, including an increase in employee stock-based compensation expense of $2.6 million. Our preparatory commercial manufacturing activities were related to the validation and scale-up of our manufacturing activities for which we incurred $7.5 million of expenses during the year ended December 31, 2016.

~~Research and development expenses~~

~~For the year ended December 31, 2016, our research and development activity was primarily associated with Phase 3 registration trials for Rhopressa~~^® ~~and Roclatan~~^TM~~. Research and development expenses increased by $7.9 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. Costs for Roclatan~~^TM ~~increased by $11.6 million as a result of commencing Mercury 1 and preparatory activities for our other Phase 3 registration trials for Roclatan~~^TM~~. Costs for Rhopressa~~^® decreased by $10.0 million. Both Rocket 1 and Rocket 2 commenced in July 2014. Rocket 1 was completed in April 2015 and we began to incur expenses for Rocket 4 in mid-2015. In addition, employee-related expenses increased by $3.6 million as a result of an increase in headcount to support the growth of our operations.

~~Other income (expense), net~~

~~Other income (expense), net consists of the following:~~First Santen Agreement.

YEAR ENDED
DECEMBER 31
CHANGE % CHANGE
2016 2015
(in thousands, except percentages)
Interest income $ 639
$ 464
$ 175
38 %
Interest expense (2,537 ) (2,493 ) (44 ) 2 %
Other income (expense) (96 ) 2,891
(2,987 ) NM
$ (1,994 ) $ 862
$ (2,856 ) NM

Other income (expense), net decreased by $2.9 million for the year ended December 31, 2016 as compared to the year ended December 31, 2015. The decrease was primarily due to a $2.9 million state tax benefit recognized in 2015 upon the sale of deferred state tax benefits to unrelated third parties, which did not occur in 2016.

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 Rhopressa® and Rocklatan® in the United States. Further, we entered into the Second Santen Agreement in December 2021 which included the Europe Upfront Payment of $88.0 million which we received in January 2022 and a supplemental upfront payment of $2.0 million. This was an expansion of the First Santen Agreement pursuant to which Santen made an upfront payment of $50.0 million (the “Japan Upfront Payment”) in the fourth quarter of 2020.

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 ~~Rhopressa~~^®~~is,~~our current products and any future products, if commercialized, generate adequate revenues to render us profitable. We will not generate any revenue from any current or ~~Roclatan~~^TM ~~or any other products that may be approved in the~~ future ~~are, commercially successful, if at all.~~product candidates unless and until we obtain regulatory approval and commercialize such products.

Sources of Liquidity

~~Since our initial public offering~~ During years ended December 31, 2021 and 2020, we have:

•entered into the First Santen Agreement in October ~~2013, we~~2020 to advance our clinical development and ultimately commercialize Rhopressa® and Rocklatan® in Japan and East Asia. Pursuant to the First Santen Agreement, Santen made the $50.0 million Japan Upfront Payment in the fourth quarter of 2020, which was recognized in deferred revenue, non-current in our consolidated balance sheets. See Note 3 to our consolidated financial statements included elsewhere in this report for additional information; and

•entered into the Second Santen Agreement in December 2021, which expanded the territories of the First Santen Agreement to include Europe, China, India, the Middle East, CIS, parts of Latin America, the Oceania countries and certain other regions. Pursuant to the Second Santen Agreement, Santen paid the $88.0 million Europe Upfront Payment and $2.0 million supplemental upfront payment in January 2022, of which $82.0 million was recognized as licensing revenues in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2021. See Note 3 to our consolidated financial statements included elsewhere in this report for additional information.

We also have ~~issued:~~

~~$125.0~~outstanding $316.25 million aggregate principal amount of ~~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,~~mature on October 1, 2024.

Approximately 11.0 million shares of our common stock through December 31, 2017, for which we received net proceeds of approximately $351.3 million, after deducting fees and expenses. This includes approximately $207.7 million of net proceeds from our prior “at-the-market” sales agreements, of which approximately $61.1 million were received during the year ended December 31, 2017, and approximately $143.6 million of net proceeds from the issuance of shares of our common stock pursuant to underwriting agreements, related to registered public offerings, of which approximately $72.7 million were received during the year ended December 31, 2017, and

Subsequent to December 31, 2017, we sold approximately 2.3 million additional shares of our common stock, for which we received net proceeds of approximately $136.2 million, after deducting fees and expenses, upon the completion of an “at-the-market” offering that commenced in December 2017 and pursuant to an underwriting agreement, dated January 23, 2018, related to a registered public offering.

As of December 31, ~~2017,~~2021, our principal sources of liquidity were our cash, cash equivalents and investments, which totaled approximately ~~$249.7~~$139.8 million. In January 2022, we received a $90.0 million payment from Santen in connection with the Second Santen Agreement. See Note 3 to our consolidated financial statements included elsewhere in this report for additional information. We believe that our cash, cash equivalents and investments ~~as of December 31, 2017~~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.~~Requirements.” We continue to evaluate our product candidates and pipeline for collaboration and licensing opportunities.

Cash Flows

The following table summarizes our sources and uses of cash:


	YEAR ENDED DECEMBER 31,										YEAR ENDED DECEMBER 31,
	2017			2016			2015				2021		2020
Net cash (used in) provided by:	(in thousands)									Net cash (used in) provided by:	(in thousands)
Operating activities	$	(93,213	)	$	(79,840	)	$	(55,746	)	Operating activities	$	(99,154)	$	(64,690)
Investing activities	(42,807		)	18,100			9,382			Investing activities	(18,201)		73,179
Financing activities	135,644			168,625			51,838			Financing activities	2,972		(859)
Net (decrease) increase in cash and cash equivalents	$	(376	)	$	106,885		$	5,474		Net (decrease) increase in cash and cash equivalents	$	(114,383)	$	7,630

Operating Activities

During ~~the years ended December 31, 2017, 2016 and 2015, our operating activities used net cash of $93.2 million, $79.8 million and $55.7 million, respectively. The increase in net loss from operations for~~ the year ended December 31, ~~2017 as compared~~2021, net cash used in operating activities of $99.2 million related to a net loss of $74.8 million, adjusted for non-cash items of $68.2 million primarily related to amortization and accretion, stock-based compensation expense and depreciation and $92.6 million related to changes in operating assets and liabilities which primarily consisted of the $90.0 million licensing receivable related to the Second Santen Agreement received in January 2022.

During the year ended December 31, ~~2016~~2020, net cash used in operating activities of $64.7 million related to a net loss of $183.1 million, adjusted for non-cash items of $73.5 million primarily related to stock-based compensation expense, amortization and ~~for~~accretion and depreciation and net cash inflows of $44.9 million related to changes in operating assets and liabilities. The changes in operating assets and liabilities included the ~~year ended~~$50.0 million Japan Upfront Payment in deferred revenue as of December 31, 2016 as compared to the year ended December 31, 2015 was primarily due to the expansion of our employee base and commercial operations and manufacturing activities in preparation for the launch of Rhopressa^®~~. The increases are partially offset by reductions in expenditures for clinical trials as the Phase 3 registration trials for Rhopressa~~^®~~and Roclatan~~^TM~~concluded in the United States.~~2020.

Investing Activities

During the year ended December 31, ~~2017,~~2021, our investing activities used net cash of ~~$42.8~~$18.2 million primarily related to purchases of available-for-sale investments of ~~$104.5~~$132.4 million and purchases of property, plant and equipment of ~~$16.0~~$3.3 million, primarily related to ~~the build-out of~~ our manufacturing plant in Athlone, Ireland, ~~and a $10.5 million cash payment for the acquisition of assets from Envisia, which were~~ partially offset by sales and maturities ~~and sales~~ of ~~available-for-sale~~ investments of ~~$88.2~~$117.5 million.

During the

year ended December 31, ~~2016,~~2020, our investing activities provided net cash of ~~$18.1~~$73.2 million primarily related to sales and maturities ~~and sales~~ of ~~available-for-sale~~ investments of ~~$58.3~~$192.9 million, which were partially offset by purchases of available-for-sale investments of ~~$35.2~~$116.6 million and purchases of property, plant and equipment of ~~$5.1~~$3.1 million, primarily related to ~~support~~ the ~~growth~~completion of the build-out of our ~~operations.~~ manufacturing plant in Athlone, Ireland.

Financing Activities

During the year ended December 31, 2015, our investing activities provided net cash of $9.4 million primarily related to maturities and sales of available-for-sale investments of $59.5 million, which were partially offset by purchases of available-for-sale investments of $46.9 million and purchases of software and equipment of $3.3 million.

~~Financing Activities~~

~~During the years ended December 31, 2017, 2016 and 2015,~~2021, our financing activities provided net cash of ~~$135.6~~$3.0 million ~~$168.6 million and $51.8 million, respectively. The~~primarily related to net ~~cash provided by financing activities during~~proceeds from the ~~years~~issuance of common stock for stock-based compensation arrangements.

During the year ended December 31, ~~2017, 2016 and 2015 was~~2020, our financing activities used net cash of $0.9 million, primarily related to ~~the issuance and sale~~tax payments made on employees’ behalf through withholding of common stock under our prior “at-the-market” sales agreements and under underwriting agreements related to registered public offerings, from which we received net proceeds of approximately $134.2 million, $167.4 million and $50.5 million, respectively.shares on restricted stock.

Operating Capital Requirements

We expect to incur ongoing operating losses until such a time when Rhopressa^®~~is,~~, Rocklatan®, Rhokiinsa®or ~~Roclatan~~^TMRoclanda® or any ~~other products that may be~~product candidates or future product candidates, if approved, ~~in the future are, commercially successful, if at all. We received FDA approval for Rhopressa~~^® ~~on December 18, 2017, and expect~~generate sufficient cash flows to ~~launch Rhopressa~~^®~~in the United States in mid-second quarter of 2018. As a result, we expect to commence generating product revenues related to sales of Rhopressa~~^®~~in mid-2018.~~achieve profitability.

Our principal liquidity requirements are for: working capital; ~~future increased operational expenses;~~operating expenses including for commercialization and manufacturing activities; expenses associated with developing our pipeline opportunities, including pursuing strategic growth opportunities; costs associated with executing our international expansion strategy, including clinical and potential commercialization activities in ~~Europe and Japan;~~certain geographical regions around the world; 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. Capital expenditures related to the manufacturing plant

totaled approximately $17.4 million in 2017. Estimated remaining equipment, construction and other related capital costs as of December 31, 2017 are approximately $27 million (excluding the potential impact of foreign exchange rate fluctuations), of which approximately $24 million is expected to be spent in 2018.

We believe that our cash, cash equivalents and investments ~~balance as of December 31, 2017 together with the financing net proceeds received in January 2018, discussed above,~~and projected cash flows from revenues will provide sufficient resources to support our ~~commercial activities for Rhopressa~~^®operationsthrough at least the next twelve months from the date of this filing. We are required to make semi-annual interest payments in cash in arrears on the Convertible Notes at a rate of 1.50% per annum on April 1 and ~~to support the expected approval and planned commercialization~~October 1 of ~~Roclatan~~^TM~~in the United States.~~each year, which began on April 1, 2020.

Our future funding requirements will depend on many factors, including, but not limited to the following:


•	~~costs of commercialization activities for Rhopressa~~^® ~~and Roclatan~~^TMand any future product candidates, if approved, including the costs and timing of establishing product sales, marketing, manufacturing and distribution capabilities, and related product sales performance;


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

•commercial performance of Rhopressa®, Rocklatan®, Rhokiinsa® or Roclanda® or any current or future product candidates, if approved;

•costs of commercialization activities for Rhopressa®, Rocklatan®, Rhokiinsa® or Roclanda® 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;

•timing and costs of our ongoing and future clinical trials and preclinical ~~studies;~~studies including those related to our international 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 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 activities;~~

•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 ~~need~~be required to obtain ~~additional financing to fund our future operations~~further 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.

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception in June 2005. We expect to continue to incur U.S. NOLs until such a time when Rhopressa^®~~and Roclatan~~^TM ~~and~~ or Rocklatan® or any ~~future~~other product, ~~candidates,~~ if approved ~~are commercially successful, if~~in the future, generates adequate revenues to render Aerie profitable. We launched Rhopressa® in the United States at ~~all. We received FDA approval for Rhopressa~~^® ~~on December 18, 2017,~~the end of April 2018 and ~~expect to launch Rhopressa~~^Rocklatan®in ~~mid-second quarter of 2018.~~May 2019. As a result, we ~~expect to commence~~commenced generating product revenues related to sales of Rhopressa^®in ~~mid-2018;~~the second quarter of 2018 and Rocklatan® in the second quarter of 2019; however, we dodid not ~~expect to~~ generate U.S. taxable income in ~~2018.~~2018 through 2021. The NOLs may be utilized to offset taxable income generated in the future.

As of December 31, ~~2017,~~2021, we had federal and state NOL carryforwards of approximately ~~$196.2~~$635.1 million and ~~$271.3~~$616.3 million, ~~respectively, which~~respectively. Federal NOLs that arose prior to 2018 and state NOLs will begin to expire at various dates beginning in ~~2024 through 2037, if not utilized.~~2031 and 2023, respectively. Federal NOLs that arose on or after January 1, 2018, can be carried forward indefinitely to be utilized against future income, but can only be used to offset a maximum of 80% of our federal taxable income in any year. As of December 31, 2021, we had foreign NOL carryforwards of $66.0 million, which are available solely to offset taxable income of our foreign subsidiaries, subject to any applicable limitations under foreign law.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service ~~and state tax authorities~~ and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as ~~amended, as well as similar state provisions.~~amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. State NOLs and tax credit carryforwards may be subject to similar limitations under state laws.

OnIn December ~~22,~~ 2017, the Tax Act was signed into law and enacted significant changes to the Internal Revenue Code of 1986, as amended. This new tax legislation, among other changes, ~~reduces~~reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018.Under U.S. GAAP, deferred tax assets and liabilities are required to be revalued during the period in which the new tax legislation is enacted, which resulted in the remeasurement of our federal deferred tax assets and liabilities as of December 31, 2017 to reflect the effects of the enacted changes in tax rate. As we provide a full valuation allowance on our net deferred tax assets, there was no impact to income tax expense in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2017 as a result of the remeasurement. The Tax Act also repealed the corporate ~~AMT~~alternative minimum tax (“AMT”) for tax years beginning after December 31, 2017 and provides that existing AMT credit carryovers are refundable in tax years beginning after December 31, 2017. We have approximately $1.7 million of AMT credit carryovers that we expect to be fully refunded between 2019 and 2022. The Tax Act also limits various business deductions, modifies the maximum deduction of NOLs and includes various international tax provisions. Many provisions in the Tax Act ~~are~~were generally effective in tax years beginning in 2018. The Tax Act eliminated the expensing of R&D costs beginning in 2022 and would require these costs to be amortized over five years if the R&D activities are performed in the United States and 15 years if the activities are performed outside of the United States. This may result in us having more taxable income for the 2022 tax year and into the future which can be offset by existing net operating losses. Legislation has been introduced to delay the application of this new amortization requirement for five years until tax years beginning after ~~December 31, 2017, and we~~2025. The prospects for this legislation are uncertain. We will continue to analyze additional information and guidance related to certain aspects of the Tax Act in assessing the potential impact ~~on Aerie~~ in the future. ~~However, we do not expect~~On March 27, 2020, the ~~impact~~President of the ~~Tax~~United States signed the Coronavirus Aid, Relief, and Economic Security Act ~~to be material over~~(“CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the ~~next twelve months given we do not expect to generate taxable income in 2018. On December 22, 2017,~~COVID-19 pandemic and generally supporting the ~~SEC issued Staff Accounting Bulletin No. 118 to address the application of~~ U.S. GAAP in situations when a registrant may not have the necessary information available in reasonable detail to complete the accounting for certain income tax effects. We have recognized provisional tax impacts related to the revaluation of our net deferred tax assets and the income tax benefit recognized for refundable AMT.economy. The ~~final impact assessment will be completed as additional information becomes available, but no later than one year from the enactment of the Tax~~CARES Act, ~~and may differ from provisional amounts, due to,~~ among other things, ~~additional analysis,~~includes several business tax provisions which include, but are not limited to modifications of federal net operating loss carrybacks and deductibility, changes ~~in interpretations~~to prior year refundable alternative minimum tax liabilities, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest, taxes, depreciation, and ~~assumptions we have made, additional regulatory guidance that may be issued, the filing of our tax return and actions the we may take as a result~~amortization, technical corrections of the ~~Tax Act.~~classification of qualified improvement property making them eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of industry specific excise taxes, deferral of the company portion of Old Age, Survivors, and Disability Insurance Program (“OASDI”), and implementation of a refundable employee retention tax credit. The CARES Act did not have a material impact on our consolidated financial statements as of and for the year ended December 31, 2020. We will continue to monitor additional guidance issued by the U.S. Treasury Department and the Internal Revenue Service.

~~Outstanding Indebtedness~~

The CARES Act provides for the delay in the required deposit of the employer portion of the OASDI payroll tax from the date of enactment through the end of 2020. Of the taxes that we deferred, 50 percent of the deferred payroll taxes in the amount of $0.7 million were deposited by the end of 2021 and the remaining 50 percent are required to be deposited by the end of 2022. As of December 31, ~~2017, our total indebtedness consisted~~2021, we have deferred $0.7 million payroll taxes related to the employer portion of ~~our $125.0 million~~the OASDI tax.

Outstanding Indebtedness

In September 2019, we issued an aggregate principal amount of ~~2014~~$316.25 million of Convertible Notes. ~~For~~The Convertible Notes are senior, unsecured obligations with interest payable semi-annually in cash in arrears at a ~~discussion~~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 ~~2014~~holders any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes ~~see~~may 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 consolidated financial statements ~~appearing~~included elsewhere in this ~~report.~~

report for more information.

Contractual Obligations and Commitments

~~The following table summarizes~~Our lease obligations are primarily related to our ~~contractual~~principal executive office and research facility in Durham, North Carolina, and corporate offices in Bedminster, New Jersey, Irvine, California and other foreign offices, and expire through October 2029. Additionally, we are leasing approximately 30,000 square feet of interior floor space related to our manufacturing plant in Athlone, Ireland. We are permitted to terminate the lease agreement beginning in September 2027. Refer to Note 8 to our consolidated financial statements included in this report for further information.

In September 2019, we issued Convertible Notes, which mature on October 1, 2024 and bear interest at a rate of 1.50% per annum. Refer to Note 10 to our consolidated financial statements included in this report for further information.

We have purchase obligations ~~at December 31, 2017:~~that consist primarily of non-cancelable commitments under our contract manufacturing agreements.

TOTAL
LESS THAN
1 YEAR
1 TO 3 YEARS 3 TO 5 YEARS
MORE THAN
5 YEARS
(in thousands)
Lease obligations⁽¹⁾
$ 15,633
$ 3,454
$ 6,592
$ 3,431
$ 2,156
Convertible Notes⁽²⁾
125,000
—
—
125,000
—
Interest payments on Convertible Notes⁽²⁾
8,757
2,188
4,381
2,188
—
Purchase obligations⁽³⁾
9,447
8,416
1,031
—
—
$ 158,837
$ 14,058
$ 12,004
$ 130,619
$ 2,156

~~(1)~~

Our lease obligations are primarily related to our principal executive office and research facility in Durham, North Carolina, and corporate offices in Bedminster, New Jersey, Irvine, California and Dublin, Ireland. Additionally, the table reflects rental payments related to a lease agreement we entered into in January 2017 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 December 31, 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, and bear interest at a rate of 1.75% per annum. Refer to Note 7 to our consolidated financial statements included elsewhere in this report for further information.


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

~~In October 2017, we entered into the Agreement~~We have agreements 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 makethird-parties with contingent milestone payments ~~of up~~that are potentially payable by us, as more fully described in Note 13 to ~~$45.0 million~~our consolidated financial statements included elsewhere in ~~aggregate, which are excluded from the table above. As these~~this report. These payments are contingent upon ~~the achievement of~~achieving certain development and/or regulatory ~~approval,~~milestones that may or may not ever be achieved. Therefore, our requirement to make such payments in the future, if at all, as well as the timing of any such payments 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 regulations.

~~Jumpstart our Business Startups Act of 2012~~

As of the year ended December 31, 2017, we ceased to be an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, since the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2017. As a result, beginning with this Annual Report on Form 10-K for the year ended December 31, 2017, we are 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, included herein.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this report regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.

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



Title of Each Class	Ticker Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share	AERI	NASDAQ Global Market



~~Name and Mechanism~~		~~Status~~	~~Intellectual~~ ~~Property~~ ~~Rights~~

~~Rhopressa~~^®	~~ROCK inhibitor~~	~~U.S.: FDA approved on December 18, 2017~~	~~Wholly-Owned~~
		~~Outside of U.S.: Expect to submit marketing authorization application (“MAA”) in Europe in second half of 2018;~~ ~~Phase 1 and Phase 2 for Japan~~

~~Roclatan~~^TM	~~ROCK inhibitor and latanoprost, a PGA~~	~~U.S.: Expect to submit NDA to FDA in second quarter of 2018~~	~~Wholly-Owned~~
		~~Outside of U.S.: Phase 3 for Europe~~

~~AR-13503~~	~~ROCK and Protein kinase inhibitor~~	~~U.S.: Expect to submit IND in 2019~~	~~Wholly-Owned~~
~~AR-1105~~	~~dexamethasone steroid implant~~	~~U.S.: Expect to submit IND in 2018~~	~~Wholly-Owned; acquired from Envisia~~


Country	Number of Issued Patents	Number of Pending Patents	Estimated Expiration Date Range
United States	56	25	2026 - 2041
Australia	15	12	2026 - 2041
Brazil	0	7	2036 - 2041
Canada	5	12	2026 - 2041
China	2	8	2034 - 2041
Europe	70(1)	14	2026 - 2041(1)
Hong Kong	2	9	2030 - 2041
India	0	5	2035 - 2041
Japan	9	16	2026 - 2041
Mexico	0	5	2026 - 2041
Patent Cooperation Treaty	0	11	2021 - 2023
Singapore	1	2	2036 - 2038
South Korea	0	8	2035 - 2040
Israel	0	1	2039
Total	160	135



Country	Number of Issued Patents	Number of Pending Patents	Estimated Expiration Date Range
United States	21	14	2026 - 2038
Australia	3	4	2029 - 2036
Brazil	0	1	2036
Canada	2	5	2029 - 2036
China	0	1	2034
Europe	41⁽¹⁾	4	2026 - 2036⁽¹⁾
Hong Kong	0	1	2030
Japan	6	3	2028 - 2036
Mexico	0	1	2036
Patent Cooperation Treaty	0	7	2035 - 2037
South Korea	0	1	2036



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



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


•	~~launching commercial sales of Rhopressa~~^®~~, Roclatan~~^TM ~~or any future product candidates, if and when approved;~~


•	~~obtaining reimbursement from third-party payers for Rhopressa~~^®~~, Roclatan~~^TM ~~or any future product candidates, if and when approved;~~


•	~~continued acceptable efficacy and safety profiles for Rhopressa~~^®~~, Roclatan~~^TM ~~or any future product candidates following regulatory approvals from applicable regulatory authorities, if and when received.~~


•	~~the market price, affordability and patient out-of-pocket costs of Rhopressa~~^® ~~and Roclatan~~^TM ~~and any future product candidates, if approved, relative to other available products, which are predominantly generics;~~


•	~~the possibility that third-party payers will not give Rhopressa~~^®~~or Roclatan~~^TM ~~or any future product candidates, if approved, favorable positions on their formularies or will place restrictions on the use of Rhopressa~~^®~~or Roclatan~~^TM ~~or any future product candidates, if approved, including through use of step therapy or prior authorization programs;~~


•	~~the timing of market introduction of Rhopressa~~^®~~and Roclatan~~^TM ~~and any future product candidates, if approved;~~


•	~~the effectiveness of Rhopressa~~^®~~and Roclatan~~^TM ~~and any future product candidates, if approved, as compared with currently available products;~~


•	~~eye-care professional willingness to prescribe and patient willingness to adopt Rhopressa~~^®~~and Roclatan~~^TM ~~and any future product candidates, if approved, in place of current therapies;~~



~~Delaware~~


•	~~changes in the standard of care for the targeted indications for Rhopressa~~^®~~or Roclatan~~^TM ~~or any future product candidates, if approved;~~


•	~~our success in demonstrating the benefits of Rhopressa~~^®~~and Roclatan~~^TM ~~and any future product candidates, including relative convenience and ease of initiation, prescription and administration;~~


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


•	our inability to identify and maintain a sufficient number of sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by Rhopressa^®~~, Roclatan~~^TM ~~or any future product candidates;~~


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


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


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


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


•	~~successfully market and sell Rhopressa~~^® ~~and Roclatan~~^TM ~~and any future product candidates, if approved, in the United States and abroad.~~


•	~~our ability to successfully commercialize Rhopressa~~^® ~~and Roclatan~~^TM ~~and any future product candidates, if approved;~~


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


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


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


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


•	~~our issued patents and patents that we may obtain in the future may not prevent generic entry into the market for Rhopressa~~^® ~~and Roclatan~~^TM;


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


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


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


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


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