technology in ophthalmology, as well as rights relating to ENV1105, Envisia’s preclinical dexamethasone steroid product candidate for the treatment
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this report and with our audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, as filed with the SEC on March 9, 2017February 25, 2022 (“20162021 Form 10-K”). This management’s discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Special Note Regarding Forward-Looking Statements” for additional factors relating to such statements and see “Risk Factors” in our 20162021 Form 10-K and other documents we have filed or furnished with the SEC for a discussion of certain risk factors applicable to our business, financial condition and results of operations. Past operating results are not necessarily indicative of operating results in any future periods.
Overview
We are a clinical-stage 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 diseaseswet AMD.
U.S. Commercialization of the eye. Glaucoma Franchise
Our strategy is to advancegrow the market share of our product candidates,FDA approved glaucoma franchise products, RhopressaTM (netarsudil ophthalmic solution) 0.02% (“RhopressaTM”)® and RoclatanTM (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“RoclatanTM”),Rocklatan® in the United States. Both Rhopressa® and Rocklatan® are being sold to regulatory approvalnational and commercialize these products ourselves in North American markets. If approved, we planregional U.S. pharmaceutical distributors, and patients have access to build a commercial team that will include approximately 100 sales representatives to target approximately 12,000 high prescribing eye-care professionals throughoutthem 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.
In March 2022, we commenced a Phase 4 program that was designed to further demonstrate that Rocklatan® is a highly effective single bottle, once daily therapy. We expect topline data for this Phase 4 Multi-center Open-label Rocklatan® Evaluation (“MORE”) study to be available in the first half of 2023.
| | | | | | | | |
| | 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 Rho kinase (“ROCK”) inhibitor. Rhopressa® increases the outflow of aqueous humor through the trabecular meshwork (“TM”), which accounts for approximately 80% of fluid drainage from the healthy eye and is the diseased tissue responsible for elevated IOP in glaucoma. Using this mechanism of action (“MOA”), we believe that Rhopressa® represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years. |
| | 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 hydrochloride hydrate ophthalmic solution 0.4% (“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. In March 2022, Santen made a $6.0 million developmental milestone payment in connection with the conclusion of this Phase 3 clinical trial. A second, confirmatory Phase 3 study, required for approval in Japan, is currently underway. Santen is taking the lead on next steps in preparation for registration in Japan under the terms of the First Santen Agreement. 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 plant supply our ophthalmic products in all markets for which we received regulatory approval and are alsocommercialized. The Athlone 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 both Rocklatan®and Rhopressa®from the Athlone plant to the United States commenced in the second half of 2020. In addition, the Athlone 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 Roclanda® to Santen pursuant to the Second Santen Agreement in the fourth quarter of 2022.
As the Athlone plant commenced operations in early 2020, it has not reached full capacity. We expect that the Athlone plant will have adequate capacity to produce for the markets included in the Santen Agreements, as needed, which include Europe, Japan, East Asia and certain other regions of the world, if approved for commercial distribution in those markets. The Athlone plant manufactures most of our ongoing needs for Rhopressa® and Rocklatan®in the United States. We may continue to use contract manufacturers to produce commercial supplies of Rhopressa® and Rocklatan® for distribution in the United States, but at reduced levels as a result of the Athlone plant commencing manufacturing operations.
Product Candidates in Development
Our strategy includes enhancing our longer-term commercial potential by identifying and advancing additional product candidates and drug delivery technologies, including through our internal discovery efforts, andour entry into potential research collaborations or in-licensing arrangements or acquisitionsour acquisition of additional ophthalmic products, or technologies or product candidates that would complement our current product portfolio, includingportfolio.
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 collaborationPhase 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 whereby369 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 plan to advance 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 the first quarter of 2022 on the results of the Phase 2b clinical study and confirmed the design of the Phase 3 registrational trials, which we currently expect to initiate in the second quarter of 2022. The first Phase 3 registrational trial, named COMET-2, will be a multi-center, vehicle-controlled, double-masked, randomized study that will evaluate a single concentration of AR-15512 (0.003%) compared to the AR-15512 vehicle, administered twice daily for 90 days. COMET-2 is expected to enroll about 460 participants at approximately 20 sites in the United States.
Retina Program
Furthermore, we are currently developing two sustained-release implants focused on retinal diseases, AR-1105 and AR-14034 SR. For AR-1105, we completed a 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 access to their bio-erodible polymer technology,received advice from regulatory agencies in both Europe and our acquisition of assets from Envisia Therapeutics Inc. (“Envisia”), designedthe United States regarding clinical and regulatory pathways for Phase 3 clinical trials. We are currently evaluating Phase 3 development options as well as partnership opportunities. In addition, we are also working to advance our progress in developing product candidates to treatpreclinical sustained-release retinal diseases, as discussed below.
Our strategy also includes developing our business outside of North America, including obtaining regulatory approval in Europe and Japan on our ownimplant, AR-14034 SR, for our product candidates. In 2015, we revised our corporate structure to align with our business strategy outside of North America by establishing Aerie Pharmaceuticals Limited, a wholly-owned subsidiary (“Aerie Limited”), and Aerie Pharmaceuticals Ireland Limited, a wholly-owned subsidiary (“Aerie Ireland Limited”). We assigned the beneficial rights to our non-U.S. and non-Canadian intellectual property for our lead product candidates to Aerie Limited (the “IP Assignment”). As part of the IP Assignment, we and Aerie Limited entered into a research and development cost-sharing agreement pursuant to which we and Aerie Limited will share the costs of the development of intellectual property and Aerie Limited and Aerie Ireland Limited entered into a license arrangement pursuant to which Aerie Ireland Limited will develop and commercialize the beneficial rights of the intellectual property assigned as part of the IP Assignment. In 2016, we assigned the beneficial rights to certain of our intellectual property in the U.S. and Canada to Aerie Distribution, Inc., a wholly-owned subsidiary (“Aerie Distribution”), and amended and restated the research and development cost-sharing agreement to transfer our rights and obligations under the agreement to Aerie Distribution.
In January 2017, we announced that we are building a new manufacturing plant in Athlone, Ireland, although we will continue to use product sourced from our current contract manufacturer based in the U.S. This will be our first manufacturing plant, expected to produce commercial supplies of our current product candidates, RhopressaTMand RoclatanTM. If we obtain regulatory approval, commercial product supply from the plant is expected to be available by 2020. We are also in the process of adding a second contract manufacturer, which we expect to produce commercial supply by as early as the end of 2018.
Product Candidate Overview
Our two advanced-stage product candidates are designed to lower intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension. Both product candidates are taken once-daily in the evening and have shown in preclinical and clinical trials to be effective in lowering IOP, with novel mechanisms of action (“MOAs”) and a favorable safety profile.
We own the worldwide rights to all indications for our current Aerie product candidates. Our intellectual property portfolio contains patents and pending patent applications related to composition of matter, pharmaceutical compositions, methods of use, and synthetic methods. We have patent protection for our current product candidates, RhopressaTM and RoclatanTM, in the United States through at least 2030.
RhopressaTM
Our first product candidate, RhopressaTM,is a novel once-daily eye drop designed to lower IOP in patients with glaucoma or ocular hypertension. We are developing RhopressaTM as the first of a new class of compounds that is designed to lower IOP in patients through novel MOAs. We believe that, if approved, RhopressaTM will represent the first new MOAs for lowering IOP in patients with glaucoma in over 20 years. Based on preclinical studies and clinical data to date, we expect that RhopressaTM, if approved, will have the potential to compete with non-prostaglandin analogue products as a preferred adjunctive therapy to prostaglandin analogues (“PGAs”), due to its targeting of the diseased tissue known as the trabecular meshwork (“TM”), its demonstrated IOP-lowering ability across tested baselines with once-daily dosing, its potential synergistic effect with PGA products, and its lack of drug-related serious or systemic adverse events. Adjunctive therapies currently represent approximately one-half of the entire glaucoma therapy market in the United States, according to IMS. In addition, if approved, we believe that RhopressaTM may also potentially become a preferred therapy where PGAs are contraindicated, for patients who do not respond to PGAs and for patients who choose to avoid the cosmetic issues associated with PGA products. Also, in a 24-hour, 12-patient pilot study comparing RhopressaTM efficacy to that of placebo, RhopressaTM demonstrated similar levels of IOP lowering during nocturnal and diurnal periods. This is potentially a further differentiating feature of RhopressaTM when considering that currently marketed products have demonstrated little or no efficacy at night and eye pressure is typically highest when patients are asleep.
We resubmitted ouranticipate filing an Investigational New Drug Application (“NDA”IND”) with the U.S. Food and Drug Administration (“FDA”) for RhopressaTMon February 28, 2017. Our initial submission, announced in September 2016, was withdrawn as a result of a contract manufacturer of our drug product not being prepared for pre-approval inspection by the FDA. The NDA submission included our second Phase 3 registration trial for RhopressaTM, named “Rocket 2,” as the pivotal clinical trial and our initial Phase 3 registration trial, named “Rocket 1,” as supportive in nature. Our Rocket 2 trial achieved its primary efficacy endpoint of demonstrating non-inferiority of RhopressaTM compared to timolol. In addition, the 12-month safety data from this registration trial also confirmed a favorable safety profile for the drug and demonstrated a consistent IOP-lowering effect throughout the 12-month period at the specified measurement time points. We also included as supportive data the 90-day efficacy results of our Rocket 4 and Mercury 1 trials, each as further discussed below, with the NDA submission for RhopressaTM.
Our fourth Phase 3 registration trial for RhopressaTM, named “Rocket 4,” in the U.S., was designed to generate adequate six-month safety data for European regulatory approval, for which we expect to fileFDA in the second half of 2018. 2022.
Pipeline
We own over 4,000 ROCK inhibitor molecules that provide a basis for further research and 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
On March 11, 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a pandemic. As the COVID-19 pandemic continues to evolve, we considered this in our critical and significant accounting estimates as future developments continue to be uncertain, including as a result of new information that may emerge concerning COVID-19 and its variants and the actions taken to contain or treat it, as well as the economic impact on eye-care professionals, patients, third parties and markets. Actual results could differ from our estimates.
The six-monthhealth and safety of our employees, patients, prescribers and efficacy data were largely consistentcommunity are of utmost importance during this time. We are complying with observationsall 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 other RhopressaTM Phase 3 registration trials and the 90-day efficacy results achieved the primary efficacy endpoint of demonstrating non-inferiority of RhopressaTM compared to timolol. A third Phase 3 registration trial for RhopressaTM, named “Rocket 3,” was a 12-month safety-only study in Canada. We have commenced Phase 1 and 2 clinical trial activities in the United States relating to pursuing regulatory approval of RhopressaTM in Japan, and expect to initiate the clinical trials in the fourth quarter of 2017.
The RhopressaTM Phase 3 registration trial results have shown minimal drug-related serious adverse events or drug-related systemic adverse events, with the most common adverse event reported being conjunctival hyperemia, or eye redness, with incidence rates of approximately 50% across all Phase 3 registration trials for RhopressaTM, the majority of which was reported as mild.
On October 13, 2017, the FDA held an advisory committee meeting to discuss the RhopressaTM NDA. The advisory committee voted in favor of RhopressaTM regarding (a) whether the clinical trials supported the efficacy of RhopressaTM for reducing elevated IOP in patients with open-angle glaucoma or ocular hypertension and (b) whether the efficacy outweighs the safety risk. The FDA is not bound by the advice of the advisory committee, but takes the advice into consideration when reviewing investigational medicines. The Prescription Drug User Fee Act (“PDUFA”) goal date for the completion of the FDA’s review of the RhopressaTM NDA is set for February 28, 2018, which reflects a standard 12-month review period.
RoclatanTM
Our second product candidate is once-daily RoclatanTM, a fixed-dose combination of RhopressaTM and latanoprost. We believe, based on our preclinical studies and clinical trials to date, that RoclatanTM, if approved, will be the only glaucoma product that covers the full spectrum of currently known IOP-lowering MOAs, giving it the potential to provide a greater IOP-lowering effect than any currently marketed glaucoma product. Therefore, we believe that RoclatanTM, if approved, could compete with both PGA and non-PGA therapies for patients requiring maximal IOP lowering, including those with higher IOPs and those who present with significant disease progression despite currently available therapies.
We recently completed two Phase 3 registration trials for RoclatanTM. The first Phase 3 registration trial for RoclatanTM, named “Mercury 1,” was a 12-month safety trial with a 90-day efficacy readout. Mercury 1 achieved its primary efficacy endpoint of demonstrating superiority of RoclatanTM to each of its components. The safety and tolerability results for RoclatanTM from the 90-day efficacy period of Mercury 1 showed no drug-related serious adverse events or drug-related systemic adverse events. On July 19, 2017, we announced the results of the Mercury 1 12-month safety study, noting the safety results for RoclatanTM for the 12-month period were consistent with those observed for the 90-day efficacy period. There were no new adverse events that developed over the 12-month period, and there were no drug-related serious or systemic adverse events.
The second Phase 3 registration trial for RoclatanTM, named “Mercury 2,” was a 90-day efficacy and safety trial also designed to demonstrate superiority of RoclatanTM to each of its components. The Mercury 2 trial design was identical to that of Mercury 1, except that Mercury 2 was a 90-day trial without the additional nine-month safety extension included in Mercury 1. Both Mercury 1 and Mercury 2 achieved their 90-day primary efficacy endpoints of demonstrating statistical superiority over each of its components, including RhopressaTM and market-leading PGA, latanoprost, at all measured time points. The superiority of RoclatanTM over its components was consistently in the range of 1 to 3 mmHg (millimeters of mercury). We are permitted to submit the RoclatanTM NDA while the RhopressaTM NDA is still being reviewed by the FDA. We expect to submit an NDA for RoclatanTM in the second quarter of 2018.
Mercury 1 and Mercury 2 will also be used for European approval of RoclatanTM, and we initiated a third Phase 3 registration trial for RoclatanTM, named “Mercury 3,” in Europe during the third quarter of 2017. Mercury 3 is designed to compare RoclatanTM to Ganfort®, a fixed-dose combination product of bimatoprost and timolol marketed in Europe, which if successful, is expected to improve our commercialization prospects in that region.
Pipeline Opportunities
Our stated objective is to build a major ophthalmic pharmaceutical company. In addition to our primary product candidates, RhopressaTM and RoclatanTM, we plan to continue exploring the benefits of RhopressaTM on 24-hour IOP lowering, normal tension glaucoma, as well antifibrotic effects on the diseased TM. We are also evaluating possible usesbest interest of our existing proprietary portfolio of Rho kinase inhibitors beyond glaucoma. Our owned preclinical small molecule, AR-13154, has demonstrated the potential for the treatment of wet age-related macular degeneration (“AMD”) by inhibiting Rho kinase and Protein kinase C and has shown lesion size decreases in an in vivo preclinical model of wet AMD at levels similar to the current market-leading wet AMD anti-VEGF product, and even greater lesion size reduction in combination with the current market-leading wet AMD anti-VEGF product. Further, in our preclinical studies, we have seen a promising potential of this molecule to reduce neovascularization in a model of proliferative diabetic retinopathy. Pending additional studies, the active metabolite of AR-13154 and related molecules may have the potential to provide an entirely new mechanism and pathway to treat wet AMD and other diseases of the retina, such as diabetic macular edema (“DME”). This molecule has not yet been tested in humans in a clinical trial setting.employees.
We have and 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 front and back of the eye over sustained periods.
On July 31, 2017, we announced that we entered into a collaborative research, development and licensing agreement with DSM, a global science-based company headquartered in the Netherlands. The research collaboration agreement includes an option to license DSM’s bio-erodible polymer implant technology for evaluating its application to the delivery of certain Aerie compounds, initially focused on retinal diseases. This technology uses polyesteramide polymers to produce an injectable, thin fiber that is minute in size. Preclinical experiments have demonstrated early success in conjunction with AR-13154, including demonstration of linear, sustained elution rates over several months and achievement of target retinal drug concentrations.
On October 4, 2017, we acquired from Envisia the rights to use PRINT® technology in ophthalmology and certain other assets. The PRINT® technology is a proprietary system capable of creating precisely engineered sustained release products utilizing fully-scalable manufacturing processes. Our initial focus will be in using PRINT® to manufacture injectable implants containing AR-13154, potentially in conjunction with the biodegradable polymer from DSM. In addition, we acquired Envisia’s intellectual property rights relating to ENV1105, Envisia’s preclinical dexamethasone steroid product candidate for the treatment of DME, which also utilizes the PRINT® technology.
Financial Overview
Our cash, cash equivalents and investments totaled $199.2 million as of March 31, 2022. We believe that our cash, cash equivalents and investments totaled $282.2 million as of September 30, 2017 and are currently expected toprojected cash flows from revenues will provide sufficient resources for our current ongoing needs.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, in addition to our aggregate principal amount of $316.25 million of Convertible Notes which mature on October 1, 2024. We continue to evaluate our product candidates in development for collaboration and licensing opportunities. See “—Liquidity and Capital Resources” below and Note 10 to our condensed consolidated financial statements included in this report for further discussion.
We have incurred net losses since our inception in June 2005. To date,Until 2018, when we have not generatedcommenced commercial operations, our business activities were primarily limited to developing product revenuecandidates, raising capital and performing research and development activities. As of March 31, 2022, we do nothad an accumulated deficit of $1,141.8 million and recognized a net loss of $35.9 million for the three months ended March 31, 2022. For the three months ended March 31, 2021 we recognized a net loss of $42.0 million. Our capital resources and business efforts are largely focused on activities relating to the commercialization of Rhopressa® and Rocklatan®, advancing our product candidates in development, international expansion and operating our Athlone plant.
We expect to incur operating losses until such a time when Rhopressa® or Rocklatan® or any current or future product candidates, if approved, or proceeds in connection with collaboration and licensing arrangements, generate sufficient cash flows for us to achieve profitability. Accordingly, we may be required to obtain further funding through debt or equity offerings or other sources. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we may be forced to delay, reduce or eliminate our research and development programs or commercialization or manufacturing efforts.
Product Revenues, Net
Rhopressa® and Rocklatan®, our glaucoma franchise products, were launched in the United States in April 2018 and May 2019, respectively. We commenced generating product revenuerevenues from sales of Rhopressa® and Rocklatan® during the second quarter of 2018 and 2019, respectively. Product affordability for the patient drives consumer acceptance, and this is generally managed through coverage by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and such product may be subject to rebates and discounts payable directly to those Third-party Payers. Our product revenues are recorded net of provisions relating to estimates for (i) trade discounts and allowances, such as discounts for prompt payment and distributor fees, (ii) estimated rebates to Third-party Payers, estimated payments for Medicare Part D prescription drug program coverage gap (commonly called the “donut hole”), patient co-pay program coupon utilization, chargebacks and other discount programs and (iii) reserves for expected product returns. These estimates reflect current contractual and statutory requirements, known market events and trends, industry data, forecasted customer mix and lagged claims. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which may have an impact on earnings in the period of adjustment.
We will not generate any revenues from any product candidates or future product candidates unless and until we obtain regulatory approval for and successfully commercialize one or moresuch products.
Licensing Revenues
Licensing revenues consist of the upfront license fee and supplemental upfront payment earned from the licensing of our currentintellectual 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 has 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 candidates. Oursold, 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 plant for commercial distribution in the United States. Shipments of commercial supply of both Rocklatan® and Rhopressa® from the Athlone plant to the United States commenced in the second half of 2020. Production costs related to underutilized capacity at the Athlone plant, are not included in the cost of inventory but are charged directly to cost of goods sold in the condensed consolidated statements of operations to date have primarily been limited to research and development and raising capital. Ascomprehensive loss in the period incurred. We expect cost of September 30, 2017, we had an accumulated deficit of $403.2 million. We recorded net losses of $32.4 million and $86.6 million for the three and nine months ended September 30, 2017, respectively. We recorded net losses of $23.8 million and $69.7 million for the three and nine months ended September 30, 2016, respectively. A substantial portion of our capital resources and efforts are focused on completing the development and obtaining regulatory approval and preparing for potential commercialization and manufacturing of our product candidates. As a result, we expectgoods sold in 2022 to continue to incur significant operating losses until suchbe unfavorably impacted by production costs due to the underutilization at the Athlone plant as a result of the Athlone plant having become operational in early 2020 and having not yet reached full capacity. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time when our product candidates are commercially successful, if at all. If we do not successfully commercialize any of our current product candidates, we may be unable to generate product revenue or achieve profitability.as the manufacturing plant reaches full capacity.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation for all officers and employees in general management, sales and marketing, finance and administration. Other significant expenses include pre-approval commercial-related manufacturing costs, pre-launch salesselling and marketing planning activities,expenses, facilities expenses, shipping and handling costs and professional fees for audit, tax, legal and other services.
We expect that our selling, general and administrative expenses will increase with the continued advancement of our product candidates as we prepare for potential commercialization. We expect these increases will likely be associated with the hiring of additional employees in areas such as sales and marketing, and medical affairs, along with increased levels of manufacturing activity and overhead expenses associated with the growth of our employee base.
Research and Development Expenses
The following table shows ourWe expense research and development (“R&D”) expenses for our advanced-stage product candidates for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| THREE MONTHS ENDED SEPTEMBER 30, | | NINE MONTHS ENDED SEPTEMBER 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in thousands) |
RhopressaTM
| $ | 1,887 |
| | $ | 3,004 |
| | $ | 4,230 |
| | $ | 10,929 |
|
RoclatanTM
| 1,809 |
| | 4,920 |
| | 8,160 |
| | 12,211 |
|
Other research and development activities | 491 |
| | 183 |
| | 725 |
| | 1,290 |
|
Unallocated | 8,221 |
| | 4,581 |
| | 20,862 |
| | 13,871 |
|
Total research and development expense | $ | 12,408 |
| | $ | 12,688 |
| | $ | 33,977 |
| | $ | 38,301 |
|
We expense R&D costs to operations as incurred. OtherResearch and development expenses consist primarily of costs incurred for the research and development activities include direct 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 pipeline activities, including our ongoing preclinical activities. Expenses relating to activities that support more than one development program or activity such as employee-related activities;
•costs including stock-based compensation, facilities expensesassociated with regulatory operations; and
•depreciation expense for assets used in R&Dresearch 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 allocated to specific product or potential product candidates and are separately classified as “unallocated.”
been material.
Other Income (Expense),Expense, Net
Other income (expense)expense, net primarily includes investment income, interest expense, andinterest income, foreign exchange gains and losses. Investmentlosses and other income primarily consists of interest earned on our cash and cash equivalents and investments, and amortization or accretion of discounts and premiums on our investments.expense. Interest expense consists of interest expense under the 2014 Convertible Notes, including the amortization of debt discounts and issuance costs.costs incurred. Interest income primarily consists of interest earned on our cash, cash equivalents and investments. See “—Liquidity and Capital Resources” below and Note 10 to our condensed consolidated financial statements included in this report for further discussion. Foreign exchange gains and losses are primarily due to the remeasurement of our Euro-denominated liability related to our build-to-suit lease obligation,liabilities, which isare denominated in a foreign currency and held by a subsidiary with a U.S. dollar functional currency. Also included in other income and expense are changes in the fair value of equity securities (sold during the three months ended March 31, 2021) and research and development tax credit refunds.
Income Tax Expense
Income tax expense primarily includes branch taxes of our non-U.S. subsidiaries and withholding taxes related to the $6.0 million developmental milestone made by Santen Pharmaceuticals pursuant to the First Santen Agreement.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States or (“U.S. GAAP.GAAP”). The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs and expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the determination of revenue recognition, leases, acquisitions, stock-based compensation and operating expense accruals.fair value measurements. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies and the methodologies and assumptions we apply under themsignificant estimates have not materially changed since the date we filed our 20162021 Form 10-K. For more information on our critical accounting policies and estimates, refer to our 20162021 Form 10-K.
Results of Operations
Comparison of the Three Months Ended September 30, 2017March 31, 2022 and 20162021
The following table summarizes the results of our operations for the three months ended September 30, 2017March 31, 2022 and 2016:2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| THREE MONTHS ENDED MARCH 31, | | $ CHANGE | | % CHANGE |
| 2022 | | 2021 | | |
| (in thousands, except percentages) |
Product revenues, net | $ | 29,835 | | | $ | 22,970 | | | $ | 6,865 | | | 30 | % |
Total revenues, net | 29,835 | | | 22,970 | | | 6,865 | | | 30 | % |
Costs and expenses: | | | | | | | |
Cost of goods sold | 6,780 | | | 6,700 | | | 80 | | | 1 | % |
Selling, general and administrative expenses | 31,524 | | | 32,598 | | | (1,074) | | | (3) | % |
| | | | | | | |
Research and development expenses | 25,174 | | | 17,891 | | | 7,283 | | | 41 | % |
Total costs and expenses | 63,478 | | | 57,189 | | | 6,289 | | | 11 | % |
Loss from operations | (33,643) | | | (34,219) | | | 576 | | | (2) | % |
Other expense, net | (1,555) | | | (7,714) | | | 6,159 | | | (80) | % |
Loss before income taxes | $ | (35,198) | | | $ | (41,933) | | | $ | 6,735 | | | (16) | % |
|
| | | | | | | | | | | | | | |
| THREE MONTHS ENDED SEPTEMBER 30, | | CHANGE | | % CHANGE |
| 2017 | | 2016 | | |
| (in thousands, except percentages) |
Selling, general and administrative | $ | 19,774 |
| | $ | 10,627 |
| | $ | 9,147 |
| | 86 | % |
Research and development | 12,408 |
| | 12,688 |
| | (280 | ) | | (2 | )% |
Total operating expenses | 32,182 |
| | 23,315 |
| | 8,867 |
| | 38 | % |
Loss from operations | (32,182 | ) | | (23,315 | ) | | (8,867 | ) | | 38 | % |
Other income (expense), net | (141 | ) | | (460 | ) | | 319 |
| | (69 | )% |
Net loss before income taxes | $ | (32,323 | ) | | $ | (23,775 | ) | | $ | (8,548 | ) | | 36 | % |
| | | | | | | |
Product revenues, net were $29.8 million and $23.0 million for the three months ended March 31, 2022 and 2021, respectively, and related to sales of our U.S. glaucoma franchise products, Rhopressa® or Rocklatan®. The year-over-year revenue increase is primarily due to an increase in the number of units shipped to wholesalers and improved margins per bottle.Cost of goods sold
Cost of goods sold was $6.8 million and $6.7 million for the three months ended March 31, 2022 and 2021, respectively. Our gross margin percentage was 77.3% and 70.8% for the three months ended March 31, 2022 and 2021, respectively. The increase in the gross margin percentage was driven by the increase in product revenues, net as discussed above. Our cost of goods sold and gross margin percentage for the three months ended March 31, 2022 and 2021 were unfavorably impacted by costs due to underutilized capacity at the Athlone plant, which increased the cost of goods sold by $3.9 million and $4.4 million and lowered the gross margin percentage by 13.0% and 19.0%, 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 plant reaches full capacity.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $9.1were $31.5 million and $32.6 million for the three months ended March 31, 2022 and 2021, respectively. Selling, general and administrative expenses decreased by $1.1 million primarily due to lower stock-based compensation partially offset by higher employee-related and sales and marketing expenses. We expect selling, general and administrative expenses to decrease for the remainder of 2022.
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.
| | | | | | | | | | | | | | | | | | | | | | | |
| THREE MONTHS ENDED MARCH 31, | | $ CHANGE | | % CHANGE |
| 2022 | | 2021 | | |
| (in thousands, except percentages) |
Direct research and development expenses by program: | | | | | | | |
Rhopressa® | $ | 135 | | | $ | 1,257 | | | $ | (1,122) | | | (89) | % |
Rocklatan® | 132 | | | — | | | 132 | | | * |
AR-15512 | 10,733 | | | 4,004 | | | 6,729 | | | * |
Retina programs (1) | 573 | | | 194 | | | 379 | | | * |
Other direct research and development program costs (2) | 424 | | | 80 | | | 344 | | | * |
Total direct research and development program costs | 11,997 | | | 5,535 | | | 6,462 | | | * |
Employee-related costs | 6,851 | | | 6,666 | | | 185 | | | 3 | % |
Stock-based compensation | 1,336 | | | 1,987 | | | (651) | | | (33) | % |
Other indirect costs (3) | 4,990 | | | 3,703 | | | 1,287 | | | 35 | % |
Research and development expenses | $ | 25,174 | | | $ | 17,891 | | | $ | 7,283 | | | 41 | % |
*Percentage not meaningful | | | | | | | |
(1) Consists of AR-1105, AR-13503 SR and AR-14034 SR in 2021 and 2022.
(2) Other direct research development program costs primarily include 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.
Research and development expenses were $25.2 million and $17.9 million for the three months ended March 31, 2022 and 2021, respectively. Research and development expenses increased by $7.3 million primarily due to an increase of $6.7 million in expenses associated with AR-15512. In September 30, 20172021, we reported topline results on safety and efficacy for COMET-1, a Phase 2b clinical trial in which we completed a dose ranging study evaluating two concentrations of AR-15512 (0.0014% and 0.003%). In January 2022, the Company gained alignment with the FDA on the results of its Phase 2b clinical trial and confirmed the design of the Phase 3 trials. This resulted in the achievement of a regulatory milestone in which the Company paid the former shareholders of Avizorex $8.0 million. We expect to initiate Phase 3 clinical trials for AR-15512 in the second quarter of 2022, and therefore expect an increase in these costs through the end of the year.
The increase was offset by a $1.1 million decrease in expenses for Rhopressa® for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Furthermore, expenses for Rhopressa® in the three months ended March 31, 2021 consisted of ongoing costs for the Rhopressa® Phase 3 clinical trial in Japan. Santen’s portion of shared costs related to conducting the first Rhopressa® Phase 3 clinical trial in Japan were recorded as deferred revenue, non-current on the condensed consolidated balance sheets.
Costs related to the development of our retina programs were relatively flat for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.In addition, we are also working to advance our preclinical sustained-release retinal implant, AR-14034 SR, for which we anticipate filing an IND with the FDA in the second half of 2022.
Other expense, net
Other expense, net consists of the following: | | | | | | | | | | | | | | | | | |
| THREE MONTHS ENDED MARCH 31, | | $ CHANGE |
| 2022 | | 2021 | |
| (in thousands) |
Interest income | $ | 55 | | | $ | 51 | | | $ | 4 | |
Interest expense | (1,633) | | | (6,901) | | | 5,268 | |
Other income (expense) | 23 | | | (864) | | | 887 | |
Other expense, net | $ | (1,555) | | | $ | (7,714) | | | $ | 6,159 | |
Other expense, net changed by $6.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
This change was primarily due to an decrease of $5.3 million in interest expense due to the impact of adopting Accounting Standards Update 2020-06 on January 1, 2022 which accounts for convertible debt instruments, such as the Convertible Notes, as a single liability measured at its amortized cost, partially offset by a change of $0.9 million in other income (expense) during the three months ended March 31, 2022 as compared to the three months ended September 30, 2016. This increase wasMarch 31, 2021. The change in other income (expense) primarily associated withconsists of $1.0 million in realized loss on equity securities in the expansion of our employee baseprior period. See Notes 2 and preparatory commercial operations and manufacturing activities.
Employee-related expenses increased by $3.6 million, including an increase in salaries and other employee-related expenses of $2.0 million due to increased headcount and an increase in stock-based compensation of $1.6 million.
Total costs related to preparatory commercial operations and manufacturing were approximately $4.5 million for the three months ended September 30, 2017, an increase of $2.7 million as compared to the three months ended September 30, 2016, and included scale-up of our current manufacturing activities. Certain of our direct preparatory commercial operations and manufacturing activities are recognized in selling, general and administrative expenses untilsuch time when we determine such costs should be capitalized as saleable inventory. Expenses related10 to our pre-launch sales and marketing planning activities increased by $1.1 millioncondensed consolidated financial statements for additional information on the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. In addition, professional fees increased by $0.8 million, primarily due to consulting fees for compliance-related activities and legal fees to support the growth of our operations.Convertible Notes.
Research and development expenses
Research and development expenses decreased by $0.3 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. During the three months ended September 30, 2016, our research and development activity was primarily associated with Phase 3 registration trials for RhopressaTM and RoclatanTM. The Phase 3 registration trials for both RhopressaTM and RoclatanTM have been completed for purposes of applying for FDA approval in the U.S. As such, R&D costs for RoclatanTM and RhopressaTMdecreased by $3.1 million and $1.1 million, respectively, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. Unallocated expenses increased by $3.6 million primarily driven by increased employee-related expenses, including stock-based compensation.
Comparison of the Nine Months Ended September 30, 2017 and 2016
The following table summarizes the results of our operations for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | |
| NINE MONTHS ENDED SEPTEMBER 30, | | CHANGE | | % CHANGE |
| 2017 | | 2016 | | |
| (in thousands, except percentages) |
Selling, general and administrative | $ | 51,402 |
| | $ | 29,814 |
| | $ | 21,588 |
| | 72 | % |
Research and development | 33,977 |
| | 38,301 |
| | (4,324 | ) | | (11 | )% |
Total operating expenses | 85,379 |
| | 68,115 |
| | 17,264 |
| | 25 | % |
Loss from operations | (85,379 | ) | | (68,115 | ) | | (17,264 | ) | | 25 | % |
Other income (expense), net | (1,071 | ) | | (1,490 | ) | | 419 |
| | (28 | )% |
Net loss before income taxes
| $ | (86,450 | ) | | $ | (69,605 | ) | | $ | (16,845 | ) | | 24 | % |
| | | | | | | |
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $21.6 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. This increase was primarily associated with the expansion of our employee base and preparatory commercial operations and manufacturing activities.
Employee-related expenses increased by $9.0 million, including an increase in stock-based compensation expense of $4.7 million and an increase in salaries and other employee-related expenses of $4.3 million due to increased headcount.
Expenses related to our preparatory commercial operations and manufacturing activities were approximately $9.3 million for the nine months ended September 30, 2017, an increase of $5.6 million as compared to the nine months ended September 30, 2016, and included scale-up of our current manufacturing activities, as discussed above. Our pre-launch sales and marketing planning activities increased $3.2 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016, and professional fees increased by $2.1 million, primarily due to consulting fees for compliance-related activities and legal fees to support the growth of our operations.
Research and development expenses
Research and development expenses decreased by $4.3 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. During the nine months ended September 30, 2016, our research and development activity was primarily associated with Phase 3 registration trials for RhopressaTM and RoclatanTM. The Phase 3 registration trials for both RhopressaTM and RoclatanTM have been completed for purposes of applying for FDA approval in the U.S. As such, R&D costs for RhopressaTM and RoclatanTMdecreased by $6.7 million and $4.1 million, respectively, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. Unallocated expenses increased by $7.0 million primarily driven by increased employee-related expenses, including stock-based compensation.
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 Second Santen Agreement Upfront Payment, consisting of (a) $88.0 million which we received in January 2022 and (b) a supplemental upfront payment of $2.0 million. This expands the scope of the First Santen Agreement pursuant to which Santen made an upfront payment of $50.0 million 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 our current products and any future products, if commercialized, generate adequate revenues to render us profitable. We will not generate any revenue from any product candidates are commercially successful, if at all.or future product candidates unless and until we obtain regulatory approval and commercialize such products.
Sources of Liquidity
PriorOur product revenue, net amounted to our initial public offering (“IPO”), we raised net cash proceeds of $78.6$29.8 million fromfor the private placement of convertible preferred stock and convertible notes. Priorthree months ended March 31, 2022, which relate to and in connection with our IPO, all outstanding shares of convertible preferred stock and all convertible notes were converted into shares of common stock. On October 30, 2013, we completed our IPO and raised net proceeds of approximately $68.3 million, after deducting underwriting discounts, fees and expenses.
Since our IPO, we have issued:
$125.0 million aggregate principal amount of senior secured convertible notes (the “2014 Convertible Notes”), for which we received net proceeds of approximately $122.9 million, after deducting discounts and certain expenses of $2.1 million, and
10.8 million sharessales of our common stock through September 30, 2017, for which we receivedglaucoma franchise products, Rhopressa® and Rocklatan®. Accounts receivable, net proceedsamounted to $63.6 million as of approximately $339.5 million, after deducting commissions and other fees and expenses. This includes $195.9 million raised from “at-the-market” sales agreements, of which $49.3 million in net proceeds was raised during the nine months ended September 30, 2017. Additionally, we raised net proceeds of $143.6 million from the issuance of shares of our common stock pursuant to underwriting agreements, of which approximately $72.7 million was raised during the nine months ended September 30, 2017.March 31, 2022.
As of September 30, 2017,March 31, 2022, our principal sources of liquidity were our cash, cash equivalents and investments, which totaled approximately $282.2$199.2 million. In January 2022, we received an aggregate $90.0 million associated with the Second Santen Agreement Upfront Payment. See Note 3 to our condensed consolidated financial statements included in this report for additional information. We believe that our cash, cash equivalents and investments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through at least the next twelve months. See “—Operating Capital Requirements.”
Cash Flows
The following table summarizes our sources and uses of cash:
| | | NINE MONTHS ENDED SEPTEMBER 30, | | THREE MONTHS ENDED MARCH 31, |
| 2017 | | 2016 | | 2022 | | 2021 |
| (in thousands) | | (in thousands) |
Net cash (used in) provided by: | | | | Net cash (used in) provided by: | |
Operating activities | $ | (67,063 | ) | | $ | (60,994 | ) | Operating activities | $ | 61,911 | | | $ | (30,054) | |
Investing activities | (59,594 | ) | | 14,015 |
| Investing activities | (42,300) | | | 2,280 | |
Financing activities | 122,790 |
| | 167,857 |
| Financing activities | (357) | | | (1,101) | |
Net change in cash and cash equivalents | $ | (3,867 | ) | | $ | 120,878 |
| Net change in cash and cash equivalents | $ | 19,254 | | | $ | (28,875) | |
Operating Activities
During the ninethree months ended September 30, 2017March 31, 2022, net cash provided by operating activities of $61.9 million related to a net loss of $35.9 million, adjusted for non-cash items of $8.2 million primarily related to amortization and 2016,accretion, stock-based compensation expense and depreciation, partially offset by a net cash inflow of $89.6 million related to changes in operating assets and liabilities. During the three months March 31, 2021, net cash used in operating activities was $67.1of $30.1 million related to a net loss of $42.0 million, adjusted for non-cash items of $18.8 million primarily related to stock-based compensation expense, amortization and $61.0accretion and depreciation, offset by a net cash outflow of $6.9 million respectively. related to changes in operating assets and liabilities.
The increase in net cash used inprovided by operating activities during the ninethree months ended September 30, 2017March 31, 2022 as compared to the ninethree months ended September 30, 2016March 31, 2021 was primarily due to the expansionreceipt of our employee basethe $90.0 million Second Santen Agreement Upfront Payment from Santen in connection with the Second Santen Agreement and commercial operations and manufacturing activities in preparation for the launch of RhopressaTM, assuming FDA approval. This is partially offset by a reduction in expenditures for clinical trials in 2017 compared to 2016.higher net cash collections generated from product revenues.
Investing Activities
During the ninethree months ended September 30, 2017, ourMarch 31, 2022, net cash used in investing activities used net cash of $59.6$42.3 million primarily related to purchases of available-for-sale investments of $101.2$70.3 million and purchases of fixed assetsproperty, plant and equipment of $7.1$1.6 million primarily associated withrelated to the build-out of our manufacturing plant in Ireland. These purchases wereAthlone, Ireland partially offset by sales and maturities of available-for-sale investments of $48.7$29.6 million. During the ninethree months ended September 30, 2016, our March 31, 2021, net cash provided by investing activities provided net cash of approximately $14.0$2.3 million primarily related to sales and maturities of available-for-sale investments of $35.4$28.3 million, which were partially offset by purchases of available-for-sale investments of $19.9 million.$25.2 million and purchases of property, plant and equipment of $0.8 million primarily related to the Athlone plant.
Financing Activities
During the ninethree months ended September 30, 2017 and 2016, ourMarch 31, 2022, net cash used in financing activities provided net cash of $122.8was $0.4 million and $167.9 million, respectively. The net cash provided by financing activities for the nine months ended September 30, 2017 and 2016 was primarily related to tax payments made on employees’ behalf through withholding of shares on restricted stock grants. During the issuance and sale of common stock pursuant to our “at-the-market” sales agreements and underwriting agreement from which we received total net proceeds of approximately $122.0 million and $167.4 million during the ninethree months ended September 30, 2017 and 2016, respectively.March 31, 2021, net cash used in financing activities of $1.1 million primarily related to tax payments made on employees’ behalf through withholding of shares on restricted stock grants.
Operating Capital Requirements
We expect to incur ongoing operating losses until such a time when ourRhopressa®, Rocklatan®, Rhokiinsa® or Roclanda® or any product candidates are commercially successful,or future product candidates, if at all. approved, generate sufficient cash flows for Aerie to achieve profitability.
Our principal liquidity requirements are for: working capital; future increased operational expenses; pre-commercialization planningoperating expenses, including for commercialization and manufacturing activities; expenses associated with developing our pipeline opportunities, including pursuing strategic growth opportunities; costs associated with executing our global expansion strategy, to expand into Europeincluding clinical and Japan;potential commercialization activities outside the United States; contractual obligations; and capital expenditures, including completing our manufacturing plant in Ireland; and debt service payments.expenditures.
In January 2017, we entered into a lease agreement for a new manufacturing plant in Ireland under which we are leasing approximately 30,000 square feet of interior floor space for build-out. Estimated project-wide equipment, construction and other related project costs are expected to total approximately $39 million (excluding ongoing labor-related and lease expenses and the potential impact of foreign exchange rate fluctuations), of which approximately $16 million is expected to be spent in 2017.
We believe that our cash, and cash equivalents and investments as of September 30, 2017and projected cash flows from revenues, will provide sufficient resources to support our operations, including interest payments for our Convertible Notes, through at least the expected approval and planned commercializationnext twelve months.
Our future funding requirements will depend on many factors, including, but not limited to the following:
•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;
the costs of commercialization activities for our product candidates, if we receive regulatory approval, including the costs and timing of establishing product sales, marketing, manufacturing and distribution capabilities;
the commercial performance of our future product candidates;
•timing and costs of our ongoing and future clinical trials and preclinical studies and clinical trials forincluding those related to our product candidates outside of the U.S.;global expansion;
costs to complete our new manufacturing plant in Ireland;
•costs of any follow-on development or products, including the exploration and/or development of any additional indications or additional opportunities for new ophthalmic products,product candidates, delivery alternatives and new therapeutic areas;
costs of any new business strategies;
costs of operating as a public company, including legal, compliance, accounting and investor relations expenses;
•terms and timing of any acquisitions, collaborations, licensing, consulting or other arrangements;
•costs related to the Convertible Notes; and
•costs related to filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims.
We based our projections on assumptions that may prove to be incorrect or unreliable or may change due to circumstances beyond our control, and as a result, we may consume our available capital resources earlier than we originally projected. WeAccordingly, we may needbe required to obtain additional financing to fund our future operationsfurther funding through debt or we may decide, based on various factors, that additional financings are desirable.equity offerings or other sources. If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.
Outstanding Indebtedness
As ofIn September 30, 2017, our total indebtedness consisted of our $125.0 million2019, we issued an aggregate principal amount of 2014$316.25 million of Convertible Notes.
The Convertible Notes are senior, unsecured obligations with interest payable semi-annually in cash in arrears at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020. The Convertible Notes will mature on October 1, 2024 unless they are due in September 2021. For a discussionredeemed, repurchased or converted prior to such date. Prior to April 1, 2024, the Convertible Notes will be convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. On and after April 1, 2024, the Convertible Notes will be convertible at the option of the 2014holders any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes seemay be settled in shares of our common stock, cash or a combination, thereof, at our election. We currently intend to settle the principal and interest amounts of the Convertible Notes in cash.
See Note 710 to our condensed consolidated financial statements included in this report.report for additional information.
Contractual Obligations and Commitments
The following table summarizesThere have been no material changes to our contractual obligations at September 30, 2017:and commitments as included in our 2021 Form 10-K.
|
| | | | | | | | | | | | | | | | | | | |
| TOTAL | | LESS THAN 1 YEAR | | 1 TO 3 YEARS | | 3 TO 5 YEARS | | MORE THAN 5 YEARS |
(in thousands) | |
Lease obligations(1) | $ | 14,620 |
| | $ | 2,478 |
| | $ | 5,946 |
| | $ | 3,896 |
| | $ | 2,300 |
|
2014 Convertible Notes(2) | 125,000 |
| | — |
| | — |
| | 125,000 |
| | — |
|
| $ | 139,620 |
| | $ | 2,478 |
| | $ | 5,946 |
| | $ | 128,896 |
| | $ | 2,300 |
|
| |
(1) | Our lease obligations are primarily related to our principal executive office in Irvine, California, corporate offices in Bedminster, New Jersey, and Dublin, Ireland, and our research facility in Durham, North Carolina. Additionally, in January 2017, we entered into a lease agreement for a new manufacturing plant in Athlone, Ireland, under which we are leasing approximately 30,000 square feet of interior floor space for build-out. We are permitted to terminate the lease agreement beginning in September 2027. Obligations denominated in foreign currencies have been translated to U.S. dollars at the foreign exchange rates in effect at September 30, 2017. |
| |
(2) | On September 30, 2014, we issued the 2014 Convertible Notes, which mature on the seventh anniversary from the date of issuance, unless earlier converted. Refer to Note 7 to our condensed consolidated financial statements included in this report for further information. |
In October 2017, we entered into an Asset Purchase Agreement (the “Agreement”) with Envisia pursuant to which we made an upfront cash payment of $10.5 million and issued 263,146 shares of Aerie’s common stock valued at approximately $14.3 million. Under the terms of the Agreement, we may also be required to make additional milestone payments contingent upon the achievement of regulatory approval. Contingent milestone payments are excluded from the table above as the timing in which we may be required to make such payments in the future, if at all, is highly uncertain. We have no other contractual obligations or commitments that are not subject to our existing financial statement accrual processes.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.None.
Jumpstart Our Business Startups Act of 2012
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) provides that an emerging growth company can take advantage of certain exemptions from various reporting and other requirements that are applicable to public companies that are not emerging growth companies. We currently take advantage of some, but not all, of the reduced regulatory and reporting requirements that are available to us for as long as we qualify as an emerging growth company. We have irrevocably elected under Section 107 of the JOBS Act not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting for as long as we qualify as an emerging growth company.
We may take advantage of these exemptions until we are no longer an “emerging growth company.” We would cease to be an “emerging growth company” upon the earliest of: (i) December 31, 2018; (ii) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; or (iv) as of the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.
Since the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2017, as of the year ending December 31, 2017, we will cease to be an “emerging growth company.” As a result, beginning with our Annual Report on Form 10-K for the year ending December 31, 2017, we will be subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.
Recent Accounting Pronouncements
For a discussion of recently issued accounting standards, see Note 2 to our condensed consolidated financial statements included in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We have market risk exposure to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash, and cash equivalents as of September 30, 2017, totaled $194.1 million and consisted of cash and money market funds. Our investments totaled $88.2 million as of September 30, 2017 and consisted of commercial paper and corporate bonds. We had cash, cash equivalents and investments of $233.7totaled $199.2 million and $139.8 million as of March 31, 2022 and
December 31, 2016.2021, respectively. Given the short-term nature of our cash, cash equivalents and investments, and our investment policy,we do not believe that a sudden change in market interest rates would not be expected to have a material impact on our financial condition or results of operations. We do not currently engage in any hedging activities against changes in interest rates. The 2014 Convertible Notes carry a fixed interest rate and, as such, are not subject to interest rate risk.
Aerie willWe face market risks attributable to fluctuations in foreign currency exchange rates and exposure on the remeasurement of foreign currency-denominated monetary assets or liabilities into U.S. dollars. In particular, our operations and subsidiary in Ireland may enter into certain obligations or transactions in Euros or other foreign currencies but has a U.S. dollar functional currency. We currently do not currently have any derivative instruments or a foreign currency hedging program. To date and during the ninethree months ended September 30, 2017,March 31, 2022, foreign currency exposure and foreign currency financial instruments have not been material.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officerour principal executive officer and Chief Financial Officerprincipal financial officer concluded that, as of September 30, 2017,March 31, 2022, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file andor submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting
There have beenwere no significant changes in our internal control over financial reporting during our most recent fiscalthe quarter ended March 31, 2022 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We may periodically become subject to legal proceedings and claims arising in connection with our business. WeAs of March 31, 2022, we are not a party to any known litigation,material pending legal or administrative proceedings and, to our knowledge, no such proceedings are not aware of any unasserted claims and do not have contingency reserves established for any litigation liabilities.threatened or contemplated.
Item 1A. Risk Factors
You should consider carefully the risks described below and set forth under “Risk Factors” in our 20162021 Form 10-K, and other documents that we have filed or furnished with the SEC. There have been no material changes to these risk factors.
As of December 31, 2017, we will no longer be an “emerging growth company” and, as a result, we will have to comply with increased disclosure and governance requirements.
As a result of the significant increase in our market capitalization as of June 30, 2017, we will cease to be an “emerging growth company” as defined in the JOBS Act as of December 31, 2017. We will, as of December 31, 2017, be a large accelerated filer and, as such, will be subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company. These requirements include:
the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;
the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act; and
the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of its chief executive officer.
Beginning with our Annual Report on Form 10-K for the year ending December 31, 2017, we will be subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. Compliance with Section 404 will be expensive and time consuming for management and could result in the detection of internal control deficiencies of which we are currently unaware. Moreover, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis, and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our common stock to fall. We expect that the loss of “emerging growth company” status and compliance with the additional requirements will substantially increase our legal and financial compliance costs and make some activities more time consuming and costly.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds from Registered Securities
On November 3, 2014, we filed a shelf registration statement on Form S-3 (the “2014 Registration Statement”) that permitted the offering, issuance and sale by us of up to a maximum aggregate offering price of $150.0 million of our common stock and permits sales of common stock by certain selling stockholders.
On September 15, 2016, we filed a shelf registration statement on Form S-3 (Registration No. 333-213643), which was effective on September 15, 2016. The shelf registration statement permits the offering, issuance and sale by us of our common stock. In addition, on May 25, 2017, we filed a prospectus supplement to the base prospectus dated September 15, 2016 (the “2017 Prospectus Supplement”). The prospectus supplement permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $50.0 million of our common stock.
From November 10, 2014 through September 30, 2017, we issued and sold 6,840,570 shares of common stock under our “at-the-market” sales agreements, of which 906,858 shares were issued and sold during the nine months ended September 30, 2017, and received net proceeds of approximately $195.9 million, of which $49.3 million were received during the nine months ended September 30, 2017, in each case, after deducting commissions and other fees and expenses. Sales under the “at-the-market” sales agreements were made pursuant to the 2014 Registration Statement, the prospectus supplement (the “2016 Prospectus Supplement”), dated September 15, 2016, to the base prospectus dated September 15, 2016 and the 2017 Prospectus Supplement. As of September 30, 2017, no shares remain available for issuance under the 2014 Registration Statement, the 2016 Prospectus Supplement or the 2017 Prospectus Supplement.
Any remaining net proceeds from these sales are held as cash deposits and in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
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31.1*10.1*†# | | |
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10.2*# | | |
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10.3*† | | |
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31.1* | | |
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31.2* | | |
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32.1*** | | |
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32.2*** | | |
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10.1 | | |
101.INS*** | |
101.INS** | | XBRL Instance Document. |
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101.SCH*** | | XBRL Taxonomy Extension Schema Document. |
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101.CAL*** | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB*** | | XBRL Taxonomy Extension Label Linkbase Database. |
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101.PRE*** | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF*** | | XBRL Taxonomy Extension Definition Linkbase Document. |
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104*** | | Cover Page Interactive Data File |
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*† | Filed herewith.Exhibit is a management contract or compensatory plan or arrangement. | | | |
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# | Portions of this exhibit (indicated by asterisks) have been redacted in accordance with Item 601(b)(10)(iv) of Regulation S-K. | | | |
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*** | Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): |
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| (i) Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2022 and December 31, 20162021 (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2017March 31, 2022 and 20162021 (unaudited), (iii) Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the three months ended March 31, 2022 and 2021 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2022 and 20162021 (unaudited) and (iv)(v) Notes to Condensed Consolidated Financial Statements (unaudited). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | AERIE PHARMACEUTICALS, INC. |
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Date: November 9, 2017May 6, 2022 | | | | /s/ RICHARD J. RUBINOPETER LANG |
| | | | Richard J. RubinoPeter Lang |
| | | | Chief Financial Officer |
| | | | (Principal Financial andOfficer) |
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| | | | /s/ JEFFREY M. CALABRESE, CPA |
| | | | Jeffrey M. Calabrese, CPA |
| | | | Vice President, Finance |
| | | | (Principal Accounting Officer) |