Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20182019
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-36152
 
Aerie Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 20-3109565
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
4301 Emperor Boulevard, Suite 400
Durham, North Carolina27703
(919) (919) 237-5300
(Address of principal executive offices, zip code and telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Shares of common stock, par value $0.001 per shareAERINasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes:  ýYes:  ☒    No:  o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes:  ýYes:  ☒    No:  o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer ý☒  Accelerated filero☐
    
Non-accelerated filer 
o (Do☐ (Do not check if a smaller reporting company)
  Smaller reporting companyo☐
      
Emerging growth company o☐   
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o☐    No  ý☒

As of August 2, 2018,1, 2019, there were 45,222,25345,939,243 shares of the registrant’s common stock, par value $0.001, outstanding.
 

TABLE OF CONTENTS
 
   
  Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
ii
  
PART I. FINANCIAL INFORMATION
1
   
Item 1.
Financial Statements (Unaudited)
1
   
 
Condensed Consolidated Balance Sheets at June 30, 20182019 and December 31, 20172018
1
   
 
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 20182019 and 20172018
2
   
 
Condensed Consolidated Statements of Cash FlowsStockholders’ Equity for the three and six months ended June 30, 20182019 and 20172018
3
   
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018
5
Notes to the Condensed Consolidated Financial Statements
46
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1819
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
29
   
Item 4.
Controls and Procedures
2930
  
PART II. OTHER INFORMATION
3031
   
Item 1.
Legal Proceedings
3031
   
Item 1A.
Risk Factors
3031
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3031
   
Item 3.
Defaults Upon Senior Securities
3031
   
Item 4.
Mine Safety Disclosures
3031
   
Item 5.
Other Information
3031
   
Item 6.
Exhibits
3132



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 “approved products” means products approved by the U.S. Food and Drug Administration (“FDA”) or other regulatory authorities; references to “product candidates” means products that are in development but not yet approved by the FDA or other regulatory authorities; references to “future product candidates” means 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®”) or of Rocklatan® (netarsudil and the commercial launch and potential future sales of RoclatanTM (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% (“RoclatanRocklatanTM®”) in the United States, and any current 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 any current or future product candidates;
our commercialization, marketing, manufacturing and supply management capabilities and strategies;
•
third-party payer coverage and reimbursement for Rhopressa® and RoclatanTM, if approved, and any future product candidates, if approved;
third-party payer coverage and reimbursement for our approved 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 approved 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 approved 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 approved products, product candidates 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 FDA or other regulatory authority approval of, or other action with respect to our approved 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 product candidates;
•
the glaucoma patient market size and the rate and degree of market adoption of Rhopressa® and RoclatanTM 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 RoclatanTM 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, RoclatanTM 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®, RoclatanTM 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®, RoclatanTMand 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®, RoclatanTM and any future product candidates;
our expectations related to the use of proceeds from our financing activities and credit facility;
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 RoclatanTM for additional indications, our preclinical retina programs and other therapeutic opportunities, and our plans to explore possible uses of our existing proprietary compounds beyond glaucoma and ophthalmology;
our plans to pursue development of additional product candidates and technologies in ophthalmology, including development of our approved products or product candidates for additional indications, our preclinical retinal programs and other therapeutic opportunities, and our plans to explore possible uses of our existing proprietary compounds beyond ophthalmology;

ii

the potential advantages of our approved products, product candidates and any future product candidates;
•
the potential advantages of Rhopressa®, RoclatanTM and any future product candidates;
our ability to protect our proprietary technology and enforce our intellectual property rights;
our expectations regarding collaborations, licensing, acquisitions and strategic operations, including our ability to in-license or acquire additional ophthalmic products, product candidates or technologies; and

ii
Table of Contents

our stated objective of building a major ophthalmic pharmaceutical company.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, industry change and other factors beyond our control, and depend on regulatory approvals and economic and other environmental circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. We discuss many of these risks in greater detail under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017,2018, as filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018,2019, and other documents we have filed or furnished with the SEC.
In particular, FDA approval of Rhopressa® does and Rocklatan® do not constitute FDA approval of RoclatanTM,AR-1105, AR-13503 or any future product candidates in the United States, and there can be no assurance that we will receive FDA approval for RoclatanTMAR-1105, AR-13503 or any future product candidates. FDA approval of Rhopressa® and Rocklatan® also does not constitute regulatory approval of Rhopressa®, or Rhokiinsa® as it will be named in Europe, and Rocklatan®, or Roclanda® as it will be named in Europe, in jurisdictions outside the United States, and there can be no assurance that Rhopressa®we will obtainreceive regulatory approval for our current or future product candidates in other jurisdictions. Our receiptjurisdictions outside the United States. The European Medicines Agency ("EMA") acceptance of a Prescription Drug User Fee Act (“PDUFA”our Marketing Authorisation Application ("MAA") goal date notification for RoclatanRhokiinsaTM® does not constitute FDAEMA approval of the RoclatanRhokiinsaTM® New Drug Application (“NDA”), and there can be nodoes not provide assurance that the FDA will complete its review by the PDUFA goal date of March 14, 2019, that the FDA will not require changes or additional data that must be made or received before itEMA will approve the NDA, if ever, or that the FDA will approve the NDA.Rhokiinsa®. In addition, the preclinical research discussed in this report is preliminary and the outcome of such preclinical studies 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 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 athe result of new information, future events or otherwise, after the date of this report.




iii
Table of Contents


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share data)
 
JUNE 30, 2018 DECEMBER 31, 2017JUNE 30, 2019 DECEMBER 31, 2018
Assets      
Current assets      
Cash and cash equivalents$270,648
 $197,569
$109,363
 $202,818
Short-term investments15,455
 52,086
Accounts receivable, net1,125
 —
25,650
 2,715
Inventory5,747
 —
10,419
 10,112
Prepaid expenses and other current assets2,503
 4,487
8,678
 4,530
Total current assets295,478
 254,142
154,110
 220,175
Property, plant and equipment, net54,879
 31,932
58,595
 60,525
Operating lease right-of-use assets17,882
 —
Other assets2,604
 4,202
3,554
 4,344
Total assets$352,961
 $290,276
$234,141
 $285,044
Liabilities and Stockholders’ Equity      
Current liabilities      
Accounts payable$8,757
 $6,245
$9,098
 $12,403
Accrued expenses and other current liabilities20,016
 18,939
46,523
 38,381
Operating lease liabilities5,494
 —
Total current liabilities28,773
 25,184
61,115
 50,784
Convertible notes, net123,999
 123,845
Long-term operating lease liabilities13,238
 —
Other non-current liabilities5,309
 5,648
4,030
 6,454
Total liabilities158,081
 154,677
78,383
 57,238
Commitments and contingencies (Note 12)
 
Commitments and contingencies (Note 11)

 

Stockholders’ equity      
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of June 30, 2018 and December 31, 2017; None issued and outstanding—
 —
Common stock, $0.001 par value; 150,000,000 shares authorized as of June 30, 2018 and December 31, 2017; 39,839,373 and 36,947,637 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively40
 37
Preferred stock, $0.001 par value; 15,000,000 shares authorized as of June 30, 2019 and December 31, 2018; None issued and outstanding—
 —
Common stock, $0.001 par value; 150,000,000 shares authorized as of June 30, 2019 and December 31, 2018; 45,949,418 and 45,478,883 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively46
 45
Additional paid-in capital754,437
 597,318
947,246
 924,180
Accumulated other comprehensive loss(9) (28)
Accumulated deficit(559,588) (461,728)(791,534) (696,419)
Total stockholders’ equity194,880
 135,599
155,758
 227,806
Total liabilities and stockholders’ equity$352,961
 $290,276
$234,141
 $285,044


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



AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share data)
 
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2018 2017 2018 20172019 2018 2019 2018
Product revenues, net$2,423
 $—
 $2,423
 $—
$15,835
 $2,423
 $26,687
 $2,423
Total revenues, net2,423
 —
 2,423
 —
15,835
 2,423
 26,687
 2,423
Costs and expenses:              
Cost of goods sold59
 —
 59
 —
705
 59
 1,086
 59
Selling, general and administrative39,891
 17,153
 67,714
 31,628
34,482
 33,112
 70,764
 56,042
Pre-approval commercial manufacturing5,819
 6,779
 10,276
 11,672
Research and development18,157
 10,615
 31,129
 21,569
20,904
 18,157
 38,788
 31,129
Total costs and expenses58,107
 27,768
 98,902
 53,197
61,910
 58,107
 120,914
 98,902
Loss from operations(55,684) (27,768) (96,479) (53,197)(46,075) (55,684) (94,227) (96,479)
Other income (expense), net663
 (618) 759
 (930)
Other (expense) income, net(1,089) 663
 (978) 759
Loss before income taxes(55,021) (28,386) (95,720) (54,127)(47,164) (55,021) (95,205) (95,720)
Income tax expense3
 47
 3
 93
Income tax expense (benefit)—
 3
 (90) 3
Net loss$(55,024) $(28,433) $(95,723) $(54,220)$(47,164) $(55,024) $(95,115) $(95,723)
Net loss per common share—basic and diluted$(1.40) $(0.82) $(2.46) $(1.58)$(1.04) $(1.40) $(2.10) $(2.46)
Weighted average number of common shares outstanding—basic and diluted39,204,762
 34,783,195
 38,903,469
 34,283,073
45,397,024
 39,204,762
 45,334,191
 38,903,469
              
Net loss$(55,024) $(28,433) $(95,723) $(54,220)$(47,164) $(55,024) $(95,115) $(95,723)
Unrealized gain (loss) on available-for-sale investments148
 24
 19
 (13)
Unrealized gain on available-for-sale investments—
 148
 —
 19
Comprehensive loss$(54,876) $(28,409) $(95,704) $(54,233)$(47,164) $(54,876) $(95,115) $(95,704)

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



AERIE PHARMACEUTICALS, INC.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share data)
 COMMON STOCK 
ADDITIONAL
PAID-IN
CAPITAL
 ACCUMULATED OTHER COMPREHENSIVE LOSS 
ACCUMULATED
DEFICIT
 TOTAL
 SHARES AMOUNT 
Balances at December 31, 201736,947,637
 $37
 $597,318
 $(28) $(461,728) $135,599
Cumulative effect adjustment from adoption of ASU 2016-16—
 —
 —
 —
 (2,137) (2,137)
Issuance of common stock, net of commissions and expenses of $1,3452,313,824
 2
 136,373
 —
 —
 136,375
Issuance of common stock upon exercise of stock options and warrants28,654
 —
 95
 —
 —
 95
Issuance of common stock for restricted stock awards, net212,995
 1
 (1,596) —
 —
 (1,595)
Stock-based compensation—
 —
 8,762
 —
 —
 8,762
Other comprehensive loss—
 —
 —
 (129) —
 (129)
Net loss—
 —
 —
 —
 (40,699) (40,699)
Balances at March 31, 201839,503,110
 $40
 $740,952
 $(157) $(504,564) $236,271
Issuance of common stock upon exercise of stock purchase rights16,965
 —
 872
 —
 —
 872
Issuance of common stock upon exercise of stock options and warrants319,257
 —
 2,732
 —
 —
 2,732
Issuance of common stock for restricted stock awards, net41
 —
 (369) —
 —
 (369)
Stock-based compensation—
 —
 10,180
 —
 —
 10,180
Commissions and expenses related to issuance of common stock—
 —
 70
 —
 —
 70
Other comprehensive gain—
 —
 —
 148
 —
 148
Net loss—
 —
 —
 —
 (55,024) (55,024)
Balances at June 30, 201839,839,373
 $40
 $754,437
 $(9) $(559,588) $194,880

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


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

 COMMON STOCK 
ADDITIONAL
PAID-IN
CAPITAL
 ACCUMULATED OTHER COMPREHENSIVE LOSS 
ACCUMULATED
DEFICIT
 TOTAL
 SHARES AMOUNT 
Balances at December 31, 201845,478,883
 $45
 $924,180
 $—
 $(696,419) $227,806
Issuance of common stock upon exercise of stock options and warrants141,245
 —
 1,879
 —
 —
 1,879
Issuance of common stock for restricted stock awards, net301,848
 1
 (2,093) —
 —
 (2,092)
Stock-based compensation—
 —
 12,508
 —
 —
 12,508
Net loss—
 —
 —
 —
 (47,951) (47,951)
Balances at March 31, 201945,921,976
 $46
 $936,474
 $—
 $(744,370) $192,150
Issuance of common stock upon exercise of stock purchase rights22,648
 —
 569
 —
 —
 569
Issuance of common stock upon exercise of stock options10,480
 —
 71
 —
 —
 71
Issuance of common stock for restricted stock awards, net(5,686) —
 (891) —
 —
 (891)
Stock-based compensation—
 —
 11,023
 —
 —
 11,023
Net loss—
 —
 —
 —
 (47,164) (47,164)
Balances at June 30, 201945,949,418
 $46
 $947,246
 $—
 $(791,534) $155,758
The accompanying notes are an integral part of these condensed consolidated financial statements.


AERIE PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
 
SIX MONTHS ENDED 
 JUNE 30,		SIX MONTHS ENDED 
 JUNE 30,
2018 20172019 2018
Cash flows from operating activities      
Net loss$(95,723) $(54,220)$(95,115) $(95,723)
Adjustments to reconcile net loss to net cash used in operating activities      
Depreciation1,081
 600
2,059
 1,081
Amortization of debt discounts154
 153
Amortization and accretion of premium or discount on investments, net46
 60
Amortization and accretion5,051
 200
Stock-based compensation19,037
 11,515
23,315
 19,037
Unrealized foreign exchange (gain) loss(165) 365
Other non-cash(155) (165)
Changes in operating assets and liabilities      
Accounts receivable, net(1,125) —
(22,936) (1,125)
Inventory(5,546) —
(14) (5,546)
Prepaid, current and other assets1,438
 1,765
(3,572) 1,438
Accounts payable, accrued expenses and other current liabilities3,004
 (6,024)8,567
 3,004
Operating lease liabilities(2,309) —
Net cash used in operating activities(77,799) (45,786)(85,109) (77,799)
Cash flows from investing activities      
Purchase of available-for-sale investments(56,195) (54,427)—
 (56,195)
Proceeds from sales and maturities of investments92,827

24,801
—

92,827
Purchase of property, plant and equipment(23,032) (2,594)(7,118) (23,032)
Net cash provided by (used in) investing activities13,600
 (32,220)
Net cash (used in) provided by investing activities(7,118) 13,600
Cash flows from financing activities      
Proceeds from sale of common stock, net135,972
 122,046
—
 135,972
Proceeds related to issuance of stock for stock-based compensation arrangements, net1,693
 665
Other(387) —
Net cash provided by financing activities137,278
 122,711
Payments related to issuance of stock for stock-based compensation arrangements, net(968) 1,693
Payment of debt issuance costs(396) —
Proceeds from exercise of warrants375
 —
Other financing(239) (387)
Net cash (used in) provided by financing activities(1,228) 137,278
Net change in cash and cash equivalents73,079
 44,705
(93,455) 73,079
Cash and cash equivalents, at beginning of period197,569
 197,945
202,818
 197,569
Cash and cash equivalents, at end of period$270,648
 $242,650
$109,363
 $270,648
Non-cash investing activities   
Purchases of property, plant and equipment$917
 $5,168

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



AERIE PHARMACEUTICALS, INC.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. The Company
Aerie Pharmaceuticals, Inc. (“Aerie”), with its wholly-owned subsidiaries, Aerie Distribution, Inc., Aerie Pharmaceuticals Limited and Aerie Pharmaceuticals Ireland Limited (“Aerie Distribution,” “Aerie Limited” and “Aerie Ireland Limited,” respectively, together with Aerie, the “Company”), is an ophthalmic pharmaceutical company focused on the discovery, development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma, retinaretinal diseases and other diseases of the eye. The Company has its principal executive offices in Durham, North Carolina, and operates as one business segment.
The Company has atwo U.S. Food and Drug Administration (“FDA”) approved product,products, Rhopressa®(netarsudil ophthalmic solution) 0.02% (“Rhopressa®”), and an advanced-stage product candidate, RoclatanRocklatanTM® (netarsudil/netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“RoclatanRocklatanTM®”), both. Rhopressa® is a once-daily eye drop designed to reduce elevated intraocular pressure (“IOP”) in patients with open-angle glaucoma or ocular hypertension. The Company intends to commercialize Rhopressa® and RoclatanTM, if approved, on its own in North American markets. The Company’s strategy also includes pursuing regulatory approval for Rhopressa® and RoclatanTM in Europe and Japan on its own.
RhopressaRocklatan® is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension that received FDA approval on December 18, 2017.is a fixed-dose combination of Rhopressa® and latanoprost, the most widely-prescribed prostaglandin analog (“PGA”). The Company launchedis commercializing Rhopressa®, which was launched in the United States aton April 30, 2018, and Rocklatan®, which was launched in the end of April 2018. TheUnited States on May 1, 2019. In addition to actively promoting these products in the United States, the Company also intendsis pursuing its strategy to file a marketing authorization application withobtain regulatory approval for Rhopressa® and Rocklatan® in Europe and Japan. If approved, Rhopressa® and Rocklatan® will be marketed under the namesRhokiinsa® andRoclanda®, respectively, in Europe.
In October 2018, the Company announced that the European Medicines Agency (“EMA”) accepted for Rhopressareview the marketing authorisation application (“MAA”) for Rhokiinsa®by the end of 2018.. Additionally, the Company has completed a Phase 1 clinical trial and commenced a successful pilot Phase 2 clinical trialstudy in the United States on Japanese and Japanese-American subjects, which arewere designed to support meeting the requirements of Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) for potential regulatory submission of Rhopressa® in Japan. These clinical trials have included Japanese and Japanese-American subjects. TheIn July 2019, the Company is also planning to initiate an additionalcompleted enrollment of its Phase 2 clinical trial that was initiated in March 2019 in Japan. The study is designed in accordance with the requirements of the PMDA on Japanese patients in Japan to support subsequent Phase 3 registration trials that are also expected to be conducted in Japan.Japan under the Company’s direction.
The Company’s advanced-stage product candidate, RoclatanTM, is a once-daily fixed-dose combination of Rhopressa® and latanoprost. The Company submitted a New Drug Application (“NDA”) toIn Europe, the FDA in May 2018 under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, which provides for an abbreviated approval pathway, since RoclatanTM is a fixed dose combination of two FDA-approved drugs in the United States. On July 23, 2018, the Company announced that the NDA was accepted for review by the FDA and the Prescription Drug User Fee Act goal date was set for March 14, 2019, which represents a ten-month review. The Company is currently conducting a Phase 3 registration trial, named Mercury 3, in Europe comparing RoclatanRoclandaTM® to Ganfort®, a fixed-dose combination product marketed in Europe consisting of bimatoprost (a prostaglandin analog)PGA) and timolol marketed in Europe, which if(a beta blocker). If successful, Mercury 3 is expected to improve itsthe commercialization prospects of Roclanda® in that region. Mercury 3Europe. The Company plans to submit an MAA with the EMA in early 2020 for Roclanda® if the EMA has approved Rhokiinsa® by such time.
The Company is not necessary for approval inalso focused on furthering the United States.
On July 31, 2017,development of its future product candidates focused on retinal diseases, particularly AR-1105 and AR-13503, described below. Through business development activities, the Company entered intoacquired worldwide ophthalmic rights to a collaborative research, development and licensing agreement withbio-erodible polymer technology from DSM, a global science-based company headquartered in the Netherlands. The research collaboration agreement includes an option to license DSM’s bio-erodible polymerNetherlands, and PRINT® implant manufacturing technology, for evaluating its application to the 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 Aerie’s preclinical molecule, AR-13503, including demonstration of linear, sustained elution rates over several months and achievement of target retinal drug concentrations. On August 1, 2018, the Company announced the expansion of its collaboration with DSM to provide for (i) a worldwide exclusive license for all ophthalmic indications to DSM’s polyesteramide polymer technology, (ii) continuation of the collaborative research initiatives through the end of 2020, including the transfer of DSM’s formulation technology to Aerie during that time and (iii) access to a preclinical latanoprost implant.
On October 4, 2017, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Envisia Therapeutics Inc. (“Envisia”) to acquire the rights to use PRINT® technology in ophthalmology, as well as rights relating to Envisia’s preclinical dexamethasone steroid implant for the potential treatment of diabetic macular edema that utilizes the PRINT® technology, referred to as AR-1105. The PRINT® technologywhich is a proprietary systemtechnology capable of creating precisely-engineered sustained-release products utilizing fully-scalable manufacturing processes.processes, from Envisia Therapeutics Inc. (“Envisia”). Using these technologies, the Company has created a sustained-release ophthalmology platform and is currently developing two sustained-release implants focused on retinal diseases, AR-1105, an investigational dexamethasone intravitreal implant, and AR-13503, a Rho kinase/Protein kinase C inhibitor. In March 2019, the Company initiated a Phase 2 clinical trial of AR-1105 in patients with macular edema due to retinal vein occlusion. The Company will also focus on using PRINT® to manufacture injectable implants containingsubmitted its investigational new drug (“IND”) application for AR-13503 potentially in conjunction with the bio-erodible polymer from DSM.
Prior to the three months ended June 30, 2018,March 2019, and in April 2019 the Company announced that the FDA had not generated any revenue.reviewed the IND for AR-13503 and as a result it is now in effect, allowing Aerie to initiate human studies in the treatment of neovascular age-related macular degeneration (“nAMD”) and diabetic macular edema (“DME”). The Company expects to initiate a first-in-human clinical study for AR-13503 in the third quarter of 2019.
The Company owns over 4,000 Rho kinase inhibitor molecules, some of which have additional features including the inhibition of other kinases such as Janus kinase and IĸB kinase and evaluates this library on an ongoing basis for additional development opportunities. Early stage evaluations are underway for indications, including dry eye and psoriasis. The Company also evaluates outside business development opportunities to provide access to technologies developed outside of Aerie and has stated its particular interest in ophthalmic areas such as dry eye, which is a very large market in the United States.

The Company commenced generating product revenues related to sales of Rhopressa® in the second quarter of 2018 following its commercial launch of

Rhopressaand Rocklatan® in the United States in late April 2018. The Company’s activities from inception until the commercial launchsecond quarter of Rhopressa® in the United States had primarily consisted of developing product candidates, raising capital and performing research and development activities.2019. The Company has incurred losses and experienced negative operating cash flows since inception. The Company hashad previously funded its operations primarily through the sale of equity securities (Note 10) and issuance of convertible notes (Note 9).prior to generating product revenues.
Subsequent to June 30, 2018, all of the Company’s $125.0 million aggregate principal amount of senior secured convertible notes (the “2014 Convertible Notes”) were converted into shares of Aerie common stock. In addition, the Company entered into a $100 million senior secured delayed draw term loan facility that matures on July 23, 2024. See Note 13, “Subsequent Events,” for additional information.
If the Company does not successfully commercialize Rhopressa® and Rocklatan®, RoclatanTM or any future product candidates, if approved, it may be unable to achieve profitability. Accordingly, the Company may be required to draw down on the credita $200 million senior secured delayed draw term loan facility it(the “credit facility”) that was entered into in July 2018 and increased in May 2019, or to obtain further funding through public or private offerings, debt financings, collaboration and licensing arrangementsor equity offerings, or other sources.arrangements. Adequate additional funding may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on attractiveacceptable terms, it may be forced to delay, reduce or eliminate its research and development programs or commercialization and manufacturing efforts. No funds had been drawn on the credit facility as of June 30, 2019. See Note 8 for additional information.
2. Significant Accounting Policies
Basis of Presentation
The Company’s interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statementpresentation of the Company’s condensed consolidated financial position and results of operations for the interim periods presented. Certain information and disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 20172018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018 (“2017 Form 10-K”).2019. The results for the three and six months ended June 30, 20182019 are not necessarily indicative of the results to be expected for a full year, any other interim periods or any future year or period.
Principles of Consolidation
The interim condensed consolidated financial statements include the accounts of Aerie and its wholly-owned subsidiaries. All intercompany accounts, transactions and profits have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of income and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, the valuation ofinventories, lease accounting, accrued expenses, fair value measurements, acquisitions and stock-based awards and operating expense accruals.compensation. Actual results could differ from the Company’s estimates.
Revenue Recognition
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC Topic 606”). The Company did not generate any revenue prior to the three months ended June 30, 2018, and therefore the adoption of ASC Topic 606 did not have an impact to the Company’s financial statements for any prior periods or upon adoption. In accordance with ASC Topic 606, the Company recognizes revenue when the customer obtains control of a promised good or service, in an amount that reflects the consideration that the Company expects to receive in exchange for the good or service. The reported results for the three and six months ended June 30, 2018 reflect the application of ASC Topic 606.
The Company’s net product revenues are generated through sales of Rhopressa®, which was approved by the FDA in December 2017 and was commercially launched in the United States on April 30, 2018. See Note 3, “Revenue Recognition,” for more information.

Concentration of Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents and investments. The Company’s cash and cash equivalents, which include short-term highly liquid investments with original maturities of three months or less, are held at several financial institutions and at times may exceed insured limits. The Company has placed these funds in high quality institutions to minimize risk relating to exceeding insured limits. The Company’s investment policy permits investments in U.S. federal government and federal agency securities, corporate bonds or commercial paper, money market instruments, and certain qualifying money market mutual funds, and places restrictions on credit ratings, maturities, and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash and cash equivalents and investments to the extent recorded on the condensed consolidated balance sheet.
The Company dependsrelies on single source suppliers forits third-party manufacturers to produce the active pharmaceutical ingredient in(“API”) and final drug product for Rhopressa® and Rocklatan® and may rely on third-party manufacturers for its current and future product candidates. The Company obtained FDA approval for an additional Rhopressa® drug product contract manufacturer in the manufacturefirst quarter of finished product.

2019, which began to supply commercial product in the second quarter of 2019. Further, the Company has obtained FDA approval for an additional API contract manufacturer, which began to supply commercial API in the second quarter of 2019. The Company is in the process of adding a secondan additional Rocklatan® drug product contract manufacturer, which it expects may produceis expected to begin commercial supply by asin early as the end of 2018.2020. In addition, the Company is building a newhas established its own manufacturing plant in Athlone, Ireland, which is expected to producefor future commercial suppliesproduction of Rhopressa®, Rocklatan®, and if approved, RoclatanRhokiinsaTM® and Roclanda®. Commercial supply from the Ireland manufacturing plant is expected to be available byin early 2020.
Inventories
Prior to the date the Company obtains regulatory approval for its product candidates, manufacturing costs related to commercial production for such product candidate are expensed as selling, general and administrative expense. Once regulatory approval is obtained, the Company capitalizes such costs as inventory. Inventories are stated at the lower of cost or estimated realizable value. The Company determines the cost of inventory using the first-in, first-out (“FIFO”) method.
Property, Plant and Equipment, Net
Property, plant and equipment is recorded at historical cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Construction-in-progress reflects amounts incurred for property, plant or equipment construction or improvements that have not been yet placed in service, which primarily relatesexpects to the build-out of the Company’scontinue to use product sourced from its contract manufacturers when its manufacturing plant in Athlone, Ireland (Note 7). Repairs and maintenance are expensed when incurred. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of net loss.operational.
Estimated useful lives by major asset category are as follows:Revenue Recognition
Manufacturing equipment10 years
Laboratory equipment7 years
Furniture and fixtures5 years
Software and computer equipment3 years
Leasehold improvementsLower of estimated useful life or term of lease
Investments
The Company determines the appropriate classification ofaccounts for its investments in debt and equity securities at the time of purchase. The Company’s investments are comprised of commercial paper and corporate bonds that are classified as available-for-sale in accordance with ASC Topic 320, Investments—Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its consolidated balance sheets. Investments are classified as long-term assets on the consolidated balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year.
Available-for-sale investments in debt securities are recorded at fair value, with unrealized gains or losses included as other comprehensive loss on the condensed consolidated statements of comprehensive loss and as accumulated other comprehensive loss on the condensed consolidated balance sheets. Realized gains and losses, interest income earned on the Company’s cash, cash equivalents and investments, and amortization or accretion of discounts and premiums on investments are included within other income (expense), net. Interest income was $0.9 million and $1.7 million for the three and six months ended June 30, 2018, respectively, and $0.4 million and $0.7 million for the three and six months ended June 30, 2017, respectively. Realized losses of $0.2 million were reclassified out of accumulated other comprehensive loss and recognized within other income

(expense), net for the three and six months ended June 30, 2018. There were no realized gains or losses recognized during the three or six months ended June 30, 2017.
Fair Value Measurements
The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.
Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.
Level 2—Other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
There were no transfers between the different levels of the fair value hierarchy during the three or six months ended June 30, 2018.
Stock-Based Compensation
The estimated fair value of options to purchase common stock is determined on the date of grant using the Black-Scholes option pricing model. Options granted to non-employees are revalued at each financial reporting period until the required service is performed. The fair value of restricted stock awards (“RSAs”) granted is based on the market value of Aerie’s common stock on the date of grant. Compensation expense related to time-based RSAs is expensed on a straight-line basis over the vesting period. For RSAs with non-market performance conditions, the Company evaluates the criteria for each grant to determine the probability that the performance condition will be achieved. Compensation expense for RSAs with non-market performance conditions is recognized over the respective service period when it is deemed probable that the performance condition will be satisfied. Upon issuance and at each reporting period, the fair value of each stock appreciation rights (“SARs”) award is estimated using the Black-Scholes option pricing model and is marked to market through stock-based compensation expense. SARs are liability-based awards as they may only be settled in cash. 
Adoption of New Accounting Standards
In March 2018, the FASB issuedrevenue transactions under Financial Accounting Standards UpdateBoard (“ASU”FASB”) 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118Standards Codification (“SAB 118”ASC”), which adds guidance to clarify the treatment of income taxes based on changes enacted on December 22, 2017 in H.R. 1 (commonly referred to as the “Tax Act”). ASU 2018-05 incorporates references in ASC Topic 740 to SAB 118, which was issued on December 22, 2017, to address the application of U.S. GAAP in situations when a registrant may not have the necessary information available in reasonable detail to complete the accounting for certain income tax effects. The guidance became effective immediately upon the enactment of the Tax Act in accordance with U.S. GAAP which requires deferred tax assets and liabilities to be revalued during the period in which new tax legislation is enacted. The Company’s final impact assessment on the consolidated financial statements will be completed as additional information becomes available, but no later than one year from the enactment of the Tax Act.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance became effective for the Company beginning on January 1, 2018. The impact of the adoption of this guidance on its consolidated financial statements would be dependent on future modifications to share-based payment awards, if any.
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which eliminates the exception to the principle in ASC Topic 740, Income Taxes,that generally requires comprehensive recognition of current and deferred income taxesfor all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the

transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. This ASU became effective for the Company on January 1, 2018, and was required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to accumulated deficit as of the beginning of the period of adoption. At December 31, 2017, the Company had $2.1 million of income tax effects deferred from past intercompany transactions that were recorded as prepaid assets within other assets, net, at December 31, 2017 that were adjusted through accumulated deficit as of January 1, 2018.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance related to the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance became effective for the Company beginning on January 1, 2018 and prescribes different transition methods for the various provisions. The adoption of ASU 2016-01 did not have a material impact on its consolidated financial statements and disclosures.
In May 2014, the FASB issued ASU 2014-09, 606, Revenue from Contracts with Customers (Topic 606). The standard states that an entity should recognize revenue based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB subsequently issued amendments to ASU 2014-09 that had the same effective date of January 1, 2018. Revenue from sales of Rhopressa®, as well as any other future revenue arrangements, are and will be recognized under the provisions of (“ASC Topic 606.
Recent Accounting Pronouncements
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC Topic 718, Compensation—Stock Compensation to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. This ASU is effective for the Company beginning January 1, 2019, including interim periods within that fiscal year, but early adoption is permitted. The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Currently, U.S. GAAP delays recognition of the full amount of credit losses until the loss is probable of occurring. Under this ASU, the income statement will reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses will be based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down of the security. This ASU is effective for the Company beginning on January 1, 2020, with early adoption permitted beginning on January 1, 2019. The new guidance prescribes different transition methods for the various provisions. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”606”), which requires lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date and for those leases that have lease terms of more than 12 months. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”), which provides additional guidance or clarifications affecting certain aspects of ASU 2016-02. ASU 2016-02 and ASU 2018-10 are effective for the Company beginning on January 1, 2019, and all annual and interim periods thereafter, with early adoption permitted, and must be adopted using a modified retrospective transition approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and provides for certain practical expedients. The Company is currently evaluating the impact of ASU 2016-02 and ASU 2018-10 on its consolidated financial statements and disclosures.
Net Loss per Common Share
Basic net loss per common share (“Basic EPS”) is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities with the exception of warrants for common stock with a $0.05 exercise price, which are exercisable for nominal consideration and are therefore included in the calculation of the weighted average number of shares of common stock as common stock equivalents. Diluted net loss per share (“Diluted EPS”) gives effect to all dilutive potential shares of common stock outstanding during this period. For Diluted EPS, net loss used in calculating Basic EPS is adjusted for certain items related to the dilutive securities.
For all periods presented, Aerie’s potential common stock equivalents have been excluded from the computation of Diluted EPS as their inclusion would have had an anti-dilutive effect.

The potential common stock equivalents that have been excluded from the computation of Diluted EPS consist of the following:
 THREE MONTHS ENDED 
 JUNE 30,		 SIX MONTHS ENDED 
 JUNE 30,
 2018 2017 2018 2017
2014 Convertible Notes5,040,323
 5,040,323
 5,040,323
 5,040,323
Outstanding stock options7,046,345
 6,028,083
 7,046,345
 6,028,083
Stock purchase warrants154,500
 157,500
 154,500
 157,500
Nonvested restricted stock awards581,602
 353,660
 581,602
 353,660
Total12,822,770
 11,579,566
 12,822,770
 11,579,566
Subsequent to June 30, 2018, the entire outstanding principal amount of the 2014 Convertible Notes were converted into shares of Aerie common stock. See Note 13, "Subsequent Events," for additional information.
3. Revenue Recognition
. In accordance with ASC Topic 606, the Company recognizes revenues when its customers obtain control of its product infor an amount that reflects the consideration it expects to receive from its customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of ASC Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when such performance obligation is satisfied. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.

Net product revenues for the three and six months ended June 30, 2018 were derived from sales of Rhopressa® in the United States toAerie’s customers which include a limited number of national and select regional wholesalers (the “Distributors”“distributors”). These Distributorsdistributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. Net product revenue is typically recognized when distributors obtain control of the Company’s products, which occurs at a point in time, typically upon delivery of product to the distributors. The Company evaluates the creditworthiness of each of its distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. The Company does not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 days. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. Shipping and handling costs related to the Company’s product sales are included in selling, general and administrative expenses.
The Company’s net product that is ultimately used by patients is generally covered by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and may be subject to rebates and discounts payable directly to those Third-party Payers. The Company has already obtained coverage in some commercial and Medicare Part D plans and is in the processrevenues through June 30, 2019 were generated through sales of increasing those levels of coverage. In the glaucoma marketRhopressa®, which was commercially launched in the United States approximately halfon April 30, 2018, and sales of the volumes are covered under commercial plans and half under Medicare Part D. Medicare Part D coverage would normally commence for RhopressaRocklatan®, as with other new products,which was commercially launched in the United States on JanuaryMay 1, 2019. However, there have been early acceptances of Rhopressa® onto certain Medicare Part D plans, commencing as early as June 1, 2018.
Product revenue is recorded net of trade discounts, allowances, rebates, 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.incentives. These reserves are classified as either reductions of accounts receivable or as current liabilities based on the expected method of settlement. Amounts billed or invoiced are included in accounts receivable, net on the condensed consolidated balance sheet. The Company did not have any contract assets (unbilled receivables) at June 30, 2018, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract liabilities at June 30, 2018, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers.
Net product revenue is typically recognized when Distributors obtain control of the Company’s product, which occurs at a point in time, typically upon delivery of Rhopressa® to the Distributors. For the three months ended June 30, 2018, three Distributors accounted for 34%, 33% and 30% of total revenues, respectively. The Company evaluates the creditworthiness of each of its Distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. 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.
The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its Distributors for Rhopressa® less variable consideration. Variable consideration consists of estimates relating to (i) trade discounts and allowances, such as discounts for prompt payment and Distributor fees, (ii) estimated rebates, chargebacks and other discounts payable to Third-party Payers and (iii) reserves for expected product returns.liabilities. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net product revenues only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which could have an impact on earnings in the period of adjustment. See Note 3 for additional information.
Inventories
Prior to the date the Company obtains regulatory approval for its product candidates, manufacturing costs related to commercial production are expensed as pre-approval commercial manufacturing expense on the condensed consolidated statements of operations and comprehensive loss. Once regulatory approval is obtained, the Company capitalizes such costs as inventory on the condensed consolidated balance sheets. Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out (“FIFO”) method. The Company analyzes its inventory levels at least quarterly and writes down inventory that is expected to expire prior to being sold, inventory in excess of expected sales requirements and inventory that fails to meet commercial sale specifications, with a corresponding charge to cost of goods sold. The determination of whether inventory costs will be realizable requires estimates by management of future expected inventory requirements based on sales forecasts. If actual net realizable value is less than the estimated amount or if actual

market conditions are less favorable than the Company’s projections, additional inventory write-downs may be required. Charges for inventory write-downs are not reversed if it is later determined that the product is saleable.
Property, Plant and Equipment, Net
Property, plant and equipment is recorded at historical cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. Construction-in-progress reflects amounts incurred for property, plant or equipment construction or improvements that have not yet been placed in service and are not depreciated or amortized. Repairs and maintenance are expensed when incurred. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the determination of net loss.
Estimated useful lives by major asset category are as follows:
Manufacturing equipment10 years
Laboratory equipment7 years
Furniture and fixtures5 years
Software, computer and other equipment3 years
Leasehold improvementsLower of estimated useful life or term of lease

Leases
The Company determines if an arrangement is a lease at inception. For each lease, the lease term is determined at the commencement date and includes renewal options and termination options when it is reasonably certain that the Company will exercise that option. Operating leases with lease terms greater than one year are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities in the Company’s condensed consolidated balance sheets.  
Operating lease ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term using an estimated rate of interest the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. The operating lease ROU assets are based on the liability adjusted for any prepaid or deferred rent and lease incentives. The incremental borrowing rate was utilized to discount lease payments over the expected term given that the Company’s operating leases do not provide an implicit rate. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the date of adoption or the lease commencement date. Rent expense for the operating lease is recognized on a straight-line basis over the lease term.
The Company’s lease agreements have lease and non-lease components, which are generally accounted for as a single lease component. Non-lease components include lease operating expenses, which are variable costs under the Company’s current leases. For vehicle leases, the Company accounts for the lease and non-lease components as a single lease component and applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities.
Investments
Realized gains and losses, interest income earned on the Company’s cash, cash equivalents and investments, and amortization or accretion of discounts and premiums on investments are included within other (expense) income, net. Interest income was $0.5 million and $1.4 million for the three and six months ended June 30, 2019, respectively, and $0.9 million and $1.7 million for the three and six months ended June 30, 2018, respectively. There were no realized gains or losses recognized during the three and six months ended June 30, 2019.
Available-for-sale investments in debt securities are recorded at fair value, with unrealized gains or losses included in comprehensive loss on the condensed consolidated statements of operations and comprehensive loss and in accumulated other comprehensive loss on the condensed consolidated balance sheets.
Fair Value Measurements
The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820, Fair Value Measurements and Disclosures. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market

participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.
Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.
Level 2—Other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company’s cash equivalents are valued utilizing Level 1 inputs in the fair value hierarchy as of June 30, 2019 and December 31, 2018. There were no transfers between the different levels of the fair value hierarchy during the six months ended June 30, 2019.
Stock-Based Compensation
The estimated fair value of options to purchase common stock is determined on the date of grant using the Black-Scholes option pricing model. The fair value of restricted stock awards (“RSAs”) granted is based on the market value of Aerie’s common stock on the date of grant. Compensation expense related to time-based RSAs is expensed on a straight-line basis over the vesting period. For RSAs with non-market performance conditions, the Company evaluates the criteria for each grant to determine the probability that the performance condition will be achieved. Compensation expense for RSAs with non-market performance conditions is recognized over the respective service period when it is deemed probable that the performance condition will be satisfied. Upon issuance and at each reporting period, the fair value of each stock appreciation rights (“SARs”) award is estimated using the Black-Scholes option pricing model and is marked to market through stock-based compensation expense. SARs are liability-based awards as they may only be settled in cash. 
Adoption of New Accounting Standards
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of ASC Topic 718, Compensation—Stock Compensation to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU was effective for the Company beginning January 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC Topic 842”). ASC Topic 842 is intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months on the balance sheet. This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases. ASC Topic 842 is effective for financial statements issued for annual and interim periods beginning on January 1, 2019. The Company has elected the optional transition method that provided the option to use the effective date of ASC Topic 842 as the date of initial application on transition. Accordingly, the Company did not adjust comparative periods or make the new required lease disclosures for periods before the effective date of January 1, 2019. There was no cumulative effect adjustment recognized to accumulated deficit upon adoption. As of the date of adoption of the new leasing standards, the Company recognized an operating lease ROU asset of approximately $17.3 million and a corresponding operating lease liability of approximately $17.9 million, which are included in the condensed consolidated balance sheet. The adoption of the new leasing standards did not have a material impact on the condensed consolidated statements of operations and comprehensive loss.
The Company elected to utilize the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance (i) without reassessing the classification of the operating leases in accordance with ASC Topic 842, (ii) without reassessing whether an existing contract contained a lease and (iii) without reassessing initial direct costs. In addition, the Company elected not to allocate the consideration between lease and non-lease components for its operating leases. The Company also reassessed its lease conclusions for its manufacturing plant in Athlone, Ireland, under ASC Topic 842 since construction was still in progress as of the date of adoption. Upon the reassessment, the Company concluded it was the owner of the leased space for accounting purposes under ASC Topic 842 as of the date of adoption and therefore, maintained its previous build-to-suit lease accounting under the transition guidance of ASC Topic 842.

Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820-10): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement disclosure requirements of ASC Topic 820. Under this ASU, certain disclosure requirements for fair value measurements are eliminated, amended or added. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance is effective for the Company beginning on January 1, 2020 and prescribes different transition methods for the various provisions. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. Currently, U.S. GAAP delays recognition of the full amount of credit losses until the likelihood of the loss occurring is probable. Under this ASU, the income statement will reflect an entity’s current estimate of all expected credit losses. The measurement of expected credit losses will be based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down of the security. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-19”), which clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. Further, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326), Targeted Transition Relief (“ASU 2019-05”), which provides transition relief and allows allow entities to elect the fair value option on certain financial instrument. The guidance is effective for the Company beginning on January 1, 2020. The new guidance prescribes different transition methods for the various provisions. The Company does not expect the adoption of ASU 2016-13, ASU 2018-19 or ASU 2019-05 to have a material impact on its consolidated financial statements and disclosures.
Net Loss per Common Share
Basic net loss per common share (“Basic EPS”) is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for potentially dilutive securities with the exception of warrants for common stock with a $0.05 exercise price, which are exercisable for nominal consideration and are therefore included in the calculation of the weighted average number of shares of common stock as common stock equivalents. Diluted net loss per share (“Diluted EPS”) gives effect to all dilutive potential shares of common stock outstanding during this period. For Diluted EPS, net loss used in calculating Basic EPS may be adjusted for certain items related to the dilutive securities.
For all periods presented, Aerie’s potential common stock equivalents have been excluded from the computation of Diluted EPS as their inclusion would have had an anti-dilutive effect.
The potential common stock equivalents that have been excluded from the computation of Diluted EPS consist of the following: 
 THREE MONTHS ENDED 
 JUNE 30,		 SIX MONTHS ENDED 
 JUNE 30,
 2019 2018 2019 2018
2014 Convertible Notes(1)
—
 5,040,323
 —
 5,040,323
Outstanding stock options7,514,268
 7,046,345
 7,514,268
 7,046,345
Stock purchase warrants79,500
 154,500
 79,500
 154,500
Non-vested restricted stock awards728,705
 581,602
 728,705
 581,602
Total8,322,473
 12,822,770
 8,322,473
 12,822,770

(1)
In July 2018, the entire outstanding principal amount of senior secured convertible notes (the “2014 Convertible Notes”) was converted into shares of Aerie common stock.
3. Revenue Recognition
Net product revenues for the three and six months ended June 30, 2019 were derived from sales of Rhopressa® and Rocklatan® in the United States to customers and net product revenues for the three and six months ended June 30, 2018 were derived from

sales of Rhopressa® in the United States to customers. The Company commenced generating product revenue related to sales of Rocklatan® in the second quarter of 2019 following its commercial launch of Rocklatan® in the United States in May 2019. For the six months ended June 30, 2019, three distributors accounted for 36%, 33% and 28% of total revenues, respectively. For the six months ended June 30, 2018, three distributors accounted for 34%, 33% and 30% of total revenues, respectively. The Company commenced generating product revenues related to sales of Rhopressa® in the second quarter of 2018. 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.
The Company calculates its net product revenue based on the wholesale acquisition cost that the Company charges its distributors for Rhopressa® and Rocklatan® less provisions for (i) trade discounts and allowances, such as discounts for prompt payment and distributor fees, (ii) estimated rebates to Third-party Payers, estimated payments for Medicare Part D prescription drug program coverage gap (commonly called the “donut hole”), patient co-pay program coupon utilization, chargebacks and other discount programs and (iii) reserves for expected product returns. Provisions for revenue reserves reduced product revenues by $26.6 million and $42.8 million for the three and six months ended June 30, 2019, respectively. For each of the three and six months ended June 30, 2018, provisions for revenue reserves reduced product revenues by $1.7 million.
Trade Discounts and Allowances: The Company generally provides discounts on sales of Rhopressa® and Rocklatan® to its Distributorsdistributors for prompt payment and pays fees for distribution services and for certain data that Distributorsdistributors provide to the Company. The Company expects its Distributorsdistributors to earn these discounts and fees, and accordingly deducts the full amount of these discounts and fees from its gross product revenues at the time such revenues are recognized.
Rebates, Chargebacks and Other Discounts: The Company contracts with Third-party Payers for coverage and reimbursement of Rhopressa® and Rocklatan®. The Company estimates the rebates and chargebacks it expects to be obligated to provide to Third-party Payers and deducts these estimated amounts from its gross product revenue at the time the revenue is recognized. The Company estimates the rebates and chargebacks that it expects to be obligated to provide to Third-party Payers based upon (i) the Company's contracts and negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa® and Rocklatan® and (iii) historical industry information regarding the payer mix for comparable pharmaceutical products and product portfolios. Other discounts include the Company’s co-pay assistance coupon programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to pay associated with product that has been recognized as revenue.
Product Returns: The Company estimates the amount of Rhopressa® and Rocklatan® that will be returned and deducts these estimated amounts from its gross revenue at the time the revenue is recognized. The Company currently estimates product returns based on historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa®product shipped to Distributors,distributors, and contractual agreements with the Company's Distributorsdistributors intended to limit the amount of inventory they maintain. Reporting from the Distributorsdistributors includes Distributordistributor sales and inventory held by Distributors,distributors, which provides the Company with visibility into the distribution channel to determine when product would be eligible to be returned.

The Company did not have any contract assets (unbilled receivables) at June 30, 2019 or December 31, 2018, as customer invoicing generally occurs before or at the time of revenue recognition. The Company did not have any contract liabilities at June 30, 2019 or December 31, 2018, as the Company did not receive payments in advance of fulfilling its performance obligations to its customers. Amounts billed or invoiced are included in accounts receivable, net on the condensed consolidated balance sheets.
4. Investments
Cash, cash equivalents and investments as of June 30, 2018 included the following:
(in thousands)
AMORTIZED
COST
 
GROSS
UNREALIZED
GAINS
 
GROSS
UNREALIZED
LOSSES
 
FAIR
VALUE
Cash and cash equivalents:       
Cash and money market funds$270,648
 $—
 $—
 $270,648
Total cash and cash equivalents$270,648
 $—
 $—
 $270,648
Investments:       
Commercial paper (due within 1 year)$9,991
 $—
 $—
 $9,991
Corporate bonds (due within 1 year)5,473
 —
 (9) 5,464
Total investments$15,464
 $—
 $(9) $15,455
Total cash, cash equivalents and investments$286,112
 $—
 $(9) $286,103


Cash, cash equivalents and investments as of December 31, 2017 included the following:
(in thousands)
AMORTIZED
COST
 
GROSS
UNREALIZED
GAINS
 
GROSS
UNREALIZED
LOSSES
 
FAIR
VALUE
Cash and cash equivalents:       
Cash and money market funds$197,569
 $—
 $—
 $197,569
Total cash and cash equivalents$197,569
 $—
 $—
 $197,569
Investments:       
Commercial paper (due within 1 year)$30,883
 $—
 $—
 $30,883
Corporate bonds (due within 1 year)21,231
 —
 (28) 21,203
Total investments$52,114
 $—
 $(28) $52,086
Total cash, cash equivalents and investments$249,683
 $—
 $(28) $249,655

5. Fair Value Measurements
The following tables summarize the fair value of financial assets and liabilities that are measured at fair value and the classification by level of input within the fair value hierarchy:
 
FAIR VALUE MEASUREMENTS AS OF
JUNE 30, 2018
(in thousands)Level 1 Level 2 Level 3 Total
Cash and cash equivalents:       
Cash and money market funds$270,648
 $—
 $—
 $270,648
Total cash and cash equivalents$270,648
 $—
 $—
 $270,648
Investments:       
Commercial paper$—
 $9,991
 $—
 $9,991
Corporate bonds—
 5,464
 —
 5,464
Total investments$—
 $15,455
 $—
 $15,455
Total cash, cash equivalents and investments$270,648
 $15,455
 $—
 $286,103
 
FAIR VALUE MEASUREMENTS AS OF
DECEMBER 31, 2017
(in thousands)Level 1 Level 2 Level 3 Total
Cash and cash equivalents:       
Cash and money market funds$197,569
 $—
 $—
 $197,569
Total cash and cash equivalents$197,569
 $—
 $—
 $197,569
Investments:       
Commercial paper$—
 $30,883
 $—
 $30,883
Corporate bonds—
 21,203
 —
 21,203
Total investments$—
 $52,086
 $—
 $52,086
Total cash, cash equivalents and investments$197,569
 $52,086
 $—
 $249,655


Convertible Notes
As of June 30, 2018 and December 31, 2017, the estimated fair value of the $125.0 million aggregate principal amount of the 2014 Convertible Notes was $361.7 million and $327.6 million, respectively. The estimated fair value of the 2014 Convertible Notes require the use of Level 3 unobservable inputs and subjective assumptions. The estimates presented are not necessarily indicative of amounts that could be realized in a current market exchange. The use of alternative market assumptions and estimation methodologies could have a material effect on these estimates of fair value.
In July 2018, the entire outstanding principal amount of the 2014 Convertible Notes were converted into shares of Aerie common stock. See Note 13, “Subsequent Events,” for additional information.
6. Inventory
Inventory consists of the following:
(in thousands) JUNE 30, 2019 DECEMBER 31, 2018
Raw materials $766
 $836
Work-in-process 7,671
 6,885
Finished goods 1,982
 2,391
Total inventory $10,419
 $10,112
(in thousands)JUNE 30, 2018
Raw materials$507
Work-in-process2,248
Finished goods2,992
Total inventory$5,747
The Company commenced capitalizing inventory for Rhopressa® upon FDA approval of Rhopressa® on December 18, 2017. No inventory was produced from the FDA approval date through the end of 2017; therefore, no inventory was capitalized on the consolidated balance sheet as of December 31, 2017.

7.5. Property, Plant and Equipment, Net
Property, plant and equipment, net consists of the following:
(in thousands) JUNE 30, 2019 DECEMBER 31, 2018
Manufacturing equipment $17,773
 $2,366
Laboratory equipment 7,169
 6,038
Furniture and fixtures 1,620
 1,815
Software, computer and other equipment 6,550
 2,702
Leasehold improvements 29,511
 4,072
Construction-in-progress 3,345
 49,057
 Property, plant and equipment 65,968
 66,050
Less: Accumulated depreciation (7,373) (5,525)
Property, plant and equipment, net $58,595
 $60,525
(in thousands) JUNE 30, 2018 DECEMBER 31, 2017
Manufacturing equipment $2,122
 $2,082
Laboratory equipment 4,404
 3,602
Furniture and fixtures 1,512
 1,209
Software and computer equipment 2,218
 1,932
Leasehold improvements 3,318
 1,887
Construction-in-progress 45,449
 24,228
  59,023
 34,940
Less: Accumulated depreciation (4,144) (3,008)
Total property, plant and equipment, net $54,879
 $31,932

Manufacturing Plant Build-Out
In January 2017,the second quarter of 2019, the Company entered into a Euro-denominated lease agreement, expiring in September 2037, for a newcompleted the build-out on its own manufacturing plant in Athlone, Ireland, for which it leases approximately 30,000 square feet of interior floor space and as such is not the legal owner of the space. However, in accordance with ASC Topic 842, the Company was deemed to be the owner of the leased space prior to completion of construction. Upon completion, the Company performed a sale-leaseback analysis and accounted for the transaction as a sale. The Company therefore derecognized the build-to-suit asset and the corresponding build-to-suit facility lease obligation of approximately $4.4 million as of the completion date. No gain or loss arose from the derecognition. The Company concurrently recognized an operating lease ROU asset and a corresponding operating lease liability related to the leaseback of the facility. See Note 6 for additional information.
The build-to-suit facility lease obligation was approximately $4.5 million as of December 31, 2018.
Also, upon completion of the build-out in the second quarter of 2019, amounts previously classified as construction-in-progress related to the manufacturing plant placed into service have been transferred to leasehold improvements and manufacturing equipment and are being amortized in accordance with the Company’s policy. See Note 2 for additional information.
6. Leases
The Company has operating leases for corporate offices, research and development facilities, and a fleet of vehicles. The properties primarily relate to the Company’s principal executive office and research facility located in Durham, North Carolina, regulatory, commercial support and other administrative activities located in Irvine, California, and clinical, finance and legal operations located in Bedminster, New Jersey. The Durham, North Carolina, facility consists of approximately 61,000 square feet of laboratory and office space under leases that expire between June 2020 and June 2024 and the Irvine, California, location consists of approximately 37,300 square feet of office space under a lease that expires in January 2022. The Company terminated its previous lease and entered into a lease for its new Bedminster, New Jersey, location, which consists of approximately 34,000 square feet of office space under a lease that expires in October 2029. There are also small offices in Malta, Ireland, the United Kingdom and Japan.
The Company is leasing approximately 30,000 square feet of interior floor space in Athlone, Ireland, for its manufacturing plant in Athlone, Ireland, which the Company has concluded is now an operating lease upon completion of the build-out in the second quarter of 2019. As a result, the Company concurrently recognized an operating lease ROU asset and a corresponding operating lease liability related to the leaseback of the facility of approximately $2.4 million upon completion of the build-out. The Company is reasonably certain it will remain in the lease through the end of its lease term in 2037, however, the Company is permitted to terminate the lease beginning inas early as September 2027.
The Company’s operating leases have remaining lease terms of approximately 1 year to 18 years, some of which include options to extend the leases.

The Company is not the legal owner of the leased space. However, in accordance with ASC Topic 840, Leases, the Company is deemed to be the owner of the leased space, including the building shell, during the construction period because of the Company’s expected level of direct financial and operational involvement in the substantial tenant improvements required. As a result, the Company capitalized approximately $4.2 million as a build-to-suit asset within property, plant and equipment, net and recognized a corresponding build-to-suit facility lease obligation as a liability on its condensed consolidated balance sheets equal to the estimated replacement cost of the building at the inception of the lease. Additionally, equipment and construction costs incurred as part of the build-out are also capitalized within property, plant and equipment, net, as construction-in-progress. Capital expendituresBalance sheet information related to the manufacturing plant totaled approximately $21.2leases was as follows:
(in thousands)JUNE 30, 2019
Operating Leases 
Operating lease right-of-use assets$17,882
  
Operating lease liabilities$5,494
Long-term operating lease liabilities13,238
Total operating lease liabilities$18,732

The Company’s right-of-use assets obtained in exchange for operating lease obligations was $2.4 million during the six months ended June 30, 2018.2019.
Rental payments made under the
JUNE 30, 2019
Operating Leases
Weighted-average remaining lease term8 years
Weighted-average discount rate8%

Maturities of lease will be allocated to interest expense and the build-to-suit facility lease obligation based on the implicit rate of the build-to-suit facility lease obligation. The build-to-suit facility lease obligation was approximately $4.7 millionliabilities as of June 30, 2018, of which $0.3 million was classified2019 were as other current liabilities. The build-to-suit facilityfollows:
(in thousands) OPERATING
Year Ending December 31, LEASES
Remainder of 2019 $2,638
2020 5,555
2021 3,992
2022 1,735
2023 1,726
Thereafter 11,174
Total undiscounted lease payments 26,820
Less: present value adjustment (8,088)
Total lease liabilities $18,732

Under prior lease obligation was approximately $4.9 millionguidance, minimum lease payments under operating leases were as offollows at December 31, 2017. The lease obligation is denominated in Euros and is remeasured to U.S. dollars at2018:
(in thousands) OPERATING
Year Ending December 31, LEASES
2019 $4,283
2020 4,855
2021 4,278
2022 1,643
2023 1,438
Thereafter 6,698
Total minimum lease payments $23,195

Lease expense for the balance sheet date with any foreign exchange gain or loss recognized within other income (expense), net on the condensed consolidated statements of operations and comprehensive loss. Unrealized foreign currency gain related to the remeasurement of the lease obligationCompany’s operating leases was $0.3$1.3 million and $0.1$2.6 million, including variable lease payments of $0.5 million and $0.7 million, for the three and six months ended June 30, 2019, respectively. Rent expense for the Company’s operating leases was $0.8 million and $1.4 million for the three and six months ended June 30, 2018, respectively. The Company had unrealized foreign currency losses related to the remeasurement of the lease obligation of $0.3 million and $0.4 million for the three and six months ended June 30, 2017.

8.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
(in thousands)JUNE 30, 2018 DECEMBER 31, 2017JUNE 30, 2019 DECEMBER 31, 2018
Accrued compensation and benefits$6,890
 $7,886
$8,269
 $10,438
Accrued consulting and professional fees3,601
 3,841
3,009
 3,927
Accrued research and development expenses (1)
1,742
 1,855
7,673
 7,503
Accrued revenue reserves26,047
 10,155
Accrued other (2)
7,783
 5,357
1,525
 6,358
Total accrued expenses and other current liabilities$20,016
 $18,939
$46,523
 $38,381
(1)
Comprised of accruals related to fees for investigative sites, contract research organizations, contract manufacturing organizations and other service providers that assist in conducting preclinical research studies and clinical trials.
(2)
Comprised of accruals related to commercial manufacturing activities for the Company’s product candidates prior to FDAreceipt of regulatory approval, of Rhopressa®, interest payable andas well as other business-related expenses.
9. Convertible Notes8. Credit Facility
In September 2014, Aerie issued $125.0The Company has a total of $200 million aggregate principal amountavailable through the credit facility with certain entities affiliated with Deerfield Management Company L.P. (“Deerfield”) pursuant to which $100 million of delayed draw term loan commitments were provided by Deerfield in July 2018 (the “July 2018 tranche”) and $100 million of delayed draw term loan commitments were provided by Deerfield in May 2019 (the “May 2019 tranche”). The July 2018 tranche includes fees upon drawdown of 1.75% of amounts drawn, an 8.625% annual interest rate on drawn amounts, and annual fees on undrawn amounts of 1.5%. The May 2019 tranche includes fees upon drawdown of 2.0% of amounts drawn, an annual interest rate of LIBOR (subject to a floor of 2%) plus 7.2%, up to a maximum of 13.0%, on drawn amounts and annual fees on undrawn amounts of 2.0%.There is also an exit fee of $1.5 million payable upon termination of the 2014 Convertible Notes to Deerfield Partners, L.P., Deerfield International Master Fund, L.P., Deerfield Private Design Fund III, L.P., Deerfield Special Situations Fund, L.P.July 2018 tranche and Deerfield Special Situations International Master Fund, L.P., collectively with their transferees, “Deerfield.”an exit fee of $5.3 million (or $2.6 million if the tranche is undrawn) payable upon termination of the May 2019 tranche (in each case, whether terminated at maturity or otherwise). The 2014 Convertible Notes were issued pursuant to a note purchase agreement (as amended and supplemented from time to time,allowable draw period under the “Note Purchase Agreement”), dated as of September 8, 2014, among Aeriecredit facility for both the July 2018 tranche and the Deerfield entities party thereto.
May 2019 tranche ends on July 23, 2020. Fees on undrawn amounts are not payable until July 2020, and no principal payments will be due on drawn amounts, if any, until July 2020. The 2014 Convertible Notes were scheduled to mature on the seventh anniversary from the datecredit facility matures in July 2024 in respect of issuance, unless earlier converted. In July 2018, Deerfield converted the entire outstanding principal amount of the 2014 Convertible Notes into shares of Aerie common stock. See Note 13, “Subsequent Events,” for additional information.
any drawn amounts. The 2014 Convertible Notes were guaranteed on a senior secured basis by Aerie Distribution. The 2014 Convertible Notes constituted the senior secured obligations of Aerie and Aerie Distribution, collateralized by a first-priority security interest in substantially all of the assets of Aerie and Aerie Distribution.
The 2014 Convertible Notes were convertible at any time at the option of Deerfield, in whole or in part, into shares of common stock. The initial conversion price was $24.80 per share of common stock (equivalent to an initial conversion rate of 40.32

shares of common stock per $1,000 principal amount of 2014 Convertible Notes), representing a 30% premium over the closing price of the common stock on September 8, 2014.
The Note Purchase Agreement contained various representations and warranties, andcredit facility includes affirmative and negative covenants customary for financings of this type, including restrictions onand prepayment terms. No funds have been drawn under the incurrence of additional debt and liens on Aerie’s and its subsidiaries’ assets. As of June 30,July 2018 Aerie was in compliance withtranche or the covenants.
The 2014 Convertible Notes bore interest at a rate of 1.75% per annum payable quarterly in arrears on the first business day of each January, April, July and October. The Company recorded the 2014 Convertible Notes as long-term debt at face value less $2.1 million in debt discount and issuance costs incurred at the time of the transaction, which were being amortized to interest expense using the effective interest method through the maturity of the 2014 Convertible Notes.
The table below summarizes the carrying value of the 2014 Convertible NotesMay 2019 tranche as of June 30, 2018 and December 31, 2017:
(in thousands)JUNE 30, 2018 DECEMBER 31, 2017
Gross proceeds$125,000
 $125,000
Unamortized debt discount and issuance costs(1,001) (1,155)
Carrying value$123,999
 $123,845
2019.
Interest expense was $1.6 million and $2.4 million for the three and six months ended June 30, 2019, respectively, and included issuance costs and fees related to the 2014 Convertible Notes, including amortization of debt discount and issuance costs,credit facility. Interest expense was $0.5 million and $1.0 million for the three and six months ended June 30, 2018, respectively. Interest expense related to the 2014 Convertible Notes, includingrespectively, and included amortization of debt discount and issuance costs was $0.6 million and $1.2 million forrelated to the three and six months ended June 30, 2017, respectively.2014 Convertible Notes.

10.9. Stockholders’ Equity
During the six months ended June 30, 2018, Aerie issued and sold approximately 1.0 million shares of Aerie’s common stock and received net proceeds of approximately $62.3 million, after deducting $0.5 million of fees and expenses, under the “at-the-market” sales agreement that commenced in December 2017. There are no remaining shares available for issuance under the ATM that commenced in December 2017. In addition, the Company entered into an underwriting agreement, dated January 23, 2018, related to the registered public offering of approximately 1.3 million shares of Aerie’s common stock and received net proceeds of approximately $74.1 million, after deducting $0.9 million of underwriting discounts, fees and expenses. The transactions were made pursuant to an automatic shelf registration on Form S-3, filed with the SEC on September 15, 2016, that permits the offering, issuance and sale of an unlimited number of shares of common stock from time to time by Aerie.
Warrants
As of June 30, 2018,2019, the following equity-classified warrants to purchase common stock were outstanding:
NUMBER OF
UNDERLYING
SHARES
 
EXERCISE
PRICE PER
SHARE
 
WARRANT
EXPIRATION
DATE
75,000 $5.00 November 2019
4,500 $5.00 August 2020
223,482 $0.05 December 2019
NUMBER OF
UNDERLYING
SHARES
 
EXERCISE
PRICE PER
SHARE
 
WARRANT
EXPIRATION
DATE
75,000
 $5.00 February 2019
75,000
 $5.00 November 2019
4,500
 $5.00 August 2020
223,482
 $0.05 December 2019

The warrants outstanding as of June 30, 20182019 are all currently exercisable.

11.10. Stock-Based Compensation
Stock-based compensation expense for options granted, RSAs, performance stock awards (“PSAs”), SARs and stock purchase rights is reflected in the condensed consolidated statements of operations and comprehensive loss as follows:
 THREE MONTHS ENDED 
 JUNE 30,		 SIX MONTHS ENDED 
 JUNE 30,
(in thousands)2019 2018 2019 2018
Selling, general and administrative$7,091
 $7,126
 $16,212
 $13,340
Pre-approval commercial manufacturing834
 634
 1,683
 1,104
Research and development2,770
 2,558
 5,420
 4,593
Total$10,695
 $10,318
 $23,315
 $19,037
 THREE MONTHS ENDED 
 JUNE 30,		 SIX MONTHS ENDED 
 JUNE 30,
(in thousands)2018 2017 2018 2017
Selling, general and administrative$7,760
 $5,251
 $14,444
 $9,037
Research and development2,558
 1,414
 4,593
 2,478
Total$10,318
 $6,665
 $19,037
 $11,515

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

Options to Purchase Common Stock
The following table summarizes the stock option activity under the Plans:
 NUMBER OF
SHARES		 WEIGHTED AVERAGE
EXERCISE PRICE		 WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)		 AGGREGATE
INTRINSIC
VALUE
(000’s)
Options outstanding at December 31, 20186,935,119
 $28.97
 
 

Granted914,790
 43.32
    
Exercised(124,034) 30.94
    
Canceled(211,607) 53.52
    
Options outstanding at June 30, 20197,514,268
 $29.99
 6.6 $63,671
Options exercisable at June 30, 20195,145,383
 $21.98
 5.6 $61,881
 NUMBER OF
SHARES		 WEIGHTED AVERAGE
EXERCISE PRICE		 WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)		 AGGREGATE
INTRINSIC
VALUE
(000’s)
Options outstanding at December 31, 20176,457,343
 $22.15
 
 

Granted1,047,134
 56.05
    
Exercised(363,559) 10.68
    
Canceled(94,573) 44.35
    
Options outstanding at June 30, 20187,046,345
 $27.46
 7.1 $282,490
Options exercisable at June 30, 20184,403,259
 $16.41
 6.0 $225,165

As of June 30, 2018,2019, the Company had $79.9$73.3 million of unrecognized compensation expense related to options granted under its equity plans. This expense is expected to be recognized over a weighted average period of 3.02.7 years as of June 30, 2018.

2019.
Restricted Stock Awards
The following table summarizes the RSAs, including PSAs, activity under the Plans:
 
NUMBER OF
SHARES
 
WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Non-vested RSAs at December 31, 2018572,706
 $48.18
Granted392,784
 45.55
Vested(203,077) 45.12
Canceled(33,708) 50.55
Non-vested RSAs at June 30, 2019728,705
 $47.53
 
NUMBER OF
SHARES
 
WEIGHTED AVERAGE
FAIR VALUE PER SHARE
Nonvested RSAs at December 31, 2017447,049
 $41.08
Granted254,216
 55.92
Vested(114,335) 37.15
Canceled(5,328) 48.21
Nonvested RSAs at June 30, 2018581,602
 $48.27

As of June 30, 2018,2019, the Company had $21.5$29.1 million of unrecognized compensation expense related to unvested RSAs, including PSAs. This expense is expected to be recognized over the weighted average period of 3.12.9 years as of June 30, 2018.2019.
The vesting of the RSAs is time and service based with terms of one to four years. During the year ended December 31, 2017, the Company granted 98,817 PSAs with non-market performance conditions that vest upon the satisfaction of certain performance conditions and service conditions. During the six months ended June 30, 2018, there2019, vesting for the remaining PSAs was deemed probable to occur. As of June 30, 2019, 69,171 PSAs were 19,764 PSAs that vested.
Stock Appreciation Rights
DuringThe following table summarizes the six months ended June 30, 2018,SARs activity under the Company granted 100,000 SARs awards at a weighted average exercise price of $54.08 and had a weighted average remaining contractual life of 4.7 years. All of these awards were outstanding at June 30, 2018.Plans:
 NUMBER OF
SHARES		 WEIGHTED AVERAGE
EXERCISE PRICE		 WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE (YEARS)		 AGGREGATE
INTRINSIC
VALUE
(000’s)
SARs outstanding at December 31, 201891,000
 $53.75
    
Granted57,851
 43.40
    
Exercised—
 —
    
Canceled(19,445) 50.87
    
SARs outstanding at June 30, 2019129,406
 $49.55
 4.1 $—
SARs exercisable at June 30, 201918,000
 $54.19
 3.7 $—


Holders of the SARs are entitled under the terms of the Plans to receive cash payments calculated based on the excess of the Company’s common stock price over the target price in their award; consequently, these awards are accounted for as liability-classified awards and the Company measures compensation cost based on their estimated fair value at each reporting date, net of actual forfeitures, if any.
12.11. Commitments and Contingencies
The Company may periodically become subject to legal proceedings and claims arising in connection with its business. Except as previously disclosed for matters which have now concluded, theThe Company is not a party to any known litigation, is not aware of any material unasserted claims and does not have contingency reserves established for any litigation liabilities.
13. Subsequent Events
Conversion of 2014 Convertible Notes
On July 23, 2018, Aerie entered into an Exchange and Termination Agreement (the “Exchange and Termination Agreement”) with Deerfield Private Design Fund III, L.P., Deerfield Partners, L.P. and Deerfield Special Situations Fund, L.P. (collectively, the “Holders”). Pursuant to the Exchange and Termination Agreement, (i) the Holders converted the entire outstanding principal amount of the 2014 Convertible Notes into 5,040,323 shares of Common Stock (the “Conversion Shares”) in accordance with the terms of the 2014 Convertible Notes, (ii) Aerie issued the Conversion Shares, and (iii) Aerie paid accrued and unpaid interest on the Convertible Notes through July 23, 2018.
In addition, as mutually agreed to with the Holders in order to complete the conversion on the date of the Exchange and Termination Agreement, Aerie issued an additional 329,124 shares of Common Stock (the “Additional Shares”) to the Holders. Aerie expects to expense the value of the Additional Shares in the amount of approximately $24 million during the third quarter of 2018.

Entry into Credit Facility
On July 23, 2018, Aerie entered into a credit agreement (as amended on August 7, 2018) with certain entities affiliated with Deerfield Management Company L.P. providing for a $100 million senior secured delayed draw term loan facility (the “credit facility”). The credit facility includes fees upon drawdown of 1.75% of amounts drawn, an 8.625% annual interest rate on drawn amounts, and annual fees on undrawn amounts of 1.5%. The allowable draw period ends two years from the effective date of the credit facility. Fees on undrawn amounts accrue but are not payable until July 23, 2020, and no principal payments will be due on drawn amounts, if any, until July 23, 2020. The credit facility matures on July 23, 2024. The credit facility has certain covenants and prepayment provisions and may be terminated by Aerie at any time for a one-time fee of $1.5 million. No funds were drawn at closing.
Collaboration Agreement with DSM
On August 1, 2018, the Company announced that it entered into an Amended and Restated Collaborative Research, Development, and License Agreement with DSM (the “Collaboration Agreement”), which provides for (i) a worldwide exclusive license for all ophthalmic indications to DSM’s polyesteramide polymer technology, (ii) continuation of the collaborative research initiatives through the end of 2020, including the transfer of DSM’s formulation technology to Aerie during that time and (iii) access to a preclinical latanoprost implant. Aerie paid $6.0 million to DSM upon execution of the Collaboration Agreement, with an additional $9.0 million payable to DSM through the end of 2020. The Collaboration Agreement also includes contingent payments that may be due to DSM upon the achievement of certain development and regulatory milestones. Aerie would also pay royalties to DSM when products are commercialized under this Collaborative Agreement, if any.

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, 2017,2018, as filed with the SEC on March 1, 2019 (“2018 (“2017 Form 10-K”). This 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 20172018 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 an ophthalmic pharmaceutical company focused on the discovery, development and commercialization of first-in-class therapies for the treatment of patients with open-angle glaucoma, retinaretinal diseasesand other diseases of the eye. Our strategy is to successfully commercialize our U.S. Food and Drug Administration (“FDA”) approved product,products, Rhopressa® (netarsudil ophthalmic solution) 0.02% (“Rhopressa®”), in North American markets and advance our product candidate, RoclatanRocklatanTM®(netarsudil/ (netarsudil and latanoprost ophthalmic solution) 0.02%/0.005% (“RoclatanTM”), to regulatory approval. We launched RhopressaRocklatan® in the United States at the end of April 2018. Rhopressa® is now being sold to national and regional U.S. pharmaceutical distributors, and patients have access to Rhopressa® through pharmacies across the United States. We expect preferred formulary coverage for the majority of commercial plans by the end of 2018, and preferred formulary coverage for the majority of Medicare Part D plans commencing in 2019.”). We have already obtained coverage in some commercial and Medicare Part D plans and are in the process of increasing those levels of coverage. In the glaucoma market in the United States, approximately half of the volumes are covered under commercial plans and half under Medicare Part D. Medicare Part D coverage would normally commence for Rhopressa®, as with other new products, on January 1, 2019. However, there have been early acceptances of Rhopressa® onto certain Medicare Part D plans, commencing as early as June 1, 2018. We hired a commercial team that includes approximately 100 sales representatives to targettargeting approximately 14,000 high-prescribing eye carehigh prescribing eye-care professionals throughout the United States. This sales force is responsible for sales of Rhopressa® and now Rocklatan®, which launched in the United States on May 1, 2019.
Our strategy also includes developing our business outside of the United States, including obtaining regulatory approval in Europe and Japan on our own for Rhopressa® and Rocklatan®. If we obtain regulatory approval, we currently expect to commercialize Rhopressa® and Rocklatan® in Europe on our own, and likely partner for commercialization of their equivalents in Japan. If approved, we expect that Rhopressa® and Rocklatan®will also be responsiblemarketed under the names Rhokiinsa® and Roclanda®, respectively, in Europe. To optimize the commercial opportunity, we expect to launch Roclanda® before Rhokiinsa® in Europe, if approved, as the European market is oriented more toward fixed-dose combination products. We are continuing to expand our presence in Europe where we have over 60 employees that manage the operation of our manufacturing plant in Ireland, discussed below, as well our Phase 3 clinical trial for salesRoclanda®, which is ongoing in several European countries. We have hired key personnel, including the Chief Commercial Officer of RoclatanEurope, and are building our clinical, medical affairs and commercial teams in Europe. In Japan, we opened an office in Tokyo and hired personnel to fill key leadership positions to help execute our strategy in that market. We commenced a Phase 2 clinical trial for RhopressaTM®, if approved. in Japan in March 2019 and announced completion of enrollment for this trial in July 2019, as discussed in “—Marketed Products” below.
We also seek to enhance our longer-term commercial potential by identifying and advancing additional product candidates. This may be accomplishedcandidates 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. Ourportfolio, such as our collaboration with DSM, a global science-based company headquartered in the Netherlands, as further discussed below, through whichwhereby we obtainedhave access to their bio-erodible polymer technology, is an example of this, as isand our acquisition of assets from Envisia, Therapeutics Inc. (“Envisia”), designed to advance our progress in developing potential future sustained-release product candidates to treat retinal diseases.diseases, as discussed in “—Product Candidates” below.
Our strategy also includes developing our business outsideIn the second quarter of North America, including obtaining regulatory approval in Europe and Japan2019, we completed the build-out on our own for Rhopressa® and RoclatanTM. If we obtain regulatory approval, we currently expect to commercialize Rhopressa® and RoclatanTM in Europe on our own, and likely partner for commercialization in Japan.
In January 2017, we announced that we are building a new manufacturing plant in Athlone, Ireland. This will be our firstIreland, which we commenced in January 2017. The Athlone manufacturing plant which is expected to produce commercial supplies of Rhopressa®, Rocklatan® in early 2020 and thereafter Rhokiinsa® and Roclanda®, if approved, RoclatanTM. Commercial supply from our Ireland manufacturing plant is expected to be available by 2020.approved. Our current contract manufacturer started producingproduces commercial supply of Rhopressa® and Rocklatan®. We have obtained FDA approval for an additional Rhopressa® drug product contract manufacturer in 2017. Wethe first quarter of 2019, which began to supply commercial product in the second quarter of 2019. Further, we have obtained FDA approval for an additional API contract manufacturer, which began to supply commercial API in the second quarter of 2019, and we are also in the process of adding a secondan additional Rocklatan® drug product contract manufacturer, which we expect may produceis expected to begin commercial supply by asin early as the end of 2018.2020. We expect to continue to use product sourced from our current contract manufacturers when the Ireland plant is operational.
We own the worldwide rights to all indications for Rhopressa® and RoclatanRocklatanTM®. We have patent protection for Rhopressa® and RoclatanRocklatanTM® in the United States through at least 2030early 2034 and internationally, through dates ranging from 2030 to 2037. Our intellectual property portfolio contains patents and pending patent applications related to composition of matter, pharmaceutical compositions, methods of use, and synthetic methods.

Product and Product Candidate Overview
Marketed Products
Rhopressa®, our only currentfirst FDA-approved product, approved by the FDA, represents the first of a new drug class for reducing intraocular pressure (“IOP”) in patients with glaucoma in over 20 years. Rhopressa® has demonstrated that it reduces IOPintraocular pressure (“IOP”) through Rho

kinase (“ROCK”) inhibition, itsinhibition. Using this mechanism of action (“MOA”) by which, Rhopressa® increases the outflow of aqueous humor through the trabecular meshwork (“TM”), which accounts for approximately 80% of fluid drainage from athe healthy eye. Our late-stage pipeline consists of Roclatanrecently FDA-approved product, once-daily RocklatanTM®, is a single-drop fixed-dose combination of Rhopressa® and latanoprost, which reduces IOP through the same MOA as Rhopressa®, along withand through a second MOA that utilizesutilizing the ability of latanoprost to increase the outflow of aqueous humor through the uveoscleral pathway, the eye’s secondary drain. In a recent “Day 74” letter from the FDA, the RoclatanTM Prescription Drug User Fee Act (“PDUFA”) goal date was set for March 14, 2019. Both Rhopressa® and RoclatanRocklatanTM® 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® 
Rhopressa® is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension. Rhopressa® received approval from the FDA on December 18, 2017, two months earlier than the scheduled PDUFA date of February 28, 2018. The active ingredient in Rhopressa®, netarsudil, is aan Aerie-owned ROCK inhibitor. In practice, earlyWe believe that Rhopressa® represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years. Initial indications point to healthcare professionals positioningprescribing Rhopressa® as a concomitant therapy to prostaglandins or non-PGA (prostaglandin analog) medications when additional IOP reduction is desired. Based on this positioning, weWe believe Rhopressa®may is primarily competecompeting with other non-PGA products, due to its targeting of the diseased TM, its demonstrated ability to reduce IOP at consistent levels across tested baselines, its preferred once-daily dosing relative to other currently marketed non-PGA products and its safety profile. Adjunctive therapies currently represent nearly one-half of the glaucoma prescription market in the United States, according to IQVIA (formerly known as IMS Health).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.
Rocket 4, oneWe launched Rhopressa® in the United States at the end of our Phase 3 registration trialsApril 2018. Rhopressa® is being sold to national and regional U.S. pharmaceutical distributors, and patients have access to Rhopressa® through pharmacies across the United States. We have obtained formulary coverage for Rhopressa®, was designed to generate adequate six-month safety data for European regulatory approval, along with efficacythe majority of lives covered under commercial and safety data from our other Phase 3 registration trials for Rhopressa®, Rocket 1 and Rocket 2. We expect to file a marketing authorization application (“MAA”) for Rhopressa® withMedicare Part D plans.
In October 2018, we announced that the European Medicines Agency (“EMA”) by the end of 2018. We alsoaccepted our marketing authorisation application (“MAA”) for review for Rhokiinsa®. Additionally, we completed a Phase 1 clinical trial and commenced a successful pilot Phase 2 clinical trialstudy in the United States on Japanese and Japanese-American subjects, which arewere designed to support meeting the requirements of Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) for potential regulatory submission of Rhopressa® in Japan. These clinical trials have included JapaneseTopline results of the pilot Phase 2 study were announced in January 2019. In that study, both netarsudil arms produced significantly greater IOP reduction than the placebo arm at the specified timepoint and Japanese-American subjects. We are also planning to initiate an additionalthe safety findings were consistent with previous netarsudil trials. In July 2019, we completed enrollment of our Phase 2 clinical trial initiated in March 2019 in Japan. We currently expect to read out topline results of the Phase 2 study in late 2019. The study is designed in accordance with the requirements of PMDA on Japanese patients in Japan to support subsequent Phase 3 registration trials that are also expected to be conducted in Japan.Japan under our direction.
RoclatanRocklatanTM® 
Our advanced-stagerecently FDA-approved product, candidate, RoclatanRocklatanTM®, is a once-daily fixed-dose combination of Rhopressa® and latanoprost.latanoprost, the most widely-prescribed drug for the treatment of patients with open-angle glaucoma. We believe, based on our clinical data, that RoclatanRocklatanTM® has the potential to provide a greater IOP-reducing effect than any currently marketed glaucoma medication. Therefore, we believe that RoclatanRocklatanTM®, if approved,once formulary coverage is obtained, could compete with both PGA and non-PGA therapies and become the product of choice for patients requiring maximal IOP reduction, including those with higher IOPs and those who present with significant disease progression despite use ofusing currently available therapies.
We submitted a New Drug Application (“NDA”) for RoclatanTMWith respect to the FDARocklatan® in May 2018 under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, which provides for an abbreviated approval pathway, since RoclatanTM is a fixed dose combination of two FDA-approved drugs injurisdictions outside the United States. On July 23, 2018,States, we announced that the NDA was accepted for review by the FDA and the Prescription Drug User Fee Act goal date was set for March 14, 2019, which representsinitiated a ten-month review. This was communicated by the FDA via a “Day 74” letter, which also indicated that the application is sufficiently complete to permit a substantive review and that the FDA had not identified any potential review issues. The “Day 74” letter did not mention the need for an advisory committee.
We have 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 statistical superiority of RoclatanTM to each of its components, including RhopressaRoclanda® 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 RoclatanTM 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 to the 90-day results, 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 statistical 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 of

RoclatanTM over each of its components at all measured time points in patients with maximum baseline IOPs of above 20 mmHg to below 36 mmHg.
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, a six-month efficacy and safety trial, is designed to compare RoclatanRoclandaTM® to Ganfort®, a fixed-dose combination product marketed in Europe consisting of bimatoprost a PGA,(a PGA) and timolol marketed in Europe.(a beta blocker). If successful, Mercury 3 is expected to improve ourthe commercialization prospects of Roclanda® in Europe. We currently expect to read out topline 90-day efficacy data for the trial in 2019 andthe first half of 2020. Since Roclanda® is a fixed-dose combination product that includes Rhokiinsa®, we plan to submit an MAA with the EMA for RoclatanRoclandaTM® thereafter. in early 2020, if the EMA has approved Rhokiinsa® by such time.
Pipeline Opportunities
Product Candidates
Our stated objective is to build a major ophthalmic pharmaceutical company. Through business development activities, we acquired worldwide ophthalmic rights to a bio-erodible polymer technology from DSM and PRINT® (Particle Replication in Non-wetting Templates) implant manufacturing technology, which is a proprietary technology capable of creating precisely-engineered sustained-release products utilizing fully-scalable manufacturing processes, from Envisia. Using these technologies, we have created a sustained-release ophthalmology platform and are currently developing two sustained-release implants focused on retinal diseases, AR-1105 and AR-13503.
AR-1105 (dexamethasone steroid implant)
In 2017, we acquired Envisia’s intellectual property rights relating to a preclinical dexamethasone steroid implant using a biodegradable polymer-based drug delivery system that comprised of a blend of different poly D, L-lactic-co-glycolic acid (“PLGA”) polymers and PRINT® technology for the potential treatment of macular edema due to retinal vein occlusion (“RVO”) and diabetic macular edema (“DME”) via intravitreal injection, which we refer to as AR-1105. We are evaluating possible usessubmitted the Investigational New Drug application (“IND”) for this sustained-release implant in December 2018. We initiated a Phase 2 clinical trial of our existing proprietary portfolio of ROCK inhibitors beyond glaucomaAR-1105 in patients with macular edema due to RVO during March 2019.
AR-13503 (ROCK and ophthalmology. Protein kinase inhibitor)
Our owned preclinical small molecule, AR-13503, has demonstrated theis a ROCK and Protein kinase C inhibitor sustained-release implant with potential forin the treatment of diabetic retinopathy andDME, wet age-related macular degeneration (“AMD”) by inhibiting ROCK and Protein kinase C.other diseases of the retina. AR-13503, which has the same active metabolite as Rhopressa®, has shown lesion size decreases in an in vivo preclinical model of wet AMD at levels similar to the current market-leading wet AMD anti-vascular endothelial growth factor (“anti-VEGF”(vascular endothelial growth factor, “VEGF”) product. When used in combination preclinically with the market-leading anti-VEGF product, AR-13503 produced greater lesion size reduction than the anti-VEGF product alone in a model of proliferative 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,DME, wet AMD and related diseases of the retina, such as diabetic macular edema (“DME”). We expect to submit an Investigational New Drug application (“IND”) for AR-13503 in early 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 needed to deliver the molecule to the back of the eye for a sustained delivery period.retina.
To that end, on July 31, 2017, we announced that we entered into a collaborative research, development and licensing agreement with DSM. 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 technologyfrom DSM 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. On August 1, 2018,We submitted an IND application for AR-13503 in March 2019 and in April 2019, we announced that the expansion of our collaboration with DSMFDA has reviewed the IND for AR-13503 and it is now in effect, allowing Aerie to provide for (i) a worldwide exclusive license for all ophthalmic indications to DSM’s polyesteramide polymer technology, (ii) continuation ofinitiate human studies in the collaborative research initiatives through the end of 2020, including the transfer of DSM’s formulation technology to Aerie during that time and (iii) access to a preclinical latanoprost implant.
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.neovascular age-related macular degeneration (“nAMD”) and DME. We expect to submit an INDinitiate a first-in-human clinical study for AR-1105 nearAR-13503 in the endthird quarter of 2018. 2019.
Pipeline Opportunities
We willare also focus onevaluating the PRINT® technology platform for sustained release of therapies to the front of the eye, including to treat glaucoma or ocular hypertension, as examples. We commenced operation of our good manufacturing practices-validated manufacturing facility for production of ophthalmic implants using PRINT® to manufacture injectable implants containing AR-13503, potentially technology in conjunction with the bio-erodible polymer from DSM.our Durham, North Carolina, facility in October 2018.
We may continue to enter into research collaboration arrangements, license, acquire or develop additional product candidates and technologies to broaden our presence in ophthalmology, and we continually explore and discuss potential additional opportunities for new ophthalmic products, delivery alternatives and new therapeutic areas with potential partners.
We own over 4,000 ROCK inhibitor molecules, some of which have additional features including the inhibition of other kinases such as Janus kinase and IĸB kinase and we evaluate this library on an ongoing basis for additional development opportunities. Early stage evaluations are also currently screening our owned library of ROCK inhibitorsunderway for indications, beyond ophthalmology, considering third-party studiesincluding dry eye and trialspsoriasis. We also evaluate outside business development opportunities to provide access to technologies developed outside of Aerie and have demonstrated potential for ROCK inhibitionstated our particular interest in treating certain disease categories. We are initially focused on exploring potential opportunities for our moleculesophthalmic areas such as dry eye, which is a very large market in pulmonary health, dermatology and cancers.the United States.
Financial Overview
Our cash and cash equivalents and investments totaled $286.1$109.4 million as of June 30, 2018.2019. We believe that our cash and cash equivalents, $200 million total available under the credit facility and investments balances are adequate toprojected cash flows from revenues, will provide sufficient resources for our current ongoing needs,at least the next twelve months, though there may be need for additional financing activity as we continue to grow, such as the potential use of the credit facility we entered into in July 2018. No amounts were drawn at the closing of such credit facility.grow. See “—

Liquidity and Capital Resources” below and Note 138 to our condensed consolidated financial statements included in this report for additional information.further discussion.
We have incurred net losses since our inception in June 2005. Historically,Until 2018, when we commenced commercial operations, our operations hadbusiness activities were primarily been limited to research and development and raising capital. As of June 30, 2018,2019, we had an accumulated deficit of $559.6$791.5 million. We

recorded net losses of $55.0$47.2 million and $95.7$95.1 million for the three and six months ended June 30, 2018,2019, respectively. We recorded net losses of $28.4 million and $54.2 million forFor the three and six months ended June 30, 2017.2018 we recorded net losses of $55.0 million and $95.7 million, respectively. Our capital resources and business efforts are largely focused on activities relating to the commercialization of Rhopressa®, the launch and commercialization of Rocklatan®, advancing our product pipeline, international expansion and constructioncompletion of our manufacturing facility in Athlone, Ireland. We expect to continue to incur operating losses until such a time when one or more of our products is commercially successful, if at all.generate adequate commercial revenue to render Aerie profitable. If we do not successfully commercialize Rhopressa®, or Roclatanand RocklatanTM® or any future product candidates, if approved, we may be unable to generate adequate product revenue orrevenues to achieve such profitability. We may be required to draw down on theour credit facility, we entered into in July 2018, or to obtain further funding through public or private offerings, debt financing, collaboration and licensing arrangementsor equity offerings or other sources.arrangements. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we may be forced to delay, reduce or eliminate our research and development programs or commercialization or manufacturing efforts.
Product Revenues, Net
As a result of the commercial launch ofWe launched Rhopressa® in the United States in late April 2018 weand commenced generating product revenues from sales of Rhopressa® during the three months ended June 30,second quarter of 2018. We launched Rocklatan® in the United States on May 1, 2019 and commenced generating product revenues from sales of Rocklatan® in the second quarter of 2019. Product affordability for the patient is critical to drive 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 and forecasted customer buying and payment patterns.mix. Actual amounts may ultimately differ from these estimates. If actual results vary, estimates may be adjusted in the period such change in estimate becomes known, which couldmay have an impact on earnings in the period of adjustment.
We will not generate any revenue from RoclatanTM or any future product candidates unless and until we obtain regulatory approval and commercialize such products.
Cost of Goods Sold
Cost of goods sold consists of direct and indirect costs to procure and manufacture Rhopressa®product sold, including third-party manufacturing costs. We began capitalizing inventory costs for Rhopressa® and Rocklatan®after receipt of FDA approval of Rhopressa® on December 18, 2017.approval. Prior to receiving FDA approval, such costs were expensed as selling, general and administrativepre-approval commercial manufacturing expenses. Cost of goods sold in 20182019 will continue to be favorably impacted by sales of Rhopressa® and Rocklatan® inventory that was expensed prior to FDA approval; however, we do not expect the impact to be material.
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, salesselling and marketing planning activities,expenses, facilities expenses, shipping and handling costs and professional fees for audit, tax, legal and other services.
We expect thatPre-approval Commercial Manufacturing Expenses
Pre-approval commercial manufacturing expenses consist of costs incurred for commercial-related manufacturing activities for Rhopressa® and Rocklatan® prior to FDA approval. These costs include expenses associated with the manufacturing of inventory in anticipation of commercial launch; expenses associated with the establishment of both our selling, generalmanufacturing plant in Athlone, Ireland, and administrativeour additional API and drug product contract manufacturers; and employee-related expenses, will be higher in 2018 as comparedwhich include salaries, benefits and stock-based compensation for commercial-related manufacturing personnel prior to 2017 due to the commercialization efforts for Rhopressa®, including the hiring of sales representatives and additional employees focused on sales, marketing and manufacturing activities.regulatory approval.

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, including employee-related expenses for research and development personnel.
Excluding the $24.8 million of expense recognized in 2017 related to the Envisia asset acquisition, we expect that our research and development expenses will increase in 2018 as compared to 2017 due to clinical trial activities for both Rhopressa® and RoclatanTM 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.
Other (Expense) Income, (Expense), Net
Other (expense) income (expense) primarily includes interest income, interest expense, and foreign exchange gains and losses.losses, and other income and expense. Interest income primarily consists of interest earned on our cash, cash equivalents and investments, and amortization or accretion of discounts and premiums on our investments. Interest expense consists of interest expense under the 2014 Convertible Notes,

including the amortization of debt discounts and issuance costs.costs incurred prior to conversion of the 2014 Convertible Notes in July 2018. Interest expense also includes the amortization of issuance costs and commitment fees incurred on the credit facility. See “—Liquidity and Capital Resources” below and Note 8 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.
In July 2018, the 2014 Convertible Notes were fully converted into shares of Aerie common stock. See Note 13 to our condensed consolidated financial statements included in this report for additional information.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed 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, net revenue, costs and expenses and related disclosures. We evaluate our estimates and judgments on an ongoing basis. Significant estimates include assumptions used in the determination of revenue recognition, inventories, lease accounting, accrued expenses, fair value measurements, acquisitions and stock-based 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.
Other than the application of revenue recognitionlease accounting policies and estimates as described below, our critical accounting policies and significant estimates have not materially changed since the date we filed our 20172018 Form 10-K. For more information on our critical accounting policies and estimates, refer to our 20172018 Form 10-K.
Revenue RecognitionLeases
We recognize revenue when our customers obtain control of our product in an amount that reflects the consideration we expect to receive from our customers in exchange for that product. To determine revenue recognition for contracts that are determined to be in scope of the Financialadopted Accounting Standards Board Accounting Standards Codification Topic 606, Revenue from Contracts with Customers Update (“ASU”) 2016-02, Leases (“ASC Topic 606”842”), we perform the following five steps: (i) identify the contract(s) effective January 1, 2019. Under this new lease standard, practically all leases with a customer; (ii) identify the performance obligationslease terms 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 weexcess of one year are entitled to in exchange for the goods or services transferred to our customer. Once the contract is determinedrequired to be withinrecognized on the scopebalance sheet as right-of-use assets and corresponding lease liabilities. Significant assumptions utilized in recognizing the right-of-use asset and corresponding liability included the expected lease term and the incremental borrowing rate. The expected lease term includes both contractual lease periods and, as applicable, extensions of the lease term when we have determined the exercise of the option to extend is reasonably certain to occur. The incremental borrowing rate was utilized to discount lease payments over the expected term given our operating leases do not provide an implicit rate. We estimated the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases. In addition, significant judgment was utilized in determining the impact of our build-to-suit lease for our manufacturing plant in Athlone, Ireland, upon adoption of ASC Topic 606,842, for which we assessconcluded we were 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 amountowner of the transaction price that is allocatedleased space for accounting purposes. As a result, we maintained our previous accounting for our build-to-suit asset and liability upon adoption of ASC Topic 842, which was discounted at the implicit rate of the facility obligation.
The standard has been implemented using the optional transitional method and we elected to utilize certain practical expedients. In electing the respective performance obligation whenoptional transition method, we were required to recognize and measure operating leases existing at, or entered into after, the performance obligation is satisfied. Shippingadoption date. We utilized an incremental borrowing rate on the adoption date to determine the present value of the remaining operating lease assets and handling costs relatedliabilities. Prior period results have not been restated. See Note 2 to our product sales arecondensed consolidated financial statements included in selling, general and administrative expenses.this report for further discussion.
Net product revenues for the three and six months ended June 30, 2018 were derived from sales of Rhopressa® in the United States to customers, which principally include a limited number of national and select regional wholesalers (the “Distributors”). These Distributors subsequently resell the product, primarily to retail pharmacies that dispense the product to patients. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that would have been recognized is one year or less or the amount is immaterial. The product that is ultimately used by patients is generally covered by third-party payers, such as government or private healthcare insurers and pharmacy benefit managers (“Third-party Payers”) and may be subject to rebates and discounts payable directly to those Third-party Payers. We have already obtained coverage in some commercial and Medicare Part D plans and are in the process of increasing those levels of coverage. In the glaucoma market in the United States, approximately half of the volumes are covered under commercial plans and half under Medicare Part D. Medicare Part D coverage would normally commence for Rhopressa®, as with other new products, on January 1, 2019. However, there have been early acceptances of Rhopressa® onto certain Medicare Part D plans, commencing as early as June 1, 2018.
Product revenue is recorded net of trade discounts, allowances, rebates, chargebacks, estimated returns and other incentives, discussed below. These reserves are classified as either reductions of accounts receivable or as current liabilities based on the expected method of settlement. Amounts billed or invoiced are included in accounts receivable, net on the condensed consolidated balance sheet. We did not have any contract assets (unbilled receivables) at June 30, 2018, as customer invoicing generally occurs before or at the time of revenue recognition. We did not have any contract liabilities at June 30, 2018, as we did not receive payments in advance of fulfilling our performance obligations to our customers.

Net product revenue is typically recognized when the Distributors obtain control of our product, which occurs at a point in time, typically upon delivery of Rhopressa® to the Distributors. For the three months ended June 30, 2018, three Distributors accounted for 34%, 33% and 30% of total revenues, respectively. We evaluate the creditworthiness of each of our Distributors to determine whether it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur. We do not assess whether a contract has a significant financing component if the expectation is such that the period between the transfer of the promised goods to the customer and the receipt of payment will be less than one year. Standard credit terms do not exceed 75 days.
We calculate our net product revenue based on the wholesale acquisition cost that we charge our Distributors for Rhopressa® less variable consideration. Variable consideration consists of estimates relating to (i) trade discounts and allowances, such as discounts for prompt payment and Distributor fees, (ii) estimated rebates, chargebacks and other discounts payable to Third-party Payers and (iii) reserves for expected product returns. The estimates of reserves established for variable consideration reflect current contractual and statutory requirements, known market events and trends, industry data and forecasted customer mix. 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® to our Distributors for prompt payment and pay fees for distribution services and for certain data that Distributors provide to us. We expect our Distributors to earn these discounts and fees, and accordingly deduct the full amount of these discounts and fees from our gross product revenues at the time such revenues are recognized.
Rebates, Chargebacks and Other Discounts: We contract with Third-party Payers for coverage and reimbursement of Rhopressa®. We estimate the rebates and chargebacks we expect to be obligated to provide to Third-party Payers and deduct these estimated amounts from our gross product revenue at the time the revenue is recognized. We estimate the rebates and chargebacks that we expect to be obligated to provide to Third-party Payers based upon (i) our contracts and negotiations with these Third-party Payers, (ii) estimates regarding the payer mix for Rhopressa® and (iii) historical industry information regarding the payer mix for comparable pharmaceutical products and product portfolios. Other discounts include our co-pay assistance programs for commercially-insured patients meeting certain eligibility requirements. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that we expect to pay associated with product that has been recognized as revenue.
Product Returns: We estimate the amount of Rhopressa® that will be returned and deduct these estimated amounts from our gross revenue at the time the revenue is recognized. We currently estimate product returns based on historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa® shipped to Distributors, and contractual agreements with our Distributors intended to limit the amount of inventory they maintain. Reporting from the Distributors includes Distributor sales and inventory held by Distributors, which provide us with visibility into the distribution channel to determine when product would be eligible to be returned.



Results of Operations
Comparison of the Three Months Ended June 30, 20182019 and 20172018
The following table summarizes the results of our operations for the three months ended June 30, 20182019 and 2017:2018:
THREE MONTHS ENDED 
 JUNE 30,		 CHANGE 
%
CHANGE
THREE MONTHS ENDED 
 JUNE 30,		 CHANGE 
%
CHANGE
2018 2017 2019 2018 
(in thousands, except percentages)(in thousands, except percentages)
Product revenues, net$2,423
 $—
 $2,423
 *
$15,835
 $2,423
 $13,412
 *
Total revenues, net2,423
 —
 2,423
 *
15,835
 2,423
 13,412
 *
Costs and expenses:       
Cost of goods sold59
 —
 59
 *
705
 59
 646
 *
Selling, general and administrative expenses39,891
 17,153
 22,738
 133%34,482
 33,112
 1,370
 4 %
Pre-approval commercial manufacturing5,819
 6,779
 (960) (14)%
Research and development expenses18,157
 10,615
 7,542
 71%20,904
 18,157
 2,747
 15 %
Total costs and operating expenses58,107
 27,768
 30,339
 109%
Total costs and expenses61,910
 58,107
 3,803
 7 %
Loss from operations(55,684) (27,768) (27,916) 101%(46,075) (55,684) 9,609
 (17)%
Other income (expense), net663
 (618) 1,281
 *
Other (expense) income, net(1,089) 663
 (1,752) *
Loss before income taxes$(55,021) $(28,386) $(26,635) 94%$(47,164) $(55,021) $7,857
 (14)%
*Percentage not meaningful
Product revenues, net
Product revenues, net amounted to $15.8 million and $2.4 million for the three months ended June 30, 2019 and 2018, andrespectively. Revenues recorded in the 2019 period relate to sales of Rhopressa® and Rocklatan®, which wewere launched in the United States at the end ofin late April 2018.2018 and in early May 2019, respectively. Rhopressa® is was our first product to receive regulatory approval. Weapproval, and we did not generate any revenues prior to the three months ended June 30,second quarter of 2018.
Cost of goods sold
Cost of goods sold was $0.1$0.7 million for the three months ended June 30, 2018.2019, compared to $0.1 million in the prior year period. Our gross margin percentage of 98% was favorably impacted during95.5% and 97.6% for the three months ended June 30, 2019 and 2018, respectively, were favorably impacted by product sales of Rhopressa® with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the three months ended June 30, 2019 and 2018 was valued at cost, our gross margin for the period then ended would have been 97%.94.5% and 97.0%, respectively.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $22.7$1.4 million for the three months ended June 30, 20182019 as compared to the three months ended June 30, 2017.2018. This increase was primarily associated with higher sales and marketing costs associated with the launch of Rocklatan® in the second quarter of 2019. Aerie’s commercial infrastructure has not changed significantly from the second quarter of 2018.
Pre-approval commercial manufacturing expenses
Pre-approval commercial manufacturing expenses decreased by $1.0 million for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. Expenses were lower due to the receipt of regulatory approval of our API and drug product contract manufacturers, which began to supply commercial API and product, respectively, in the second quarter of 2019, as the cost of commercial API and product, respectively, produced by these manufacturers following regulatory approval were capitalized as inventory. These costs were partially offset by an increase of costs related to our manufacturing plant in Ireland, of which we completed the build-out in the second quarter of 2019. In addition, employee-related expenses, including stock-based compensation, increased $0.7 million from the three months ended June 30, 2018 to the three months ended June 30, 2019.

Research and development expenses
Research and development expenses increased by $2.7 million for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. This increase is primarily comprised of an increase of $1.4 million related to the development of AR-1105 and AR-13503, and an increase of $1.3 million of employee-related expenses, including stock-based compensation. These increased expenses were partially offset by lower expenses associated with Rocklatan®, primarily driven by NDA filing costs incurred during the 2018 period.
Research and development expenses for Rhopressa® totaled $1.9 million and $1.6 million for the three months ended June 30, 2019 and 2018, respectively. Expenses for Rhopressa® during the three months ended June 30, 2019 and 2018 primarily relate to costs incurred for our clinical trials to support regulatory submission of Rhopressa® in Japan. Research and development expenses for Rocklatan® totaled $2.2 million and $3.3 million for the three months ended June 30, 2019 and 2018, respectively. Expenses for Rocklatan® during the three months ended June 30, 2019 primarily include costs related to the Mercury 3 registration trial in Europe. Expenses for Rocklatan® during the three months ended June 30, 2018 primarily include the NDA filing costs.
Other (expense) income, net
Other (expense) income, net consists of the following:
 THREE MONTHS ENDED 
 JUNE 30,		 CHANGE
 2019 2018 
 (in thousands)
Interest income$540
 $889
 $(349)
Interest expense(1,559) (462) (1,097)
Other (expense) income(70) 236
 (306)
Other (expense) income, net$(1,089) $663
 $(1,752)
Other (expense) income, net changed by $1.8 million for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. This change is primarily driven by an increase of $1.1 million in interest expense in the second quarter of 2019 related to the amortization of issuance costs and commitment fees incurred on the credit facility, partially offset by costs in the prior year for debt discount and issuance costs related to our 2014 Convertible Notes through the date of conversion in July 2018.
Comparison of the Six Months Ended June 30, 2019 and 2018
The following table summarizes the results of our operations for the six months ended June 30, 2019 and 2018:
 SIX MONTHS ENDED 
 JUNE 30,		 CHANGE 
%
CHANGE
 2019 2018  
 (in thousands, except percentages)
Product revenues, net$26,687
 $2,423
 $24,264
 *
Total revenues, net26,687
 2,423
 24,264
 *
Costs and expenses:       
Cost of goods sold1,086
 59
 1,027
 *
Selling, general and administrative expenses70,764
 56,042
 14,722
 26 %
Pre-approval commercial manufacturing10,276
 11,672
 (1,396) (12)%
Research and development expenses38,788
 31,129
 7,659
 25 %
Total costs and expenses120,914
 98,902
 22,012
 22 %
Loss from operations(94,227) (96,479) 2,252
 (2)%
Other (expense) income, net(978) 759
 (1,737) *
Loss before income taxes$(95,205) $(95,720) $515
 (1)%
*Percentage not meaningful

Product revenues, net
Product revenues, net amounted to $26.7 million and $2.4 million for the six months ended June 30, 2019 and 2018, respectively. Revenues in the 2019 period relate to sales of Rhopressa® and Rocklatan®, which were launched in the United States in late April 2018 and in early May 2019, respectively. Rhopressa® was our first product to receive regulatory approval, and we did not generate any revenues prior to the second quarter of 2018.
Cost of goods sold
Cost of goods sold was $1.1 million for the six months ended June 30, 2019, compared to $0.1 million in the prior year period. Our gross margin percentage of 95.9% and 97.6% for the six months ended June 30, 2019 and 2018, respectively, were favorably impacted by product sales with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the six months ended June 30, 2019 and 2018 was valued at cost, our gross margin for the period then ended would have been 94.9% and 97.0%, respectively.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $14.7 million for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018. This increase was primarily associated with the expansion of our employee base to support the growth of our operations, as well as sales and marketing expenses incurred in connection with our commercial launch of Rhopressa® and Rocklatan®.
Employee-related expenses increased by $11.8$8.4 million for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 primarily due to increased headcount, including the addition of our sales force andin early 2018. Employee-related expenses also included an increase in stock-based compensation expense of $2.5$2.9 million. Expenses related to our salesSelling and marketing activitiesexpenses increased by $7.3$4.9 million for the threesix months ended June 30, 2019 as compared to the six months ended June 30, 2018 related to our commercialization of Rhopressa® and Rocklatan®, which launched in United States in late April 2018 and in early May 2019, respectively.
Pre-approval commercial manufacturing expenses
Pre-approval commercial manufacturing expenses decreased by $1.4 million for the six months ended June 30, 2019 as compared to the threesix months ended June 30, 2017 as a result2018. Expenses were lower due to the receipt of regulatory approval of our Rhopressa®API and drug product contract manufacturers, which began to supply commercial launchAPI and product, respectively, in the United States.second quarter of 2019, as the cost of commercial API and product, respectively, produced by these manufacturers following regulatory approval were capitalized as inventory. These costs were partially offset by an increase of costs related to our manufacturing plant in Ireland, of which we completed the build-out in the second quarter of 2019. In addition, employee-related expenses, including stock-based compensation, increased $0.7 million from the six months ended June 30, 2018 to the six months ended June 30, 2019.
Research and development expenses
Research and development expenses increased by $7.5$7.7 million for the threesix months ended June 30, 20182019 as compared to the threesix months ended June 30, 2017.2018. This increase is primarily comprised of an increase of $2.6 million related to the development of AR-1105 and AR-13503, and an increase of $3.2 million of employee-related expenses, including stock-based compensation, and an increase of $1.1 million related to preclinical programs. compensation. These increased expenses were partially offset by lower expenses associated with Rocklatan®, primarily driven by NDA filing costs incurred during the 2018 period.
Research and development expenses for RoclatanRhopressaTM® totaled $3.3 million and $2.9$2.6 million for threethe six months ended June 30, 20182019 and 2017,2018, respectively. Expenses for RoclatanRhopressaTM® during the threesix months ended June 30, 2018 include approximately $2.42019 primarily relate to costs incurred for our clinical trials to support regulatory submission of Rhopressa® in Japan. Research and development expenses for Rocklatan® totaled $3.5 million and $4.2 million for the NDA filing fee, as we submittedsix months ended June 30, 2019 and 2018, respectively. Expenses for Rocklatan® during the NDA for RoclatanTM to the FDA in May 2018, as well assix months ended June 30, 2019 primarily include costs related to the Mercury 3 registration trial in Europe. Research and development expenses for Rhopressa® totaled $1.6 million and $1.2 million for three months ended June 30, 2018 and 2017, respectively. Expenses for RhopressaRocklatan® during the three months ended June 30, 2018 primarily relate to costs incurred for our Phase 2 clinical trial for Japanese regulatory approval.  

Other income (expense), net
Other income (expense), net consists of the following:
 THREE MONTHS ENDED 
 JUNE 30,		 CHANGE
 2018 2017 
 (in thousands)
Interest income$889
 $377
 $512
Interest expense(462) (604) 142
Other income (expense)236
 (391) 627
Other income (expense), net$663
 $(618) $1,281
The change in other income (expense), net for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 relates to an increase in interest income primarily due to the increase in our cash, cash equivalents and investments balances and an increase in unrealized foreign exchange gain included in other income (expense) related to the remeasurement of our Euro-denominated build-to-suit lease obligation, which is held by a subsidiary with a U.S. dollar functional currency.
Comparison of the Six Months Ended June 30, 2018 and 2017:
The following table summarizes the results of our operations for the six months ended June 30, 2018 and 2017:primarily include the NDA filing costs.

Other (expense) income, net
Other (expense) income, net consists of the following:
 SIX MONTHS ENDED 
 JUNE 30,		 CHANGE 
%
CHANGE
 2018 2017  
 (in thousands, except percentages)
Product revenues, net$2,423
 $—
 $2,423
 *
Total revenues, net2,423
 —
 2,423
 *
Cost of goods sold59
 —
 59
 *
Selling, general and administrative expenses67,714
 31,628
 36,086
 114%
Research and development expenses31,129
 21,569
 9,560
 44%
Total costs and operating expenses98,902
 53,197
 45,705
 86%
Loss from operations(96,479) (53,197) (43,282) 81%
Other income (expense), net759
 (930) 1,689
 *
Loss before income taxes$(95,720) $(54,127) $(41,593) 77%
 SIX MONTHS ENDED 
 JUNE 30,		 CHANGE
 2019 2018 
 (in thousands)
Interest income$1,352
 $1,699
 $(347)
Interest expense(2,357) (969) (1,388)
Other income (expense)27
 29
 (2)
Other (expense) income, net$(978) $759
 $(1,737)
*Percentage not meaningful
Product revenues,Other (expense) income, net
Product revenues, net amounted to $2.4 changed by $1.7 million for the six months ended June 30, 2018 and relate to sales of Rhopressa®, which we launched in the United States at the end of April 2018. Rhopressa® is our first product to receive regulatory approval. We did not generate any revenues prior to the six months ended June 30, 2018.
Cost of goods sold
Cost of goods sold was $0.1 million for the six months ended June 30, 2018. Our gross margin percentage of 98% was favorably impacted during the six months ended June 30, 2018 by sales of Rhopressa® with certain materials produced prior to FDA approval and therefore expensed in prior periods. If inventory sold during the six months ended June 30, 2018 was valued at cost, our gross margin for the period then ended would have been 97%.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $36.1 million for the six months ended June 30, 20182019 as compared to the six months ended June 30, 2017.2018. This change is primarily driven by an increase was primarily associated withof $1.4 million in interest expense in the expansionsecond quarter of our employee base2019 related to support the growthamortization of our operations as well as salesissuance costs and marketing expensescommitment fees incurred on the credit facility, partially offset by costs incurred in connection with our commercial launch of Rhopressa®. Employee-related expenses increased by $20.1 million primarily due to increased headcount, including the

addition of our sales force, prior year for debt discount and an increase in stock-based compensation expense of $5.4 million. Expensesissuance costs related to our sales and marketing activities increased by $10.8 million, for2014 Convertible Notes through the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 as a resultdate of our Rhopressa® commercial launchconversion in the United States.
Research and development expenses
Research and development expenses increased by $9.6 million for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. This increase is primarily comprised of an increase of $5.7 million of employee-related expenses, including stock-based compensation, and an increase of $1.7 million related to preclinical programs, partially offset by a $2.2 million decrease in expenses related to RoclatanTM. Research and development expenses for RoclatanTM totaled $4.2 million and $6.4 million for the six months ended June 30, 2018 and 2017, respectively. Our Phase 3 clinical trials for RoclatanTM in the United States were completed during the third quarter of 2017. We submitted an NDA for RoclatanTM with the FDA in MayJuly 2018. Expenses for RoclatanTM for the six months ended June 30, 2018 include $2.4 million for the NDA filing fee as well as costs related to the Mercury 3 registration trial in Europe. Research and development expenses for Rhopressa® totaled $2.6 million and $2.3 million for the six months ended June 30, 2018 and 2017, respectively. Expenses for Rhopressa® during the six months ended June 30, 2018 primarily relate to costs incurred for our Phase 2 clinical trial for Japanese regulatory approval.  
Other income (expense), net
Other income (expense), net consists of the following:
 SIX MONTHS ENDED 
 JUNE 30,		 CHANGE
 2018 2017 
 (in thousands)
Interest income$1,699
 $673
 $1,026
Interest expense(969) (1,201) 232
Other income (expense)29
 (402) 431
Other income (expense), net$759
 $(930) $1,689
The change in other income (expense), net for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 relates to an increase in interest income primarily due to the increase in our cash, cash equivalents and investments balances, and an unrealized foreign exchange gain included in other income (expense) in 2018 related to the remeasurement of our Euro-denominated build-to-suit lease obligation, which is held by a subsidiary with a U.S. dollar functional currency, as compared to an unrealized foreign exchange loss in 2017.
Liquidity and Capital Resources
Since our inception, we have funded operations primarily through the sale of equity securities and the issuance of convertible notes.notes prior to generating product revenues. We commenced generating product revenues related to sales of Rhopressa® in the second quarter of 2018 and Rocklatan® in the second quarter of 2019. 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 one or more of our products is commercially successful, if at all. We received FDA approval for Rhopressa® on December 18, 2017 and launched Rhopressa® in the United States in late April 2018. As a result, we commenced generating product revenues relatedgenerates adequate commercial revenue to sales of Rhopressa® in the second quarter of 2018.render Aerie profitable.
Sources of Liquidity
DuringOur product revenue, net amounted to $26.7 million for the six months ended June 30, 2018, we issued approximately 2.32019, which relate to sales of Rhopressa® and Rocklatan®. Accounts receivable, net amounted to $25.7 million sharesas of our common stock, for which we received net proceeds of approximately $136.4 million, after deducting fees and expenses. This includes approximately $62.3 million of net proceeds from our “at-the-market” sales agreement (“ATM”) and approximately $74.1 million of net proceeds from the issuance of shares of our common stock pursuant to an underwriting agreement related to a registered public offering.June 30, 2019.
As of June 30, 2018,2019, our principal sources of liquidity were our cash and cash equivalents, and investments, which totaled approximately $286.1$109.4 million. Subsequent to June 30,In July 2018, the Companywe entered into a credit facility (the “credit facility”), consisting of a $100 million senior secured delayed draw term loan facility that(the “July 2018 tranche”), which in May 2019 was amended to provide an additional $100 million of delayed draw term loan commitments (the “May 2019 tranche”). In aggregate, we have a total borrowing capacity of $200 million available through the credit facility. The credit facility matures onin July 23, 2024. No funds werehave been drawn at closing.on the credit facility as of June 30, 2019. See Note 138 to our condensed consolidated financial statements included in this report for additional information.

We believe that our cash and cash equivalents, $200 million total available under the credit facility and projected cash flows from revenues, will provide sufficient resources for at least the next twelve months, though there may be need for additional financing activity as we continue to grow. See “—Operating Capital Requirements.”
Cash Flows
The following table summarizes our sources and uses of cash: 
SIX MONTHS ENDED 
 JUNE 30,		SIX MONTHS ENDED 
 JUNE 30,
2018 20172019 2018
(in thousands)(in thousands)
Net cash (used in) provided by:      
Operating activities$(77,799) $(45,786)$(85,109) $(77,799)
Investing activities13,600
 (32,220)(7,118) 13,600
Financing activities137,278
 122,711
(1,228) 137,278
Net change in cash and cash equivalents$73,079
 $44,705
$(93,455) $73,079

Operating Activities
During the six months ended June 30, 20182019 and 2017,2018, net cash used in operating activities was $77.8$85.1 million and $45.8$77.8 million, respectively. The increase in cash used in operating activities during the six months ended June 30, 20182019 as compared to the six months ended June 30, 20172018 was primarily due to the expansion of our employee base, as well as an increase in cash used for commercial operations and manufacturingdevelopment activities for the launch of Rhopressa®.related to our product pipeline.
Investing Activities
During the six months ended June 30, 2019, our investing activities used net cash of $7.1 million related to purchases of property, plant and equipment primarily related to the build-out of our manufacturing plant in Ireland. During the six months ended June 30, 2018, our investing activities provided net cash of approximately $13.6 million primarily related to sales and maturities of available-for-sale investments of $92.8 million, which were partially offset by purchases of available-for-sale investments of $56.2 million and purchases of property, plant and equipment of $23.0 million primarily related to the build-out of our manufacturing plant in Ireland. During the six months ended June 30, 2017, our investing activities used net cash of approximately $32.2 million primarily related to purchases of available-for-sale investments of $54.4 million partially offset by sales and maturities of available-for-sale investments of $24.8 million.
Financing Activities
During the six months ended June 30, 20182019 and 2017,2018, our financing activities used net cash of $1.2 million and provided net cash of $137.3 million, respectively. The net cash used in financing activities for six months ended June 30, 2019 was primarily related to net payments of $1.0 million from stock-based compensation arrangements, representing taxes paid on employees’ behalf through withholding of shares on restricted stock awards and $122.7 million, respectively.option exercises, partially offset by proceeds from employee exercises of stock options and stock purchase rights under our employee stock purchase plan. The net cash provided by financing activities for the six months ended June 30, 2018 was primarily related to the issuance and sale of common stock pursuant to our prior “at-the-market” sales agreement and underwriting agreement related to a registered public offering, from which we received total net proceeds of approximately $136.0 million, net of expenses paid during the period. In addition, we received net proceeds of $1.7 million from stock-based compensation arrangements, primarily from employee exercises of stock options and stock purchase rights under our employee stock purchase plan, partially offset by taxes paid on employees’ behalf through withholding of shares on restricted stock awards and option exercises. The net cash provided by financing activities for the six months ended June 30, 2017 was primarily related to the issuance and sale of common stock pursuant to our prior “at-the-market” sales agreement and underwriting agreement related to a registered public offering, from which we received total net proceeds of approximately $122.0 million, net of expenses paid during the period.
Operating Capital Requirements
We expect to incur ongoing operating losses until such a time when Rhopressa® orRoclatanand RocklatanTM® or any other product, if approved in the future, are commercially successful, if at all.generate adequate revenues to render Aerie profitable.
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; 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 $21.2 million during the six months ended June 30, 2018. 

We believe that our cash and cash equivalents, $200 million available under the credit facility and investments as of June 30, 2018projected cash flows from revenues will provide sufficient resources to support our commercial activities for Rhopressa® through at least the next twelve months andmonths. Further, we believe that we have access to support the expected approval and planned commercialization of RoclatanTMadditional liquidity in the United States. In July 2018, we entered into a $100 million senior secured delayed draw term loan facility, pursuant to which we may borrow up to $100 million in aggregate in onecapital markets such as debt or more borrowings at any time prior to July 23, 2020.convertible debt. The first two years of payments on any amounts drawn amountsfrom the credit facility will be on an interest-only basis. We do not currently intend on drawing down on the credit facility but may do so if andbasis through July 2020. No funds were drawn as needed.of June 30, 2019.

Our future funding requirements will depend on many factors, including, but not limited to the following:
•
costscommercial performance of commercialization activities for Rhopressa® and RoclatanRocklatanTM® and or any current or future product candidates, if approved, including the costs and timing of establishing product sales, marketing, manufacturing and distribution capabilities, and related product sales performance;approved;
•
commercial performancecosts of commercialization activities for Rhopressa® and RoclatanRocklatanTM® or 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;
costsstudies including those related to complete our new manufacturing plant in Ireland;international expansion;
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 ourthe credit facility; 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 draw down on the credit facility or obtain additional financing to fund our future operationsfurther funding through public or private debt offerings, or other sources, or we may decide, based on various factors, that additional financings are desirable. If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.
Outstanding Indebtedness
As of June 30,In July 2018, our total indebtedness consisted of our $125.0 million aggregate principal amount of 2014 Convertible Notes. For a discussion of the 2014 Convertible Notes see Note 9 to our condensed consolidated financial statements included in this report. Subsequent to June 30, 2018, the 2014 Convertible Notes werewas converted into shares of Aerie common stock. Also, in July 2018, we entered into the credit facility, consisting of a $100 million senior secured delayed draw term loan facility, which in May 2019 was amended to provide an additional $100 million of delayed draw term loan commitments. We may borrow up to $200 million in aggregate in one or more borrowings at any time prior to July 23, 2020 under the credit facility. The July 2018 tranche of $100 million under the credit facility includes fees upon drawdown of 1.75% of amounts drawn, an 8.625% annual interest rate on drawn amounts, and annual fees on undrawn amounts of 1.5%. There is also an exit fee of $1.5 million payable upon termination of the July 2018 tranche (whether at maturity or otherwise).
The May 2019 tranche of $100 million under the credit facility includes fees upon drawdown of 2.0% of amounts drawn, an annual interest rate of LIBOR (subject to a floor of 2%) plus 7.2%, up to a maximum of 13.0%, on drawn amounts and annual fees on undrawn amounts of 2.0%. There is also an exit fee of $5.3 million (or $2.6 million if the tranche is undrawn) payable upon termination of the May 2019 tranche (whether at maturity or otherwise). No funds have been drawn under the July 2018 tranche or the May 2019 tranche as of June 30, 2019.
Fees related to the credit facility on undrawn amounts are not payable until July 2020, and no principal payments will be due on drawn amounts, if any, until July 23, 2020. The credit facility matures in July 2024 in respect of drawn amounts. The credit facility includes affirmative and negative covenants and prepayment terms.
See Note 138 to our condensed consolidated financial statements included in this report for additional information.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and commitments as included in our 20172018 Form 10-K, except for (i) minimum purchase commitments for the Rhopressa® active pharmaceutical ingredient and finished drug product of $36million over the next five years; (ii) the conversion of the 2014 Convertible Notes in July 2018, which were converted into shares of Aerie common stock (see Note 13 to our condensed consolidated financial statements included in this report for additional information); and (iii) the entry into the agreement governing our new $100 million delayed draw term loan facility, which was entered into in July 2018, and includes annual fees on undrawn amounts and fees and interest on drawn amounts. No amounts were drawn at closing. See Note 13 to our condensed consolidated financial statements included in this report for additional information.10-K.
Off-Balance Sheet Arrangements
None.


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 June 30, 2018 totaled $270.6 million. Our investments totaled $15.5$109.4 million and $202.8 million as of June 30, 20182019 and consisted of commercial paper and corporate bonds. As of December 31, 2017, our cash and cash equivalents totaled $197.6 million. Our investments totaled $52.1 million as of December 31, 2017 and consisted of commercial paper and corporate bonds.2018, respectively. Given the short-term nature of our cash and 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. Any amounts drawn under the credit facility, if any, will carry a fixed or capped interest rate and, as such, will be subject to limited interest rate risk. We do not currently engage in any hedging activities against changes in interest rates.

We 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 six months ended June 30, 2018,2019, 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 Officer and Chief 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 Officer and Chief Financial Officer concluded that, as of June 30, 2018,2019, 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 Officer and Chief 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
As a result ofThere were no changes in our commercial launch of Rhopressa® in the United Statesinternal control over financial reporting during the quarter ended June 30, 2018, we implemented processes and internal controls to record product revenues, net, cost of goods sold and inventory. The implementation of these processes resulted in changes to our internal controls over financial reporting, which we believe were material. There were no other changes in our internal controls over financial reporting2019 that have materially affected, or are 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. Except as previously disclosed for matters which have now concluded, weWe are not a party to any known litigation, are not aware of any material unasserted claims and do not have contingency reserves established for any litigation liabilities.
Item 1A. Risk Factors
You should consider carefully the risks set forth under “Risk Factors” in our 20172018 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Amendment to Credit Facility
On August 7, 2018, Aerie entered into an amendment (the “Amendment”) to the Credit Agreement, dated as of July 23, 2018 (the “Credit Agreement”), with certain entities affiliated with Deerfield Management Company L.P. The Amendment, which is effective as of July 23, 2018, modifies the Credit Agreement to provide for the ability of the Company and its subsidiaries to pledge cash collateral to secure up to $2.5 million of letters of credit.
The foregoing is a summary of the material terms of the Amendment and not a complete description of the Amendment. Accordingly, the foregoing is qualified in its entirety by reference to the Amendment, attached hereto as Exhibit 10.1, and incorporated herein by reference.None.

PricewaterhouseCoopers Consent
In Exhibit 23.1 to the Company’s 2017 Form 10-K, the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLC, consented to the incorporation by reference into various of the Company’s registration statements of its report dated March 1, 2018 that is included in the 2017 Form 10-K. The reference to the Company’s Registration Statements on Form S-8 (Nos. 333-221442, 333-219671, 333-216578, and 333-216577) were inadvertently omitted. The revised and updated consent attached hereto as Exhibit 23.1 supersedes and replaces the Exhibit 23.1 filed with the 2017 Form 10-K. The revised and updated consent does not change any previously reported financial results or any other disclosures contained in the 2017 Form 10-K.

Item 6. Exhibits
10.1*10.1 
First Amendment toAmended and Restated Credit Agreement, dated as of August 7, 2018,May 2, 2019, by and among Aerie Pharmaceuticals, Inc., Aerie Distribution Inc., the guarantorsother Loan Parties (as defined therein) party thereto from time to time, the lenders party thereto, and Deerfield Private Design Fund III, L.P., as agent.agent for itself and the lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on May 3, 2019).
  
23.1*10.2 
ConsentAmended and Restated Guaranty and Security Agreement, dated as of PricewaterhouseCoopers LLP, independent registered public accounting firm.May 2, 2019, by and among Aerie Pharmaceuticals, Inc., the other Grantors and Guarantors (each as defined therein) party thereto from time to time, and Deerfield Private Design Fund III, L.P., as agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36152) filed on May 3, 2019).
  
31.1* 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
  
31.2* 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
  
32.1** 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.2** 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS*** XBRL Instance Document.
   
101.SCH*** XBRL Taxonomy Extension Schema Document.
   
101.CAL*** XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.LAB*** XBRL Taxonomy Extension Label Linkbase Database.
   
101.PRE*** XBRL Taxonomy Extension Presentation Linkbase Document.
   
101.DEF*** XBRL Taxonomy Extension Definition Linkbase Document.


*Filed herewith.
**Furnished herewith.
***Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language):
 (i) Condensed Consolidated Balance Sheets at June 30, 20182019 and December 31, 20172018 (unaudited), (ii) Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 20182019 and 20172018 (unaudited), (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018 (unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20182019 and 20172018 (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.
 
     
    AERIE PHARMACEUTICALS, INC.
   
Date: August 9, 20188, 2019   /s/ RICHARD J. RUBINO
    Richard J. Rubino
    Chief Financial Officer
    (Principal Financial and Accounting Officer)












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