Stock-based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-based Compensation

8. Stock-based Compensation

On July 13, 2005, the Company’s board of directors adopted and approved the 2005 Aerie Pharmaceutical Stock Plan (the “Plan”), which, as amended in 2008, 2009, 2011 and 2013, provides for the granting of up to 3,586,227 stock- based awards to employees, directors and consultants of the Company. Stock-based awards vest over variable periods, generally ranging from one to five years, and expire not more than ten years after the date of grant. The Company granted stock options to employees to purchase 2,009,551 and 230,200 shares of common stock for the nine months ended September 30, 2013 and 2012, respectively.

	NUMBER OF SHARES			WEIGHTED AVERAGE EXERCISE PRICE		AGGREGATE INTRINSIC VALUE
						(000’S)
Options outstanding at December 31, 2012		1,554,200		$	1.3890	$	2,348
Granted		2,009,551			3.1121
Exercised		(3,195	)		0.3722
Cancelled		(370,896	)		1.3844
Options outstanding at September 30, 2013		3,189,660		$	2.1634	$	24,996
Options exercisable at September 30, 2013		975,669		$	0.5911	$	9,180

The estimated fair value of options granted is determined on the date of grant using the Black-Scholes option pricing model. Options granted to non-employees are re-measured at each financial reporting period until required service is performed.

Stock-based compensation expense for options granted and restricted stock are reflected in the statement of operations as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,				Period From Inception (June 22, 2005) to September 30,
(in thousands)	2013		2012		2013		2012		2013
Research and development	$	62	$	22	$	105	$	66	$	284
General and administrative		1,068		86		1,426		226		2,277
Total(1)	$	1,130	$	108	$	1,531	$	292	$	2,561

(1) For the three and nine months ended September 30, 2013, stock-based compensation expense includes $0.9 million of expense related to a stock-based compensation charge on the August and September 2013 option grants based on the assessment of certain assumptions utilized in determining the fair value of common stock in the context of the Company’s initial public offering (Note 2).

As of September 30, 2013, the Company had $14.4 million of unrecognized compensation expense related to options granted under the Plan. This cost is expected to be recognized over a weighted average period of 3.5 years as of September 30, 2013. The weighted average remaining contractual life on all outstanding options as of September 30, 2013 was 6.0 years.

Restricted Common Stock

On March 21, 2013, concurrent with the cancellation of 345,000 stock options, the Company issued 371,034 shares of restricted stock to an employee. The vesting of these awards is time-based with terms of two to four years. These restricted stock awards are subject to repurchase, such that the Company has the right, but not the obligation, to repurchase unvested shares upon the employee’s termination. As of September 30, 2013, 317,900 shares of restricted stock awards were unvested and subject to repurchase.

Compensation expense related to these restricted stock awards is based on the market value of the Company’s common stock on the date of grant and is expensed on a straight-line basis (net of estimated forfeitures) over the vesting period. The weighted average remaining contractual term for restricted stock awards as of September 30, 2013 was 2.3 years. Compensation expense related to restricted stock awards for the three months and nine months ended September 30, 2013 was $105,000 and $247,000, respectively and was included in general and administrative expense.