Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

Stock-based compensation expense for options granted, restricted stock awards (“RSAs”), RSAs with non-market performance and service conditions (“PSAs”), restricted stock units (“RSUs”), and stock appreciation rights (“SARs”) is reflected in the condensed consolidated statements of operations and comprehensive loss as follows:


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
(in thousands)	2022		2021		2022		2021
Cost of goods sold	$	140	$	287	$	372	$	1,225
Selling, general, and administrative	2,490		4,385		8,260		16,238

Research and development	1,012		1,941		3,600		5,895
Total	$	3,642	$	6,613	$	12,232	$	23,358

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”), which was amended and restated as the Aerie Pharmaceuticals, Inc. Second Amended and Restated Inducement Award Plan (the “Second Amended and Restated Inducement Award Plan”), as described below. The 2005 Plan, the Second Amended and Restated Equity Plan, and the Second Amended and Restated Inducement Award Plan are referred to collectively as the “Plans.” The 2005 Plan was frozen in 2013 and no additional awards have been or will be made under the 2005 Plan.

In 2018, Aerie’s stockholders approved the adoption of the Second Amended and Restated Equity Plan to increase the number of shares issuable under the Plan 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 common stock of Aerie, including equity awards that were previously available for issuance under the 2013 Equity Plan.

In 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 subsequently amended and restated the Inducement Award Plan twice in 2017 to increase the equity awards that may be issued by a total of an additional 874,500 shares. In 2019, the Second Amended and Restated Inducement Award Plan was further amended by Aerie’s Board of Directors to increase the number of shares issuable under the plan by 100,000 shares. On December 9, 2021, Aerie’s Board of Directors approved an increase to the number of shares issuable under the plan for grants made to the Company’s new Chief Executive Officer in connection with his hiring, including 602,952 shares for grants made in December 2021 and additional shares for grants made in the first quarter of 2022. On March 11, 2022, Aerie’s Board of Directors approved an amendment to the Second Amended and Restated Inducement Award Plan to increase the number of shares that may be issued under the plan to 4,092,500 shares, which includes the 602,952 shares granted to our Chief Executive Officer in December 2021 as well as an additional 2,097,048 shares to cover his previously approved March 2022 grant and other new hire grant projections. Awards granted under the Second Amended and Restated Inducement Award Plan, as amended from time to time 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, 2021	6,550,610	$	26.87
Granted	1,160,275	8.39
Exercised	(204,227)	3.81
Canceled/Expired	(1,752,766)	28.09
Options outstanding at September 30, 2022	5,753,892	$	23.59	6.32	$	12,896
Options exercisable at September 30, 2022	3,654,873	$	30.61	4.75	$	2,572
Options vested and expected to vest at September 30, 2022	5,753,892	$	23.59	6.32	$	12,896

As of September 30, 2022, the Company had $13.3 million of unrecognized compensation expense related to options that are expected to vest. This expense is expected to be recognized over a weighted average period of 2.5 years as of September 30, 2022.

Restricted Stock Awards

The following table summarizes the RSA, including PSA, activity under the Plans:


	NUMBER OF SHARES	WEIGHTED AVERAGE FAIR VALUE PER SHARE
Non-vested RSAs at December 31, 2021	977,244	$	18.32
Granted	963,062	8.42
Vested	(266,519)	25.51
Canceled	(181,999)	18.72
Non-vested RSAs at September 30, 2022	1,491,788	10.60

As of September 30, 2022, the Company had $11.8 million of unrecognized compensation expense related to unvested RSAs, including PSAs, that are expected to vest. This expense is expected to be recognized over the weighted average period of 3.0 years as of September 30, 2022. As of September 30, 2022, the Company also had $1.7 million of unrecognized compensation expense related to those unvested PSAs where the performance conditions have not been met.

The vesting of the RSAs is time and service based with terms of 1 to 4 years. In 2017, the Company granted 98,817 PSAs that vested in 2020 upon the satisfaction of certain performance and service conditions. During the nine months ended September 30, 2022, the Company granted 218,418 PSAs which vest upon the satisfaction of certain performance and service conditions, none of which have vested.

Restricted Stock Units

The following table summarizes the RSU activity under the Plans:


	NUMBER OF SHARES	WEIGHTED AVERAGE FAIR VALUE PER SHARE
Non-vested RSUs at December 31, 2021	156,873	$	14.88
Granted	148,850	8.33
Vested	(37,375)	9.11
Canceled	(42,663)	14.98
Non-vested RSUs at September 30, 2022	225,685	11.49

As of September 30, 2022, the associated unrecognized compensation expense totaled $3.7 million related to unvested RSUs that are expected to vest. This expense is expected to be recognized over the weighted average period of 3.1 years as of September 30, 2022.

Stock Appreciation Rights

The following table summarizes the SARs activity under the Plans:


	NUMBER OF SHARES	WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)	AGGREGATE INTRINSIC VALUE (000’s)
SARs outstanding at December 31, 2021	238,349	$	27.67
Granted	111,854	8.21
Exercised	(1,425)	12.25
Canceled	(44,201)	25.95
SARs outstanding at September 30, 2022	304,577	$	20.84	3.2	$	852
SARs exercisable at September 30, 2022	116,437	$	34.27	1.7	$	42

Holders of the SARs are entitled under the terms of the Plans to receive cash payments calculated based on the excess of Aerie’s common stock price over the exercise price in their award; consequently, these awards are accounted for as liability-

classified awards and the Company measures compensation cost based on their estimated fair value at each reporting date, net of actual forfeitures, if any.