Stock-based Compensation

Stock-based compensation expense for options granted, RSAs, PSAs and stock purchase rights are reflected in the consolidated statements of operations and comprehensive loss as follows:



	YEAR ENDED DECEMBER 31,
(in thousands)	2018		2017		2016
Selling, general and administrative	$	26,432	$	18,613	$	12,567
Pre-approval commercial manufacturing	2,622		1,359		446
Research and development	9,674		6,106		3,781
Total	$	38,728	$	26,078	$	16,794

As of December 31, 2018, the Company had $68.9 million of unrecognized compensation expense related to options outstanding under its equity plans. This expense is expected to be recognized over a weighted average period of 2.7 years as of December 31, 2018. As of December 31, 2018, the Company had $17.6 million of unrecognized compensation expense, related to unvested RSAs, including PSAs. This cost is expected to be recognized over a weighted average period of 2.7 years as of December 31, 2018.

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 2005 Plan was frozen 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 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.

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

Weighted average assumptions utilized in the fair value calculation for options to purchase common stock as of December 31, 2018, 2017 and 2016 are as follows:



	YEAR ENDED DECEMBER 31,
	2018		2017		2016
Expected term (years)	6.0		6.0		6.0
Expected stock price volatility	78	%	84	%	84	%
Risk-free interest rate	2.7	%	2.0	%	1.4	%
Dividend yield	—	%	—	%	—	%

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, 2017	6,457,343		$	22.15
Granted	1,283,884		56.54
Exercised	(616,248	)	8.97
Canceled	(189,860	)	47.85
Options outstanding at December 31, 2018	6,935,119		$	28.96	6.7	$	91,728
Options exercisable at December 31, 2018	4,720,178		$	19.86	5.8	$	86,357

The weighted-average fair values of all stock options granted for the years ended December 31, 2018, 2017 and 2016 was $38.38, $35.01 and $14.48, respectively. The aggregate intrinsic value of options exercised for the years ended December 31, 2018, 2017 and 2016 was $32.0 million, $8.6 million and $3.9 million, respectively. The intrinsic value is calculated as the difference between the fair market value at December 31, 2018 and the exercise price per share of the stock options. The fair market value per share of common stock as of December 31, 2018 was $36.10.

The following table provides additional information about stock options that are outstanding and exercisable at December 31, 2018:



EXERCISE PRICE	OPTIONS OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (YEARS)	OPTIONS EXERCISABLE
$0.20 - $10.00	1,579,133	4.2	1,579,133
$10.01 - $20.00	923,137	6.9	701,818
$20.01 - $30.00	1,590,265	5.7	1,522,535
$30.01 - $45.00	968,272	7.9	519,509
$45.01 - $55.00	923,305	8.9	238,307
$55.01 - $73.10	951,007	9.2	158,876
	6,935,119		4,720,178

Restricted Stock Awards

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



	NUMBER OF SH ARES		WEIGHTED AVERAGE FAIR VALUE PER SHARE
Nonvested RSAs at December 31, 2017	447,049		$	41.08
Granted	266,514		56.00
Vested	(129,961	)	39.28
Canceled	(10,896	)	52.83
Nonvested RSAs at December 31, 2018	572,706		$	48.18

The vesting of the RSAs is time and service based with terms of 1 to 4 years. The total fair value of restricted stock vested during the years ended December 31, 2018, 2017 and 2016 was $5.1 million, $1.3 million and $0.9 million, respectively. During the year ended December 31, 2017, the Company granted 98,817 RSAs with non-market performance conditions that vest upon the satisfaction of certain performance conditions and service conditions. During the year ended December 31, 2018, there were 19,764 PSAs that vested.

Stock Appreciation Rights

During the year ended December 31, 2018, the Company granted 112,000 cash-settled SARs awards at a weighted average exercise price of $53.83. As of December 31, 2018, 91,000 SARs awards were outstanding and had a weighted average remaining contractual life of 4.3 years.

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.

Employee Stock Purchase Plan

The Company maintains the 2013 Employee Stock Purchase Plan (the “Purchase Plan”) under which substantially all employees may purchase Aerie’s common stock through payroll deductions and lump sum contributions at a price equal to 85% of the lower of the fair market values of the stock as of the beginning or the end of the offering periods. Employees may not purchase more than the fair value equivalent of $25,000 of stock during any calendar year. The Purchase Plan provides for the issuance of up to 645,814 shares of Aerie’s common stock.