Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock-based compensation expense for options granted, RSAs, performance stock awards (“PSAs”), RSUs, SARs and stock purchase rights 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)	2019		2018		2019		2018
Selling, general and administrative	$	7,041	$	6,682	$	23,253	$	20,022
Pre-approval commercial manufacturing	807		700		2,490		1,804
Research and development	2,758		2,596		8,178		7,189
Total	$	10,606	$	9,978	$	33,921	$	29,015

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.” The 2005 Plan was frozen in 2013 and no additional awards have been or will be made under the 2005 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 Aerie common 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 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, 2018	6,935,119		$	28.96
Granted	2,046,583		32.54
Exercised	(139,119	)	28.74
Canceled	(307,317	)	51.53
Options outstanding at September 30, 2019	8,535,266		$	29.02	6.8	$	28,534
Options exercisable at September 30, 2019	5,404,516		$	23.00	5.4	$	28,304

As of September 30, 2019, the Company had $80.2 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 2.7 years as of September 30, 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, 2018	572,706		$	48.18
Granted	494,167		41.13
Vested	(214,276	)	45.76
Canceled	(97,418	)	48.85
Non-vested RSAs at September 30, 2019	755,179		$	44.20

As of September 30, 2019, the Company had $26.2 million of unrecognized compensation expense related to unvested RSAs, including PSAs. This expense is expected to be recognized over the weighted average period of 2.8 years as of September 30, 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 nine months ended September 30, 2019, vesting for the remaining PSAs was deemed probable to occur. As of September 30, 2019, 69,171 PSAs were vested.

As of September 30, 2019, 43,071 non-vested RSAs were cancelled and replaced with a corresponding number of RSUs. The RSUs were issued with the same vesting provisions as the cancelled RSAs. Accordingly, the 43,071 RSUs outstanding at September 30, 2019 were non-vested. As of September 30, 2019, the weighted average fair value per RSU was $19.22, and the associated unrecognized compensation expense totaled $2.1 million. This expense is expected to be recognized over the weighted average period of 2.9 years as of September 30, 2019.

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, 2018	91,000		$	53.83
Granted	113,851		33.73
Exercised	—		—
Canceled	(26,687	)	50.15
SARs outstanding at September 30, 2019	178,164		$	41.49	4.2	$	—
SARs exercisable at September 30, 2019	17,250		$	54.35	3.5	$	—

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.