AERI Aerie Pharmaceuticals Inc - 10-K

ITEM 1A. RISK FACTORS

We operate in an industry that involves numerous risks and uncertainties. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, including those that we do not currently consider material, may impair our business. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of our common stock to decline.

Risks Factors Summary

The following is a summary of the principal factors that make an investment in our common stock speculative or risky.

Risks Related to Development and Commercialization

• If we or our collaborators are unable to successfully commercialize our products, or experience significant delays in doing so, our business will be materially harmed.

• If we fail to obtain and sustain market acceptance for our products or an adequate level of coverage and reimbursement for our products, potential future sales would be materially adversely affected.

• We face significant competition, and our operating results will suffer if we fail to compete effectively.

• If clinical trials are unsuccessful or delayed, we could be required to abandon development.

• Our products may have undesirable or adverse effects, which may result in the delay, denial or withdrawal of regulatory approval or may limit sales of our products after regulatory approval is received.

• We may not be able to identify additional therapeutic opportunities for our products or to expand our portfolio of product candidates.

Risks Related to Regulation

• Regulatory approval may be substantially delayed or may not be obtained for our products if regulatory authorities require additional time or studies to assess the safety and efficacy.

• Our products subject us to ongoing regulatory requirements and we may face future development, manufacturing and regulatory difficulties.

• Legislation may increase the difficulty and cost of commercialization and affect the prices we may obtain.

• Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products.

Risks Related to Manufacturing

• We anticipate continued reliance on third-party manufacturers. Production at our suppliers’ facilities could be disrupted, which could prevent us from producing enough of our products to satisfy demand.

Risks Related to Our Reliance on Third Parties

• Any collaboration arrangement that we may enter into may not be successful, which could adversely affect our ability to develop and commercialize our products or to enter new therapeutic areas.

• We currently depend on third parties for portions of our operations, and we may not be able to control their work as effectively as if we performed these functions ourselves. If the third parties fail to comply with regulations, our financial results and financial condition will be adversely affected.

• If we fail to manage an effective distribution process in the United States or establish an effective distribution process in jurisdictions outside the United States, our business may be adversely affected.

Risks Related to Intellectual Property

• We may not be able to enforce and protect our intellectual property rights and our proprietary technology.

• If our pending patent applications fail to issue, our business will be adversely affected.

• We may infringe the intellectual property rights of others, which may prevent or delay product development and disrupt the commercialization of or increase the costs of commercializing our products.

• We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

• We will need to obtain regulatory approval of any proposed product names, and any failure or delay associated with such approval may adversely affect our business.

Risks Related to Our Financial Position and Need for Additional Capital

• We have limited revenue and may never become profitable.

• We may need to obtain additional financing to fund our operations and, if we are unable to obtain such financing, we may be unable to complete the development and commercialization of our products.

• Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under the 1.50% convertible senior notes due 2024 (the “Convertible Notes”).

• We may be unable to raise the funds necessary to repurchase the Convertible Notes if required or to pay any cash amounts due upon conversion, and the terms of our then-existing borrowing arrangements may limit our ability to repurchase the Convertible Notes or pay cash upon their conversion.

• The capped call transactions may affect the value of our common stock and subject us to counterparty risk.

• We may sell additional debt or equity securities at any time, which may result in dilution to our stockholders, cause our stock price to fall and impose restrictions on our business.

• Our ability to use our net operating loss carryforwards may be limited and changes to U.S. tax laws and tax laws in other jurisdictions could materially impact our financial position and results of operations.

Risks Related to Our Business Operations and Industry

• We depend upon our key personnel and our ability to attract and retain employees. Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.

• Our business may be negatively impacted by macroeconomic conditions, including inflation and a public health crisis.

• If we engage in acquisitions or licenses in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions or licenses.

• Business interruptions could delay the development of our potential products and our manufacturing activities and could disrupt our potential sales. Our reputation, business and operations may suffer in the event of system failures, cyber-attacks or other security breaches or failure to comply with legal obligations related to information security.

• Our disclosure controls and procedures and our systems to implement such disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

• Any litigation could result in substantial damages and may divert management’s time and attention from our business. Any successful litigation may result in the incurrence of substantial liability if our insurance is inadequate.

Risks Related to Ownership of Our Common Stock

• The market price of our common stock has been, and may continue to be, highly volatile.

• Certain of our existing stockholders, executive officers and directors own a significant percentage of our common stock and may be able to influence or control matters submitted to our stockholders for approval.

• As we do not intend to declare cash dividends on our common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.

• Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.

Risks Related to Development and Commercialization

We depend substantially on the success of our products, Rhopressa ® and Rocklatan ® . If we are unable to successfully commercialize Rhopressa ® or Rocklatan ® , or experience significant delays in doing so, our business will be materially harmed.

Our business and the ability to generate revenue related to product sales depend on the successful commercialization of our products, Rhopressa ® and Rocklatan ® , and the successful development, regulatory approval and commercialization of any product candidates or future product candidates for the treatment of patients with open-angle glaucoma, dry eye and retinal diseases. Rhopressa ® and Rocklatan ® have been approved by the FDA in the United States, and the EC has granted Centralised MAs for the European Union for Rhopressa ® (where it will be marketed as Rhokiinsa ® ) and for Rocklatan ® (where it will be marketed as Roclanda ® ). Rhokiinsa ® has been grandfathered into a U.K. national authorisation under the country’s Brexit legislation and will continue to be authorised in the United Kingdom as long as we provide the MHRA with the required additional information, and Roclanda ® received a U.K. authorisation in April 2021. Neither product has received regulatory approval in any other jurisdiction and no sales can be made in any such jurisdiction unless such approval occurs. Centralized and U.K. marketing authorisations lapse if the authorized products are not placed on the market for a period of three consecutive years. If we are unable to place our products on the market for a period of three consecutive years, which might occur for a variety of reasons, both practical (manufacturing issues) and regulatory (pricing and reimbursement decisions), then we would lose the right and opportunity to do so and would have to reapply for a marketing authorisation. We have invested a significant portion of our efforts and financial resources in the development of Rhopressa ® and Rocklatan ® , and our prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize these products. The success of Rhopressa ® , Rocklatan ® and any product candidates or future product candidates depends on factors including:

• successfully completing clinical trials;

• receiving and maintaining current regulatory approvals from applicable regulatory authorities;

• developing and maintaining effective sales, marketing and distribution capabilities;

• establishing adequate manufacturing capacity;

• obtaining and maintaining patent and trade secret protection and regulatory exclusivity;

• establishing commercial markets;

• obtaining coverage and reimbursement from third-party payers at a commercially reasonable price point; and

• successfully competing with other products.

If we do not achieve one or more of these factors in a timely manner or at all, or if we lose market exclusivity such as through the approval of an ANDA—the filing of which by our competitors with respect to Rhopressa ® and/or Rocklatan ® is possible as of December 18, 2021, if such filing contains a Paragraph IV Certification, we could experience significant delays or an inability to successfully commercialize Rhopressa ® , Rocklatan ® or any product candidates or future product candidates or to expand into new markets. This could materially harm our business, and we may not be able to earn sufficient revenues and cash flows to continue our operations.

The commercial success of Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, will depend on the degree of market acceptance among eye-care professionals, patients, patient advocacy groups, healthcare payers and the medical community.

The commercial success of Rhopressa ® and Rocklatan ® in the United States will depend on the degree of market acceptance among eye-care professionals, patients, patient advocacy groups, healthcare payers, including pharmacy benefit managers, and the medical community. Similarly, if Rhopressa ® and Rocklatan ® are approved in jurisdictions outside the United States, the European Union, the United Kingdom or any product candidates or future product candidates are approved in any jurisdiction in which they may receive approval, those products may not gain such market acceptance in such jurisdictions. There are a number of available therapies marketed for the treatment of open-angle glaucoma, dry eye and retinal diseases. Some of these drugs are branded and subject to patent protection, but most others, including latanoprost and many beta blockers, in the case of glaucoma treatment, are available on a generic basis. Many of these approved drugs are well-established therapies and are widely accepted by eye-care professionals, patients and third-party payers. Insurers and other third-party payers may also encourage the use of generic products, either in preference to or prior to the use of brand therapies. The degree of market

acceptance of Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, will depend on a number of factors, including:

• the market price, affordability and patient out-of-pocket costs, relative to other available products, which are predominantly generics;

• the possibility that third-party payers will not give favorable positions on their formularies or will place restrictions on their use, including through use of step therapy or prior authorization programs;

• the timing of market introduction;

• their effectiveness as compared with currently available products;

• eye-care professional willingness to prescribe and patient willingness to adopt them in place of current therapies;

• varying patient characteristics including demographic factors such as age, health, race and economic status;

• changes in the standard of care for the targeted indications;

• the prevalence and severity of any adverse side effects;

• limitations or warnings contained in labeling;

• limitations in the approved clinical indications and MOA(s);

• our success in demonstrating their benefits including relative convenience and ease of initiation, prescription and administration;

• the strength of our selling, marketing and distribution capabilities;

• the quality of our relationships with eye-care professionals, patient advocacy groups, third-party payers and the medical community;

• the continuous availability of quality manufactured products;

• sufficient third-party coverage or reimbursement; and

• the degree to which the products are subject to material product liability claims.

As we have done with Rhopressa ® and Rocklatan ® , it is possible that we may find it necessary or desirable to provide rebates on product candidates or future product candidates, if approved, to customers or third-party payers or to implement patient assistance programs, including co-pay assistance programs, which could affect our profitability. In addition, we do not know how eye-care professionals, patients and third-party payers will continue to respond to the pricing of Rhopressa ® and Rocklatan ® in the United States or how they will respond to their pricing in jurisdictions outside the United States, or the pricing of any product candidates or future product candidates in any jurisdiction, if approved.

The market opportunities for our currently marketed or potential products, if approved, are difficult to precisely estimate. Our estimates of these market opportunities include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, independent sources have not verified our assumptions. If any of these assumptions prove to be inaccurate and the actual market for any of our products post-regulatory approval is smaller than we expect or if we fail to maintain market acceptance or fail to achieve market acceptance, our potential product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability.

If we fail to obtain and sustain an adequate level of coverage and reimbursement for Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, by third-party payers, potential future sales would be materially adversely affected.

The course of treatment for patients with open-angle glaucoma, dry eye and retinal diseases includes primarily older drugs, and the leading products for the treatment of open-angle glaucoma, dry eye and retinal diseases currently in the market, including latanoprost and timolol, in the case of glaucoma treatment, are available as generic drugs. Therefore, there will be no commercially viable market for Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, without adequate coverage and reimbursement from third-party payers, and any reimbursement policy may be affected by future healthcare reform measures. We have obtained broad formulary coverage for our glaucoma franchise products for the lives covered under commercial plans and Medicare Part D plans. We cannot be certain that those levels of coverage will continue to increase, or that we will be able to maintain those levels of coverage. Further, we cannot be certain that adequate

coverage and reimbursement will be available for either of our products in jurisdictions outside the United States or for any product candidates or future product candidates, if approved. Additionally, even if there is a commercially viable market, if the level of coverage or reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.

Third-party payers, such as government or private healthcare insurers and pharmacy benefit managers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. A current trend in the United States healthcare industry is toward cost containment. Large public and private payers, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, treatments. Such third-party payers, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payers limit coverage of or reimbursement for newly approved healthcare products. Third-party payers may limit the covered indications. Cost-control initiatives in the U.S. healthcare industry could decrease the price we have established for Rhopressa ® , Rocklatan ® or any product candidates or future product candidates, if approved, which could result in product revenues being lower than anticipated. Our products are currently priced higher than existing generic drugs and consistently with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payers may not be willing to reimburse for Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, which would significantly reduce the likelihood of them gaining market acceptance. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted.

We believe that U.S. third-party payers consider the efficacy, cost effectiveness, safety and tolerability of Rhopressa ® and Rocklatan ® and will consider such factors of any product candidates or future product candidates, if approved, and whether use of any such products should be a covered benefit under its health plan in determining whether to approve coverage and reimbursement for such products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business would be materially adversely affected if we do not maintain approval for reimbursement of Rhopressa ® or Rocklatan ® or if we do not receive approval for reimbursement of any product candidates or future product candidates, if approved, from third-party payers on a timely or satisfactory basis or if pricing is set at unsatisfactory levels. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business could be materially adversely affected if Part D prescription drug plans were to limit access to or deny or limit reimbursement of any of our approved products.

Reimbursement in the European Union must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. Reimbursement in the United Kingdom will also need to be negotiated separately. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we or a collaborator may be required to conduct a clinical trial that compares the cost-effectiveness of any of our products, if approved by the appropriate regulatory authorities, to other available therapies. If the prices for any of our products, if approved by the appropriate regulatory authorities, decrease or if governmental and other third-party payers do not provide adequate coverage and reimbursement levels, our revenue, potential for future cash flows and prospects for profitability will suffer. Also, we or a collaborator may not be able to launch the product uniformly throughout the European Union but may have to commence commercial operations on a country-by-country basis, which could complicate the launching process and negatively affect our sales.

We face competition from larger established branded and generic pharmaceutical companies and if our competitors are able to develop and market products that are preferred over our products, our commercial opportunity will be reduced or eliminated.

The development and commercialization of new drug products is highly competitive. We face competition from larger established branded and generic pharmaceutical companies and smaller biotechnology and pharmaceutical companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat patients with open-angle glaucoma, dry eye, retinal diseases and other diseases of the eye. Our products currently compete directly against companies producing existing and future glaucoma treatment products. To the extent we develop proprietary compounds for use beyond glaucoma, we will face competition from companies, academic institutions, government agencies and private and public research institutions operating in such new therapeutic areas.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Early-stage companies are also developing treatments for open-angle glaucoma, dry eye and retinal diseases and may prove to be significant competitors. We expect that our competitors will continue to develop new treatments for open-angle glaucoma, dry eye and retinal diseases, which may include eye drops, oral treatments, surgical procedures, implantable devices or laser treatments. Alternative treatments beyond eye drops continue to develop. For example, although surgical procedures are currently used in severe cases, less invasive procedures are currently under development, and we expect that we will compete with other companies that develop implantable devices or other products or procedures for use in the treatment of open-angle glaucoma, dry eye and retinal diseases.

Early-stage companies may also compete through collaborative arrangements with large and established companies. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer adverse effects, are more convenient or are less expensive than any products that we may develop.

In addition, our ability to compete may be affected because in many cases insurers or other third-party payers encourage the use of generic products. Ophthalmology is currently dominated by generic drugs, such as latanoprost and timolol, in the case of glaucoma treatment, and additional products are expected to become available on a generic basis over the coming years. In the United States, we currently enjoy regulatory exclusivity for Rhopressa ® and Rocklatan ® through December 18, 2022, although competitors are permitted to file ANDAs as of December 18, 2021, if the ANDA contains a certification that the proposed generic product will not infringe or that our patents are allegedly invalid. Our current products are priced at a premium over competitive generic products and consistent with other branded glaucoma drugs. Our ability to compete effectively will depend upon, among other things, our ability to:

• obtain and maintain patent protection and non-patent exclusivity in all current and potential commercial jurisdictions for our products;

• attract and retain key personnel;

• continue to build an effective selling and marketing infrastructure;

• demonstrate the advantages of our products compared to alternative therapies, including, in the case of Rhopressa ® and Rocklatan ® , other currently marketed PGA and non-PGA products;

• identify and develop additional product candidates to expand our current product portfolio;

• compete against other products with fewer contraindications; and

• obtain and sustain adequate coverage and reimbursement from third-party payers.

If our competitors’ market products that are more effective, safer, have fewer side effects or are less expensive than our products or that reach the market sooner than any of our product candidates or future product candidates, if approved, we may not achieve commercial success.

Failure can occur at any stage of clinical development. If the clinical trials are unsuccessful or delayed, we could be required to abandon development.

A failure of one or more clinical trials can occur at any stage of testing for a variety of reasons. The outcome of preclinical testing and early clinical trials may not be predictive of the outcome of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In addition, adverse events may occur or other risks may be discovered in Phase 3 registration trials that may cause us to suspend or terminate our clinical trials. In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in or adherence to trial protocols, differences in size and type of the patient populations and the rates of dropout among clinical trial participants. Our future clinical trial results therefore may not demonstrate safety and efficacy sufficient to obtain regulatory approval for Rhopressa ® and Rocklatan ® in jurisdictions outside the United States or for any product candidates or future product candidates in any jurisdiction.

Flaws in the design of a clinical trial may not become apparent until the clinical trial is well-advanced or after data results have been obtained. We have limited experience in designing clinical trials and may be unable to design and execute clinical trials on time to support regulatory approval. In addition, clinical trials often reveal that it is not practical or feasible to continue development efforts.

We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. Further, regulatory agencies, IRBs or data safety monitoring boards may at any time order the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Since our inception, we have not voluntarily or involuntarily suspended or terminated a clinical trial due to unacceptable safety risks to participants.

If the results of any of our clinical trials do not achieve the primary efficacy endpoints or demonstrate unexpected safety issues, the prospects for approval of our product candidates will be materially adversely affected. Moreover, preclinical and clinical data are often susceptible to varying interpretations, analyses and entry criteria, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have failed to achieve similar results in later clinical trials, including longer term trials, or have failed to obtain regulatory approval of their product candidates. Many compounds that initially showed promise in clinical trials or earlier stage testing have later been found to cause undesirable or unexpected adverse effects that have prevented further development of the compound. Our ongoing clinical trials for regulatory approvals in jurisdictions outside the United States may not produce the results that we expect and remain subject to the risks associated with clinical drug development as indicated above.

The breadth of the labeling of any product or product candidate, if approved, will depend upon providing evidence of such product’s MOA(s) that is satisfactory to the applicable regulatory authority. Failure to do so will limit the types of claims we will be able to make in our product marketing and labeling. For example, based on the results of our preclinical and clinical studies, we believed Rhopressa ® reduced IOP through additional MOAs; however, Rhopressa ® received FDA approval for only one MOA, ROCK inhibition or the mechanism by which Rhopressa ® increases outflow of aqueous humor through the TM of the eye, as reflected in the Rhopressa ® product labeling.

We may experience numerous unforeseen events that could cause our clinical trials to be unsuccessful, delayed, suspended or terminated, or which could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

• clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or implement a clinical hold;

• the number of patients required for clinical trials may be larger than we anticipate, enrollment in these clinical trials may be slower than we estimate or participants may drop out of these clinical trials at a higher rate than we anticipate;

• our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

• regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

• we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

• we may elect or be required to suspend or terminate clinical trials based on a finding that the participants are being exposed to health risks;

• the cost of clinical trials may be greater than we anticipate;

• the supply or quality of product candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate; and

• product candidates may have undesirable adverse effects or other unexpected characteristics.

If we elect or are required to suspend or terminate a clinical trial, our commercial prospects will be adversely impacted and our ability to generate product revenues may be delayed or eliminated.

Rhopressa ® , Rocklatan ® or any product candidates or future product candidates may have undesirable or adverse effects, which may result in the delay, denial or withdrawal of regulatory approval or may require our products to be taken off the market, require them to include safety warnings or otherwise limit their sales after regulatory approval is received.

Unforeseen adverse effects from Rhopressa ® , Rocklatan ® or any product candidates or future product candidates could arise either during clinical development or, even after approval, after the approved product has been marketed. To date, the main tolerability finding of Rhopressa ® has been mild conjunctival hyperemia, or eye redness. In our Phase 3 registration trials, some

patients also experienced conjunctival hemorrhages, or petechiae, corneal verticillata, blurry vision, and decreased visual acuity as adverse events. Rocklatan ® combines Rhopressa ® with latanoprost. To date, the main tolerability finding of Rocklatan ® has also been mild conjunctival hyperemia. In our Phase 3 registration trials, some patients also experienced conjunctival hemorrhage, eye pruritus, increased lacrimation, reduced visual acuity, blepharitis, punctate keratitis and corneal disorder as adverse events. The main adverse effects of latanoprost include conjunctival hyperemia, irreversible change in iris color, discoloration of the skin around the eyes and droopiness of eyelids caused by the loss of orbital fat. New data relating to Rhopressa ® or Rocklatan ® , including from any adverse event reports or any negative results during clinical development for additional indications, may emerge at any time.

Any undesirable or adverse effects that may be caused by any such products or product candidates could interrupt, delay or halt clinical trials and could result in the delay, denial or withdrawal of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, and in turn prevent us from successfully commercializing such products or product candidates, if approved, and generating or continuing to generate revenues from their sale. In addition, if we or others identify undesirable or adverse effects caused by Rhopressa ® , Rocklatan ® or any product candidates or future product candidates after regulatory approval we could face consequences relating to regulations, litigation or reputational harm, including the withdrawal of regulatory approval of the affected product. These events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating or continuing to generate revenues from its sale.

We may not be able to identify additional therapeutic opportunities for Rhopressa ® , Rocklatan ® or any product candidates or future product candidates or to expand our portfolio of product candidates.

We continue to explore other therapeutic opportunities in ophthalmology through internal research programs and from time to time we may explore such opportunities through research collaboration arrangements or acquisitions and may seek to commercialize a portfolio of new ophthalmic drugs or technologies in addition to Rhopressa ® and Rocklatan ® . For example, in 2019, we acquired Avizorex, a Spanish ophthalmic pharmaceutical company developing therapeutics for the treatment of dry eye disease. Our clinical operations to date have been limited to developing product candidates for the treatment of glaucoma, ocular hypertension, retinal diseases and dry eye disease, and there can be no assurance that we will successfully develop, license or acquire any drugs or technologies in new therapeutic areas or at all.

Preclinical studies require additional research and development, which in some cases may include significant preclinical, clinical and other testing, prior to initiating clinical development or seeking regulatory approval to market new indications, technologies and/or product candidates. Accordingly, these additional indications, technologies and product candidates will not be commercially available for a number of years, if at all.

Research programs, including through collaboration arrangements, to pursue the development of Rhopressa ® , Rocklatan ® and any product candidates or future product candidates for additional indications and to identify new product candidates, technologies, therapeutic areas and disease targets require substantial technical, financial and human resources whether or not we ultimately are successful. Our research programs may initially show promise in identifying potential additional indications, technologies, therapeutic areas and/or product candidates, yet fail to yield results for clinical development for a number of reasons.

We are also focused on furthering the development of our product candidates and future product candidates for treatment of retinal diseases and dry eye disease. The decision whether to pursue, and the timing of, any additional preclinical research programs is subject to a number of factors and we may suspend or discontinue research programs at any time.

In addition, because we have limited financial and managerial resources, we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Accordingly, there can be no assurance that we will ever be able to identify or develop additional therapeutic opportunities for Rhopressa ® , Rocklatan ® or any product candidates or future product candidates or any uses for our existing proprietary compounds beyond glaucoma or to develop suitable potential product candidates or technologies through internal research programs, research collaboration arrangements or acquisitions, which could materially adversely affect our future growth and prospects.

Risks Related to Regulation

Regulatory approval may be substantially delayed or may not be obtained for our products in jurisdictions outside the United States or for any product candidates or future product candidates in any jurisdiction if regulatory authorities require additional time or studies to assess the safety and efficacy.

We may be unable to initiate or complete development of our products in jurisdictions outside the United States on schedule, if at all. If applicable regulatory authorities require additional time or studies to assess the safety or efficacy of any of our products, product candidates or future product candidates, we may require funding beyond the amounts currently on our balance sheet. In addition, in the event of any unforeseen costs or other business decisions, we may not have or be able to obtain adequate funding to complete the necessary steps for approval of any of our products, product candidates or future product candidates. Preclinical studies and clinical trials required to demonstrate the quality, safety and efficacy of drug products are time consuming and expensive and together take several years or more to complete. Delays in regulatory approvals or rejections of applications for regulatory approval in the United States, Europe, Japan or other markets may result from many factors, including:

• our inability to obtain sufficient funds required for a clinical trial;

• regulatory requests for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials;

• regulatory questions regarding interpretations of data and results and the emergence of new information regarding product candidates or other products;

• clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;

• failure to reach agreement with the applicable regulators regarding the scope or design of our clinical trials;

• our inability to enroll a sufficient number of patients who meet the inclusion and exclusion criteria in our clinical trials;

• our inability to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;

• unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding the effectiveness or safety of product candidates during clinical trials;

• any determination that a clinical trial or product candidate presents unacceptable health risks;

• lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions;

• our inability to reach agreements on acceptable terms with prospective contract research organizations (“CROs”) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

• our inability to identify and maintain a sufficient number of sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by any of our product candidates;

• our inability to obtain approval from IRBs to conduct clinical trials at their respective sites;

• the failure of a third party to comply with applicable regulatory requirements, including site inspections and inspection readiness;

• our inability to timely manufacture or obtain from third parties sufficient quantities or quality of the product candidate or other materials required for a clinical trial; and

• difficulty in maintaining contact with patients after treatment, resulting in incomplete data.

Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial.

Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, have specific requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and

obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time consuming. For all of these reasons, we may not obtain foreign regulatory approvals on a timely basis, if at all.

If we are required to conduct additional clinical trials or other studies with respect to our product candidates beyond those that are initially contemplated, if we are unable to successfully complete our clinical trials or other studies or if the results of these studies are not positive or are only modestly positive, we may be delayed in obtaining regulatory approval for that product candidate, we may not be able to obtain regulatory approval at all or we may obtain approval for indications that are not as broad as intended. Our product development costs will also increase if we experience delays in testing or approvals and we may not have sufficient funding to complete the testing and approval process. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business will be materially harmed.

The United Kingdom left the European Union on January 31, 2020, with a transitional period that ended on December 31, 2020. Rhokiinsa ® has been grandfathered into a U.K. national authorisation under the country's Brexit legislation, and Roclanda ® received a U.K. authorisation. We expect both will continue to be authorised in the United Kingdom as long as we provide the MHRA with the required additional information and do not have three consecutive years without sales.

Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, subject us to ongoing regulatory requirements and we may face future development, manufacturing and regulatory difficulties.

Rhopressa ® and Rocklatan ® are, and any product candidates or future product candidates, if approved, will be, subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping, submission of safety and other post-market approval information, importation and exportation. In addition, approved products, manufacturers and manufacturing facilities are required to comply with extensive FDA and EMA requirements and the requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to current good manufacturing requirements (“cGMP”) requirements. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work are required to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We are also required to report certain adverse reactions and production problems, if any, to the FDA and the EMA and other similar agencies and to comply with certain requirements concerning advertising and promotion. Promotional communications with respect to prescription drugs also are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Accordingly, we may not promote any product for indications, uses or claims for which they are not approved, even though physicians may prescribe them for those uses. If we want to expand any such indications for which we may market a product, we will need to obtain additional regulatory approvals, which may not be granted.

Since the 1970s, by regulation, the FDA has classified dispensers of ophthalmic drugs as drugs when packaged with the drugs. However, the FDA has informed us that, as a result of unrelated litigation regarding the definition of a medical device and despite not taking measures to repeal the existing regulation, the FDA has reconsidered this classification and determined that such products should be classified as drug-led drug-device combination products. This change in classification subjects our dispensers to regulation as device components of combination products. We are still evaluating the impact this change in classification, if maintained by the FDA, will have on our approved products, including supplements requesting approval of changes to our NDAs, and our product candidates, as well as our operations. We cannot predict if this change in classification will be subject to challenge or what the outcome of any such challenge would be.

If a regulatory agency discovers previously unknown problems with Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, such as adverse events of unanticipated severity or frequency, or problems with the facility where such product is manufactured, or disagrees with the promotion, marketing or labeling of such product, or finds that we have engaged in the promotion of off-label use, it may impose restrictions on that product or us, including requiring withdrawal of that product from the market. If either of our products fails to comply with applicable regulatory requirements, a regulatory agency may:

• issue warning letters or untitled letters;

• require product recalls;

• mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

• require us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include shutdown of manufacturing facilities, imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

• impose other administrative or judicial civil or criminal penalties or pursue criminal prosecution;

• withdraw regulatory approval;

• refuse to approve pending applications or supplements to approved applications filed by us or by our potential future collaborators;

• impose restrictions on operations, including costly new manufacturing requirements; or

• seize or detain products.

Existing and future legislation may increase the difficulty and cost of commercializing our potential products and may affect the prices we may obtain.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay regulatory approval of our potential products or restrict or regulate post-marketing activities. In the United States, legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether agencies such as the FDA will issue new guidance or interpretations, whether existing guidance or interpretations will be changed, or what the impact of such changes on our sales and promotional activities for our approved products or the marketing approvals of our potential products may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

If we are found in violation of U.S. federal or state “fraud and abuse” laws or other healthcare laws and regulations, we may be required to pay a penalty and/or be suspended from participation in U.S. federal or state healthcare programs, which may adversely affect our business, financial condition and results of operation.

In the United States, our current and future arrangements with healthcare providers, healthcare organizations, third-party payors and customers expose us to broadly applicable anti-bribery, fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute our product candidates. Restrictions under applicable federal and state anti-bribery and healthcare laws and regulations, include the following:

• The Federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the Federal Anti-Kickback Statute.

• The Federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Many states have similar false claims laws. Cases have been brought under false claims laws alleging that off-label promotion of pharmaceutical products or the provision of kickbacks have resulted in the submission of false claims to governmental healthcare programs.

• Under the HIPAA, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payers, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services to obtain money or property of any healthcare benefit program.

Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from

contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the Federal False Claims Act as well as under the false claims laws of several states.

In addition, certain manufacturers of covered drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program, with certain exceptions, are required to report annually to CMS information related to certain payments and other transfers of value to physicians, physician assistants, certain types of advance practice nurses, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members, with the information made publicly available on a searchable website.

Many states have adopted laws similar to the Federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payers. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing, price, and/or price increase disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.

Furthermore, the government purchasing and reimbursement programs include remedies such as the obligation to correct reported prices and pay additional rebates (depending on the direction of the correction) or pay restitution to the extent the government overpaid for covered drugs, In addition, federal law provides for civil monetary penalties for conduct such as failure to provide required information, late submission of required information, false information, and knowingly and intentionally overcharging a 340B covered entity.

Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. While we believe we have structured our business arrangements to comply with these laws, it is possible that the government could allege violations of, or convict us of violating, these laws. If we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of our operations. Were this to occur, our business, financial condition and results of operations and cash flows may be materially adversely affected.

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, could be subject to restrictions or withdrawal from the market.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be materially adversely affected. Additionally, if we are unable to continue to generate revenues from our product sales, our potential for achieving profitability will be diminished and the need to raise capital to fund our operations will be increased.

Healthcare law and policy changes may negatively impact our business, including by decreasing the prices that we and our collaborators receive for our products.

In recent years, the United States has enacted or proposed legislative and regulatory actions and executive orders affecting the healthcare system that may impact our ability to profitably sell any product for which we obtain marketing approval. For example, the federal government has implemented reforms to government healthcare programs in the United States, including changes to the methods for, and amounts of, Medicare reimbursement and changes to the Medicaid Drug Rebate Program. The implementation of certain of these policy changes has decreased our revenues and increased our costs, and federal and state legislatures, health agencies and third-party payers continue to focus on containing the cost of prescription drugs. Further legislative and regulatory changes, and increasing pressure from social sources, are likely to further influence the manner in which our products are priced, reimbursed, prescribed and purchased.

The Medicare Modernization Act (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly by establishing Medicare Part D and introduced a reimbursement methodology based on average sales prices for physician-administered drugs under Medicare Part B. In addition, this legislation provided authority for limiting the number of drugs that are covered in any therapeutic class under the

Part D program. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payers.

The Patient Protection and Affordable Care Act (“PPACA”) added provisions to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among other things, PPACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program, imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole,” which is now 70% of the negotiated price. There have been efforts to repeal or overturn PPACA. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the PPACA will remain in effect in its current form. It is possible that the PPACA will be subject to judicial or Congressional challenges in the future. It is uncertain how any such challenges and the healthcare measures of the Biden administration will impact the PPACA and our business.

In addition, the United States Department of Health and Human Services (“HHS”) through FDA has issued a final rule to permit importation of certain pharmaceutical products provided certain requirements can be met. Litigation was initiated with regard to this final rule and the Biden Administration has defended the final rule. The litigation is ongoing. In addition, former President Trump and President Biden both issued Executive Orders intended to favor government procurement from domestic manufacturers.

On November 20, 2020, HHS finalized a regulation removing safe harbor protection under the Federal Anti-Kickback Statute for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law or unless it is passed through to the dispensing pharmacy and reflected in the price to the patient. The implementation of the rule has been delayed by the Biden administration to January 1, 2023 in response to ongoing litigation. In addition, effective January 1, 2024, a provision capping the rebate amount under the Medicaid Drug Rebate program at 100% of AMP will be eliminated, which means that a manufacturer could pay a rebate amount on a unit of the drug that is greater than the price the manufacturer receives for the drug. Further, effective January 1, 2023, a final rule issued by CMS will change the way copay assistance program prices are treated in best price for purposes of the Medicaid Drug Rebate Program. This change could result in manufacturers eliminating their patient assistance programs, which would make many innovator drugs more expensive for patients. This final rule is subject to ongoing litigation, but it is not clear when a decision will be made or how the court will rule.

On September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried out by Congress, to reduce drug prices and drug payment. The HHS plan includes, among other reform measures, proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency Many similar proposals, including the plans to give Medicare Part D authority to negotiate drug prices, require drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation, and cap out-of-pocket costs, have already been included in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and other statutory, regulatory, and administrative initiatives will be enacted and implemented, and to what extent these or any future legislation or regulations by the Biden administration will have on our business, including market acceptance, and sales, of our products and product candidates.

In addition, the Health Resources and Services Administration (“HRSA”) recently referred several manufacturers to the HHS Office of Inspector General for consideration of assessment of civil monetary penalties over the manufacturers’ policies that place restrictions on 340B pricing to 340B Covered Entities that utilize contract pharmacies. Under the 340B program, manufacturers are required to charge specified categories of federally funded clinics and safety net hospitals (known as 340B Covered Entities) no more than an established discounted price for their covered outpatient drugs. The program is designed to give 340B Covered Entities access to the same discount obtained by Medicaid under the Medicaid drug rebate program. 340B Covered Entities that do not have their own pharmacies may contract with outside pharmacies to dispense drugs to the Covered Entity’s patients, though concerns about pharmacies diverting 340B drugs to non-340B patients has recently led to the manufacturer restrictions described above and manufacturer litigation over whether a 340B Covered Entity is permitted to contract with multiple outside pharmacies. This litigation is ongoing.

Also, some states have enacted or are considering legislation and ballot initiatives that would control the prices and coverage and reimbursement levels of drugs, including laws to allow importation of pharmaceutical products from lower cost jurisdictions outside the United States and laws intended to impose price controls on state drug purchases.

In addition, governments in countries outside the United States control the costs of pharmaceuticals. Many European countries and Canada have established pricing and reimbursement policies that contain costs by referencing the price of the same or similar products in other countries. In these instances, if coverage or the level of reimbursement is reduced, limited or eliminated in one or more countries, we may be unable to obtain or maintain anticipated pricing or reimbursement in other countries or in new markets. This may influence our decision whether to sell a product in one or more countries, thus adversely affecting our geographic expansion plans. It is also possible that governments may take additional action to reform the healthcare system in response to the evolving effects of the coronavirus pandemic.

Healthcare reforms that have been adopted, and that may be adopted in the future, could result in further reductions in coverage and levels of reimbursement for our products, increases in the rebates payable under U.S. government rebate programs and additional downward pressure on the prices that we and our collaborators receive for our products. We cannot be certain as to the ultimate content, timing, or effect of future healthcare law and policy changes, nor is it possible at this time to estimate the impact of any such potential changes; however, such changes or the ultimate impact of changes could materially and adversely affect our revenue or sales of our current or future products and product candidates, as well as those of our collaborators. These actions and the uncertainty about the future PPACA are likely to continue the downward pressure on pharmaceutical pricing and increase our regulatory burdens and operating costs.

These actions and the uncertainty about the future PPACA are likely to continue the downward pressure on pharmaceutical pricing and increase our regulatory burdens and operating costs.

Risks Related to Manufacturing

If we or third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Before we or a third party can begin commercial manufacturing of Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, we or the third party must obtain regulatory approval of our or their manufacturing facilities, processes and quality systems. If we or our third-party manufacturers do not have a cGMP compliant status or other comparable status acceptable to the FDA or other regulatory authority, as applicable, approval of any NDA or other application that includes those manufacturers will be delayed.

Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, we or any potential third-party manufacturer may be unable to initially pass federal, state or international regulatory inspections in a cost-effective manner. We or any of our contract manufacturers may fail to satisfy or comply with manufacturing regulations. If we or our contract manufacturers do not have a compliance status acceptable to the FDA, regulatory approval and/or commercial supply of the active pharmaceutical ingredients of Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, will be significantly delayed and may result in significant additional costs.

In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and foreign regulatory authorities, before and after product approval, and must comply with cGMP. We or our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. In addition, failure to achieve and maintain high manufacturing standards in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury, product liability claims, product shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. If we or a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of our products, product liability claims, total or partial suspension of production and/or enforcement actions, including injunctions and criminal or civil prosecution. These possible sanctions could materially adversely affect our reputation, financial results and financial condition.

Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, will require prior FDA or other regulatory review and/or approval of the manufacturing process and procedures in accordance with the FDA’s regulations or comparable foreign requirements. This review may be costly and time consuming and could delay or prevent the launch or commercial production of a product. The new facility will also be subject to pre-approval inspection. In addition, we have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which are costly and

time consuming. It is also possible that the FDA or other regulatory authority may require clinical testing as a way to prove equivalency, which would result in additional costs and delay.

While we expect to rely heavily on our own manufacturing capabilities at our Athlone plant, there will be continued reliance on third-party manufacturers for the commercialization of Rhopressa ® and Rocklatan ® as back-up suppliers and the development of any product candidates or future product candidates in accordance with manufacturing regulations, beyond our recent progress in internal manufacturing capabilities.

With respect to the commercial production of Rhopressa ® and Rocklatan ® , we currently have contractual relationships for finished product manufacturing with two vendors and are outsourcing the production of the API. To the extent we terminate our existing supplier arrangements in the future and seek to enter into arrangements with alternative suppliers, we may experience a delay in our ability to obtain our clinical or commercial supplies.

Reliance on third-party manufacturers entails risks, including:

• manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, or otherwise do not satisfactorily perform according to the terms of their agreements with us;

• delays in obtaining regulatory approval for Rhopressa ® and/or Rocklatan ® outside the United States or any product candidates or future product candidates, if our third-party manufacturers fail to satisfy or comply with regulatory requirements;

• the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;

• the possible breach of the manufacturing agreement by the third party;

• product loss due to contamination, equipment failure or improper installation or operation of equipment or operator error;

• the failure of the third-party manufacturer to comply with applicable regulatory requirements; and

• the possible misappropriation of our proprietary information, including our trade secrets and know-how.

For example, in October 2016, we were required to withdraw the initial submission of our NDA for Rhopressa ® due to a contract manufacturer of our drug product not being prepared for pre-approval inspection by the FDA. We resubmitted the Rhopressa ® NDA in February 2017 upon receiving confirmation from the contract manufacturer that it was prepared for FDA inspection and the Rhopressa ® NDA was subsequently approved in December 2017.

In addition, our manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of Rhopressa ® , Rocklatan ® or any product candidates or future product candidates could be interrupted, resulting in delays and additional costs. We may also have to incur other charges and expenses for products that fail to meet specifications and undertake remediation efforts.

In January 2017, we established our own manufacturing plant in Athlone, Ireland, and we completed the build-out during the second quarter of 2019. In January 2020 and September 2020, we received FDA approval to produce Rocklatan ® and Rhopressa ® , respectively, at the Athlone manufacturing plant for commercial distribution in the United States. The Athlone manufacturing plant began manufacturing commercial supplies of Rocklatan ® in the first quarter of 2020 and Rhopressa ® in the third quarter of 2020 for distribution to the United States. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa ® for the Phase 3 clinical trials in Japan as well as registration batches to support product approval in Japan. We expect that the Athlone manufacturing plant will have adequate capacity to produce Rhopressa ® and Rocklatan ® for the United States as well as both the European and Japanese commercial markets. However, there can be no assurance that we will be able to successfully manufacture our final drug product on a commercial scale or in accordance with manufacturing regulations. If our manufacturing operations fail to achieve regulatory approval or to effectively produce commercial supplies of Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, or until such time we are capable of developing internal manufacturing capabilities, we will be required to rely solely on third-party manufacturers to meet our commercial manufacturing needs, which may materially adversely affect our business, results of operations or financial condition.

We commenced operation of our cGMP-validated manufacturing facility in RTP for production of ophthalmic implants using the proprietary PRINT ® technology platform in the fourth quarter of 2018. We anticipate that this facility will be the primary manufacturer of our implant product candidates.

Production at our suppliers’ facilities could be disrupted for a variety of reasons, which could prevent us from producing enough of our products to maintain our sales and satisfy our customers' demands.

A disruption in production at our suppliers’ facilities could have a material adverse effect on our business. Disruptions or interruptions of production or operations could occur for many reasons, including accidents, unplanned maintenance or other manufacturing problems, cyber security incidents, terrorism, acts of war or political unrest, disease or public health crises, strikes or other labor unrest, transportation interruption or other unforeseen events as a result of weather, fire, natural disasters or otherwise. Additional facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production due to the need for FDA approval, each of which could negatively affect our business and financial performance. If one of our key suppliers is unable to produce our products or raw materials for an extended period of time, our sales may be reduced by the shortfall caused by the disruption and we may not be able to meet our customers’ needs, which may materially adversely affect our business and financial performance.

Risks Related to Our Reliance on Third Parties

If we or our collaborators are unable to successfully obtain regulatory approval and commercialize Rhopressa ® and Rocklatan ® in jurisdictions outside the United States, our business may be harmed.

To obtain regulatory approval and commercial success for our products in jurisdictions outside the United States, we must either conduct clinical trials and develop a sales and marketing organization in such jurisdictions or outsource these functions to third parties through collaboration agreements. In October 2020, we announced the First Santen Agreement for the development and commercialization of Rhopressa ® and Rocklatan ® in Japan. In December 2021, we entered into the Second Santen Agreement, which expands the scope of the First Santen Agreement, and granted Santen the exclusive right to develop and commercialize Rhopressa ® and Rocklatan ® in Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries. We have limited experience conducting clinical trials in jurisdictions outside the United States and no experience selling, marketing or distributing any drug product in any jurisdictions outside the United States. A failure of one or more clinical trials can occur at any stage of testing for a variety of reasons. See “—Risks Related to Development and Commercialization— Failure can occur at any stage of clinical development. If the clinical trials are unsuccessful or delayed, we could be required to abandon development. ” Other companies have experienced unsuccessful product launches and failed to meet expectations of market potential, including companies with significantly more experience and resources than we do, and there can be no guarantee that we or our collaborators will successfully launch any product in any jurisdictions outside the United States. If we enter into any collaboration agreement, such as the Santen Agreements, our collaborator may not advance the clinical trials or commercialization milestones as quickly or as successfully as we had expected. See “— Any collaboration arrangement that we may enter into may not be successful, which could adversely affect our ability to develop and commercialize any product candidates or future product candidates or technologies or to enter new therapeutic areas. ” If we pursue on our own a sales and marketing strategy in an additional jurisdiction, which may occur if a collaboration agreement does not result in a successful product launch, we would incur significant additional expenses and commit significant additional time and management resources if we were to establish and train a sales force to market and sell our products in jurisdictions outside the United States. We may not be able to successfully obtain regulatory approval or commercialize our products on our expected timing or at all despite these additional expenditures.

Factors that may inhibit our efforts to successfully obtain regulatory approval and commercialize our products outside the United States include:

• regulatory questions regarding interpretations of data and results and the emergence of new information regarding product candidates or other products;

• clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;

• failure to reach agreement with the applicable regulators regarding the scope or design of the clinical trials;

• an inability to enroll a sufficient number of patients who meet the inclusion and exclusion criteria in the clinical trials;

• an inability to compete with other pharmaceutical companies to recruit, hire, train and retain adequate numbers of effective sales and marketing personnel with requisite knowledge of our target market;

• an inability to effectively manage a geographically dispersed sales and marketing organization in such jurisdictions;

• the inability of sales personnel to obtain access to adequate numbers of eye-care professionals to prescribe any future approved products;

• failure to adhere to regulatory requirements governing the sale of products in any jurisdiction;

• unforeseen costs and expenses associated with creating an independent sales and marketing organization;

• a delay in bringing products to market after efforts to hire and train our sales force have already commenced; and

• failure to maintain the relationship contemplated by a collaboration agreement for a territory leading to its termination.

In the event we are unable to successfully market and promote our products, our business may be harmed.

Any collaboration arrangement that we may enter into may not be successful, which could adversely affect our ability to develop and commercialize our products, any product candidates or future product candidates or technologies or to enter new therapeutic areas.

We continually explore and discuss additional opportunities for new ophthalmic products, delivery alternatives and new therapeutic areas with potential partners and on our own. We may seek collaboration arrangements with pharmaceutical or biotechnology companies or universities for the development or commercialization of our product candidates or future product candidates or technologies. As part of our globalization strategy, in October 2020, we entered into the First Santen Agreement to advance our clinical development and ultimately commercialize Rhopressa ® and Rocklatan ® in Japan and East Asia and in December 2021, we entered into the Second Santen Agreement to advance our clinical development and ultimately commercialize Rhopressa ® and Rocklatan ® in Europe, China, India, the Middle East, the CIS, Africa, parts of Latin America and the Oceania countries. We will face, to the extent that we decide to enter into additional collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are often complicated and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish, implement and maintain collaborations or other alternative arrangements and the terms of such arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product candidate and/or technology, we can expect to relinquish some or all of the control over the future success of that product candidate and/or technology to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Accordingly, there can be no assurance that any collaboration or licensing arrangement or similar strategic transaction we enter into will result in the benefits that we anticipate.

Pursuant to the First Santen Agreement and the Second Santen Agreement, there are various development milestones and sales milestones. If Santen is not able to hit the milestones within the timeframes contemplated by each agreement, as applicable, or at all, our development and commercialization efforts in Japan, Europe, the Middle East and the other countries will be harmed. Additionally, Santen Pharmaceuticals may terminate the First Santen Agreement if, among other events, there are patents issued that may prevent the commercialization of Rhopressa ® and Rocklatan ® and such discretionary termination would require us to repay up to approximately 85% of a $50.0 million upfront payment, which Santen paid pursuant to the First Santen Agreement, all development milestone payments, and 50% of the development expenses incurred by Santen Pharmaceuticals. Any such discretionary termination of the First Santen Agreement may adversely affect us financially and could harm our reputation. Furthermore, under the Second Santen Agreement, if among other events, there are patents issued in China that may prevent the commercialization of Rhopressa ® and Rocklatan ® , we would be required to repay $8.0 million of the $88.0 upfront payment, which Santen SA paid in January 2022.

Disagreements between parties to a collaboration arrangement regarding research, clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate or technology and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. In addition, collaborators may not pursue development and commercialization of our preclinical molecules or product candidates or may elect not to continue or renew development or commercialization programs based on our results, changes in their strategic focus due to the acquisition of competitive products or technologies, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration may adversely affect us financially and could harm our business reputation.

We have entered into collaboration arrangements and intend to continue exploring the licensing of commercialization rights or other forms of collaboration outside of the United States and we have developed internal manufacturing capabilities in Ireland, both of which will expose us to additional risks of conducting business in international markets.

Entering markets outside of the United States is a component of our growth strategy. If we fail to successfully commercialize, obtain licenses or enter into collaboration arrangements with selling parties, or if these parties are not successful, our revenue-generating growth potential will be adversely affected. As part of this strategy, we completed the build-out of our manufacturing plant in Athlone, Ireland, for additional commercial production of Rhopressa ® and Rocklatan ® in the second quarter of 2019. In January 2020 and September 2020, respectively, we received FDA approval to produce Rocklatan ® and Rhopressa ® , respectively, at the Athlone manufacturing plant for commercial distribution in the United States. The Athlone manufacturing plant began manufacturing commercial supplies of Rocklatan ® in the first quarter of 2020 and Rhopressa ® in the third quarter of 2020 for distribution to the United States. The Athlone manufacturing plant has also manufactured clinical supplies of Rhopressa ® for the Phase 3 clinical trials in Japan. We expect that the Athlone manufacturing plant will have adequate capacity to produce Rhopressa ® and Rocklatan ® for the United States as well as both the European and Japanese commercial markets, but there can be no guaranty that the facility will be able to manufacture products with specifications unique to any particular jurisdiction. We have entered into the First Santen Agreement to advance our clinical development and ultimately commercialize Rhopressa ® and Rocklatan ® in Japan and East Asia and, pursuant to the Second Santen Agreement, we intend to utilize the Athlone manufacturing plant to manufacture and supply Rhopressa ® and Rocklatan ® for Europe and the other territories covered by such agreement. Our offices in Ireland, the United Kingdom and Japan assist with our international expansion. International operations and business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:

• efforts to enter into or expand collaboration or licensing arrangements with third parties in connection with our international sales, marketing, manufacturing and distribution efforts may increase our expenses or divert our management’s attention from the acquisition or development of product candidates;

• changes in a specific country’s or region’s political and cultural climate or economic condition or changes in governmental regulations and laws;

• differing regulatory requirements for drug approvals, manufacturing and marketing internationally;

• difficulty of effective enforcement of contractual provisions in local jurisdictions;

• potentially reduced protection for intellectual property rights;

• potential third-party patent rights in countries outside of the United States;

• changes in tariffs, trade barriers and other regulatory requirements including those governing data privacy;

• divergent environmental laws and regulations;

• economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several countries in Europe;

• compliance with tax, employment, immigration and labor laws for employees traveling abroad;

• the effects of applicable foreign tax structures and potentially adverse tax consequences (including the tax reform law that was enacted in the United States in December 2017) that create uncertainty with respect to the tax impact on our business operations and profitability;

• foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incidental to doing business in another country;

• workforce uncertainty in countries where labor unrest is more common than in the United States;

• the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

• failure of our employees and contracted third parties to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act or other extra-territorial anti-bribery laws such as the U.K. Bribery Act 2010;

• production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

• business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, tsunamis, floods, hurricanes and fires.

These and other risks may materially adversely affect our business, results of operations, financial condition or ability to attain or sustain revenue from international markets.

We currently depend on third parties to conduct some of the operations of our clinical trials and other portions of our operations, and we may not be able to control their work as effectively as if we performed these functions ourselves.

We rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to oversee and conduct our clinical trials and to perform the related data collection and analysis. We expect to rely on these third parties to conduct clinical trials of any product candidates or future product candidates that we develop. These parties are not our employees and we cannot control the amount or timing of resources that they devote to our programs. In addition, any CRO that we retain will be subject to the FDA’s regulatory requirements or similar foreign standards and we do not have control over compliance with these regulations by these providers. Our agreements with third-party service providers are on a trial-by-trial and project-by-project basis. Typically, we may terminate the agreements with notice and are responsible for the third party’s incurred costs. If any of our relationships with our third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. We also rely on other third parties to store and distribute drug supplies for our clinical trials and commercial supply. Any performance failure on the part of our third-party vendors could delay, as applicable, clinical development, regulatory approval or commercialization of Rhopressa ® , Rocklatan ® or any product candidates or future product candidates, producing additional losses and depriving us of potential product revenue.

Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities, and we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan, the protocols for the trial and the FDA’s regulations and international standards, referred to as GCP requirements, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate, and that the rights, integrity and confidentiality of trial participants are protected. Preclinical studies must also be conducted in compliance with the Animal Welfare Act requirements. Managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers.

Furthermore, these third parties may produce or manufacture competing drugs or may have relationships with other entities, some of which may be our competitors. The use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.

If these third parties do not successfully carry out their contractual duties or obligations and meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols according to regulatory requirements or for other reasons, our financial results and the commercial prospects for Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, could be harmed, our costs could increase and our ability to obtain regulatory approval (as applicable) and commence product sales could be delayed.

If we fail to manage an effective distribution process in the United States or establish an effective distribution process in jurisdictions outside the United States, our business may be adversely affected.

We have established the infrastructure necessary for distributing pharmaceutical products in which third-party logistics wholesalers warehouse Rhopressa ® and Rocklatan ® and distribute them to pharmacies and will need to establish such infrastructures in jurisdictions outside the United States. This distribution network requires significant coordination with our sales and marketing and finance organizations, and the failure to coordinate financial systems could negatively impact our ability to accurately report product revenue. If we are unable to effectively manage the distribution process, the continued commercialization of our products could be disrupted or the commercial launch and sales of Rhopressa ® and Rocklatan ® in jurisdictions outside the United States, in any such case, or any product candidates or future product candidates, if approved, will be delayed or severely compromised and our results of operations may be harmed.

A significant portion of our revenue currently comes from a limited number of distributors, and any decrease in revenue from these distributors could harm our business.

A significant portion of our revenue comes from a limited number of distributors, including McKesson Corporation, Cardinal Health, Inc. and AmerisourceBergen Corporation. We further expect that a significant portion of our revenue will continue to depend on sales to a limited number of distributors in the foreseeable future. We do not have long-term commitments from our distributors to carry our products, and any of our distributors may from quarter to quarter comprise a significant concentration of our revenues. Our dependence on a few distributors could expose us to the risk of substantial losses if any single large distributor stops purchasing our products, purchases a lower quantity of our products or goes out of business and we cannot find substitute distributors on equivalent terms without delays, if at all. While we may be able to shift our business to one of our other existing distributors or to a new distributor, there may be disruption in the interim. In addition, any reduction in the prices we receive for our products could adversely impact our revenues and financial condition. If we lose our relationship with any of our significant distributors, we could experience delays in the distribution of our products and could also experience declines in our revenues which in turn could materially adversely affect our business, results of operations or financial condition.

Risks Related to Intellectual Property

We may not be able to protect our proprietary technology in the marketplace.

We depend on our ability to protect our proprietary technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability and any future licensee’s ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We believe we will be able to obtain, through prosecution of our current pending patent applications, adequate patent protection for our proprietary drug technology. If we are compelled to spend significant time and money protecting or enforcing our patents, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business and financial prospects may be harmed. If we are unable to effectively protect the intellectual property that we own, other companies may be able to offer the same or similar products for sale, which could materially adversely affect our competitive business position and harm our business prospects. Our patents may be challenged, narrowed, invalidated, or circumvented, which could limit our ability to stop competitors from marketing the same or similar products or limit the length of term of patent protection that we may have for our products.

The patent positions of pharmaceutical products are often complex and uncertain. The standards of patentability as well as the breadth of claims allowed in pharmaceutical patents in the United States and many jurisdictions outside of the United States is not consistent. For example, in many jurisdictions the support standards for pharmaceutical patents are becoming increasingly strict. Some countries prohibit method of treatment claims in patents. Changes in either the patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or create uncertainty. In addition, publication of information related to our current product and potential products may prevent us from obtaining or enforcing patents relating to such product and potential products, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.

Our intellectual property includes issued patents and pending patent applications for compositions of matter, pharmaceutical formulations, methods of use, medical devices, synthetic methods and designs. As of December 31, 2021, we owned 58 patents and have 19 pending patent applications in the United States and certain foreign jurisdictions for Rhopressa ® and Rocklatan ® . Patent protection for Rocklatan ® includes the U.S. patents that cover Rhopressa ® . The patents cover composition of matter, pharmaceutical compositions and methods of use. As of December 31, 2021, we owned and had pending patent applications in the United States and certain foreign jurisdictions for our product candidates. Our exclusive license regarding AR-15512 provides us with exclusive rights in patents covering pharmaceutical compositions of AR-15512 and its use in treating dry-eye in the United States and pending patent applications internationally. Furthermore, as of December 31, 2021, for AR-1105 we had two issued patents, one in the United States and one in Japan, which could provide coverage for AR-1105 in the United States and Japan through 2036. See “Business—Intellectual Property” for further information about our issued patents and patent applications. With respect to our sustained-release implant AR-14034 SR, we have filed patent applications in the United States as well as internationally. Should these applications issue, they would provide patent protection through 2040.

Patents that we own or may license in the future do not necessarily ensure the protection of our intellectual property for a number of reasons, including without limitation the following:

• our patents may not be broad or strong enough to prevent competition from other products that are identical or similar to Rhopressa ® and Rocklatan ® ;

• there can be no assurance that the term of a patent can be extended under the provisions of Patent Term Extension (“PTE”) afforded by U.S. law or similar provisions in foreign countries, where available;

• our issued patents and patents that we may obtain in the future may not prevent generic entry into the markets for Rhopressa ® and Rocklatan ® ;

• we do not currently own or control foreign patents issued outside of Australia, Canada, Europe and Japan that would prevent generic entry into those markets for Rhopressa ® and Rocklatan ® ;

• we may be required to disclaim part of the term of one or more patents;

• there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;

• there may be prior art of which we are aware, which we do not believe affects the validity or enforceability of a patent claim, but which, nonetheless, ultimately may be found to affect the validity or enforceability of a patent claim;

• there may be other patents issued to others that will affect our freedom to operate;

• if our patents are challenged, a court of competent jurisdiction could determine that they are invalid or unenforceable;

• there might be a significant change in the law that governs patentability, validity and infringement of our patents that adversely affects the scope of our patent rights;

• a court of competent jurisdiction could determine that a competitor’s technology or product does not infringe our patents; and

• our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations or could be subject to compulsory licensing.

Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of Rhopressa ® and/or Rocklatan ® by submitting ANDAs to the FDA in which our competitors claim that our patents are invalid, unenforceable and/or not infringed. Our period of regulatory market exclusivity in the United States for each of Rhopressa ® and Rocklatan ® with respect to their current indications will end on December 18, 2022. However, our competitors are permitted to file ANDAs to obtain permission to market generic versions of Rhopressa ® and/or Rocklatan ® as of December 18, 2021, if the ANDA contains a certification of patent invalidity or non-infringement, also known as a Paragraph IV Certification. In such circumstances, we may need to file a lawsuit to delay FDA approval of such ANDA, to defend our patent rights and to try to maintain the longer-term benefits of patent-based market exclusivity. The filing of such a lawsuit would trigger a 30-month stay of regulatory approval of the ANDA filer’s application. In addition, our competitors may file patent applications that may have an impact on our ability to make, use and sell products that contain Rhopressa ® or Rocklatan ® . Should such a competitor’s patent application(s) issue, it is possible the competitor will allege that our making, using or selling of products containing Rhopressa ® or Rocklatan ® infringes such issued patents. In such circumstances, we may need to challenge such pending applications or issued patents, or perhaps come to a financial arrangement with the competitor.

Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency having competent jurisdiction may find our patents invalid and/or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.

The issuance of a patent is not conclusive as to its inventorship, scope, ownership, priority, validity or enforceability. In that regard, third parties may challenge our patents in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and potential products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

A significant portion of our intellectual property portfolio currently comprises pending patent applications that have not yet been issued as granted patents. If our pending patent applications fail to issue our business will be adversely affected.

Our commercial success will depend significantly on maintaining and expanding patent protection for Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, as well as successfully defending our current and future patents against third-party challenges. As of December 31, 2021, we owned 160 issued patents and 135 pending patent applications in the United States and certain foreign jurisdictions relating to Rhopressa ® , Rocklatan ® , product candidates as well as previously discontinued product candidates and other proprietary technology. See “Business—Intellectual Property” included elsewhere in this report for further information about our issued patents and patent applications. Our issued patents include 51 patents for composition of matter and method of use covering Rhopressa ® in the United States and certain foreign jurisdictions. These patents also cover Rocklatan ® to the extent that Rhopressa ® forms a part of Rocklatan ® . The remainder of our portfolio is made up of patents covering product candidates, implants, medical devices, syntheses of compounds, previously discontinued product candidates and other proprietary technology and pending patent applications that have not yet been issued by the U.S. Patent and Trademark Office (the “USPTO”).

There can be no assurance that our pending patent applications will result in issued patents in the United States or foreign jurisdictions in which such applications are pending. Even if patents do issue on any of these applications, there can be no assurance that a third party will not challenge their validity or enforceability, or that we will obtain sufficient claim scope in those patents to prevent a third party from competing successfully with our products.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. It may be difficult for us to stop the infringement of our patents or the misappropriation of these intellectual property rights in any foreign jurisdictions. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and disrupt the commercialization of or increase the costs of commercializing Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved.

Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. If patents issued to other companies contain blocking, dominating or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtain licenses to these patents or to develop or obtain alternative non-infringing technology and cease practicing those activities, including potentially manufacturing or selling any products deemed to infringe those patents. There could be issued patents of which we are not aware that Rhopressa ® , Rocklatan ® or any product candidates infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe.

Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that Rhopressa ® , Rocklatan ® , Rhokiinsa ® , Roclanda ® or any product candidates or future product candidates infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that Rhopressa ® , Rocklatan ® , Rhokiinsa ® , Roclanda ® or any product candidates or future product candidates infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover Rhopressa ® , Rocklatan ® , Rhokiinsa ® , Roclanda ® or any product candidates or future product candidates.

Third parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly and could adversely affect our results of operations and divert the attention of managerial and scientific personnel. If we are sued for patent infringement, we would need to demonstrate that Rhopressa ® , Rocklatan ® , Rhokiinsa ® , Roclanda ® or any product candidates or future product candidates or methods either do not infringe the claims of the relevant patent or that the patent claims asserted are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability to commercialize Rhopressa ® , Rocklatan ® , Rhokiinsa ® , Roclanda ® or any product candidates or future product candidates, if approved, unless we acquire or obtain a license under the applicable patents or until the patents expire. We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing one or more of our current products and potential products or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

We may be subject to claims that we or our employees have misappropriated the intellectual property, including trade secrets, of a third party, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities, biotechnology companies or other pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property, including trade secrets or other proprietary information. Litigation may be necessary to defend against these claims. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with members of our senior management, but litigation may be necessary in the future to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result in claims by or against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. However, any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets. Accordingly, these agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. In addition, others may independently discover our trade secrets and proprietary information. Further, the FDA, as part of its Transparency Initiative, a proposal by the FDA to increase disclosure

and make data more accessible to the public, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects upon our competitive business position and financial results.

Any lawsuits relating to infringement of intellectual property rights brought by or against us will be costly and time consuming and may adversely impact the price of our common stock.

We may be required to initiate litigation to enforce or defend our intellectual property. In the United States, once an ANDA filer notifies us of their filing of a Paragraph IV Certification (i.e., a certification that the proposed generic product will not infringe our patents or that our patents are alleged to be invalid), we would have 45 days in which to bring a patent infringement lawsuit to delay regulatory review of the ANDA and to defend our IP rights. The filing of such a lawsuit would trigger a 30-month stay of regulatory approval of the ANDA filer’s application. These lawsuits can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical industry generally. Such litigation or proceedings could substantially increase our operating expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities.

In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are resolved. Further, any claims we assert against a perceived infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

In addition, our patents and patent applications could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings, and other forms of post-grant review. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel’s time and attention. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the market price of our common stock.

We will need to obtain regulatory approval of any proposed product names, and any failure or delay associated with such approval may adversely affect our business.

We assigned the trade names Rhopressa ® and Rocklatan ® to our now FDA approved products. The EC granted Centralised MAs for Rhopressa ® (which will be marketed under the trade name Rhokiinsa ® ) in November 2019 and for Rocklatan ® (which will be marketed under the trade name Roclanda ® ) in January 2021. Any other names we intend to use for our product candidates or any future product candidates will require approval from the FDA and applicable non-U.S. regulatory authorities regardless of whether we have secured a formal trademark registration from the USPTO or applicable non-U.S. regulatory authorities. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims or contributes to an overstatement of efficacy. Regulatory authorities outside the United States conduct their own investigations. If the FDA or applicable non-U.S. authorities object to any of our proposed product names for any product candidates or future product candidates, we may be required to adopt an alternative trade name.

If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our patents for Rhopressa ® , Rocklatan ® , Rhokiinsa ® , Roclanda ® or any product candidates or future product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA regulatory approval for Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, one or more of our U.S. patents may be eligible for limited PTE under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. PTEs, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.

The application for PTE is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for PTE. A PTE application pursuant to 35 USC §156 (section 156) was filed February 8, 2018, seeking an extension of U.S. patent number 8,394,826 (the “826 patent”). The ‘826 patent covers Rhopressa ® and Rocklatan ® , and is presently expected to expire November 20, 2030, though the date may be extended if the ‘826 patent PTE application is granted. To date there have been three official substantive actions on the ‘826 patent PTE application. On September 18, 2018, the USPTO confirmed that 826 patent is eligible for PTE under section 156. On May 13, 2019, the FDA confirmed that Rhopressa ® was subject to the required FDA approval and that the PTE application was filed timely. On April 14, 2021, the USPTO transmitted a copy of the PTE application to the FDA, stating the USPTO considers the ’826 patent to be eligible for PTE, making the FDA’s determination of the applicable regulatory review period for Rhopressa ® necessary. We expect the FDA and USPTO will complete the PTE application review in the next few years; however, it is not possible to predict with certainty when the PTE will become official, if at all.

Similarly, Europe provides a mechanism for patent owner to regain a portion of patent grant time lost due to product development and the European regulatory review process. Pursuant to Regulation (EC) No 469/2009 of the European Parliament, the patent owner may file for a Supplementary Protection Certificate (“SPC”) on a country-by-country basis in order to regain such lost patent grant time. Unlike the U.S. PTE, an SPC does not extend the expiration date of a European patent but is limited to the scope of the marketing authorisation. It provides to the patent owner all of the rights the European patent provided to the patent holder for up to five (5) years from the expiration of the European patent. Upon approval of Rhokiinsa ® in Europe, Aerie has filed for SPCs in a number of E.U. countries for EP Patent 3053913. SPCs have been granted in Italy, Spain, Ireland and The Netherlands, and are presently pending in Germany, France, Belgium and Great Britain. Upon approval of Roclanda ® in Europe, Aerie filed for SPCs in a number of EU Countries and Great Britain for EP Patent EP3461484. SPCs have been granted in France, Italy, Spain, Ireland, and the Netherlands, and are pending in Germany, France, Belgium and Great Britain.

Risks Related to Our Financial Position and Need for Additional Capital

We have limited revenue and may never become profitable.

We have a limited operating history and began commercializing our first product, Rhopressa ® , in the United States in April 2018, and our second product, Rocklatan ® , in the United States in May 2019. We have never been profitable and only have two products approved for commercial sale. Even though we received FDA approval, began commercial sales for these two products in the United States and received the Centralised MAs for Rhokiinsa ® and Roclanda ® from the EC, we are still in the process of obtaining additional regulatory approvals in jurisdictions outside the United States and there is no guarantee that either product will be approved in any such jurisdictions.

Our ability to generate product revenue depends on a number of factors, including our ability to:

• maintain an acceptable price for each of Rhopressa ® and Rocklatan ® in the United States;

• set acceptable net prices for our glaucoma products outside the United States that allow for adequate profitability, in a stand-alone or partnered environment;

• set an acceptable price for any product candidates or future product candidates, if approved, and obtain adequate coverage and reimbursement from third-party payers;

• manufacture or obtain commercial quantities of Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, at acceptable cost levels;

• successfully market and sell Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, in the United States and other jurisdictions; and

• successfully complete clinical development, and receive regulatory approval, for our product candidates and any future product candidates.

Our net product revenue may be impacted by our estimates for discounts and allowances, which estimates are based on current contractual and statutory requirements, invoices from CMS for the company funded portion of the coverage gap, known market events and trends, industry data, forecasted customer mix and lagged claims. In addition, because of the numerous risks and uncertainties associated with product development, commercialization and manufacturing, we are unable to precisely predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations for a number of reasons, including if we are required by the FDA or other regulatory authorities to perform studies in addition to those that we currently anticipate. Even though we have begun

commercial sales of Rhopressa ® and Rocklatan ® , we are still incurring and anticipate continuing to incur significant costs associated with commercialization activities.

Our ability to become and remain profitable depends on our ability to generate revenue. Although we have generated revenues from the sales of our products, even if we were able to continue to generate revenues from our products and to generate revenues from product candidates or future product candidates, if approved, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could materially impair our ability to raise funds, expand our business or continue our operations.

We have incurred net losses since inception and anticipate that we will continue to incur net losses until such a time when Rhopressa ® and Rocklatan ® generate adequate net revenues to cover operating costs and expenses, if at all.

We have incurred losses in each year since our inception in June 2005. Our net losses were $74.8 million, $183.1 million and $199.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an accumulated deficit of $1,153.9 million.

Investment in pharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have devoted the majority of our historical financial resources to research and development, including our non-clinical development activities and clinical trials. We have financed our operations primarily through the issuance of convertible debt, including the issuance of $316.25 million of Convertible Notes in September 2019 as well as the issuance and sale of common stock pursuant to our registration statements on Form S-3 and prior “at-the-market” sales agreements. Our products will continue to require significant marketing efforts and substantial investment to maintain and increase revenues. Any product candidates or future product candidates will require the completion of regulatory review, significant marketing efforts and substantial investment before they can provide us with any revenue.

We expect our research and development expenses to continue to be significant in connection with our ongoing and planned activities. In addition, as we launched Rhopressa ® and Rocklatan ® in 2018 and 2019, respectively, and expect to commercialize both products internationally, we have incurred and expect to continue to incur increased manufacturing, selling and marketing expenses. As a result, we expect to continue to incur operating losses until our products generate adequate commercial revenue to render Aerie profitable. These losses have had and will continue to have a material adverse effect on our stockholders’ equity, financial position, cash flows and working capital.

We may need to obtain additional financing to fund our operations and, if we are unable to obtain such financing, we may be unable to complete the development and commercialization of Rhopressa ® , Rocklatan ® or any product candidates or future product candidates.

Our operations have consumed substantial amounts of cash since inception. Through December 31, 2021, we have raised net proceeds of approximately $987.2 million from our IPO, debt financings and the issuance of common stock. We received a $50.0 million payment associated with the First Santen Agreement in the fourth quarter of 2020. In January 2022, we received a $90.0 million payment from Santen in connection with the Second Santen Agreement. We may need to obtain additional financing to fund our future operations. Additionally, we may need to obtain additional financing to conduct additional trials for the approval of Rhopressa ® and Rocklatan ® in additional jurisdictions or any product candidates or future product candidates, and for completing the development of any additional product candidates or technologies and executing our international expansion strategy. Moreover, our fixed expenses, such as rent and other contractual commitments, are substantial and are expected to increase in the future, and we also expect to incur increased expenses as we expand our employment base.

Our future funding requirements will depend on many factors, including, but not limited to:

• the amount of sales and other revenues from Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, including the selling prices for such potential products and the availability of adequate third-party coverage and reimbursement;

• selling and marketing costs associated with Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved, including the cost and timing of expanding our marketing and sales capabilities;

• our commercial success with our commercialized products and any product candidates or future product candidates, if approved;

• the terms and timing of any collaborations, licensing or other arrangements that we have established and may establish;

• cash requirements of any future acquisitions and/or the development of other product candidates or technologies;

• the progress, timing, scope and costs of our clinical trials, including the ability to timely enroll patients in our planned and potential future clinical trials;

• the time and cost necessary to obtain regulatory approvals that may be required by regulatory authorities;

• the time and cost necessary to increase internal manufacturing capabilities or arrangements with third-party manufacturers;

• costs of any new business strategies;

• the costs of operating as a public company;

• the time and cost necessary to respond to technological and market developments; and

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

We believe that our existing cash, cash equivalents and investments of $139.8 million as of December 31, 2021, the $88.0 million upfront payment and the $2.0 million supplemental upfront payment associated with the Second Santen Agreement, both received from Santen in January 2022, and expected cash flows will be sufficient to support the product commercialization of Rhopressa ® and Rocklatan ® through at least the next twelve months from the date of this filing. We also intend to use these funds for general corporate purposes, including our clinical, regulatory and commercialization efforts beyond the United States, further development of other potential pipeline opportunities including activities to support execution of our dry eye and retina programs, our external business development efforts and our manufacturing activities, including the operation of our manufacturing plant in Ireland.

Until we can generate a sufficient amount of revenue, we may need to finance future cash needs through additional financings or other available sources. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization or manufacturing efforts. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. In addition, if we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us.

Our forecast of the period of time through which our financial resources will be adequate to support our operating requirements is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on a number of assumptions that may prove to be incorrect and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. Our inability to obtain additional funding when we need it could seriously harm our business.

Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under the Convertible Notes.

As of December 31, 2021, we had $316.25 million in principal amount of indebtedness as a result of the issuance of the Convertible Notes which mature on October 1, 2024. We may also incur additional indebtedness to meet future financing needs. Interest payments, fees, covenants and restrictions under agreements governing our current or future indebtedness, including the indenture governing the Convertible Notes, could have important consequences, including the following:

• impairing our ability to successfully continue to commercialize Rhopressa ® or Rocklatan ® and commercialize any product candidates or future product candidates, which would prevent us from generating a source of revenue and becoming profitable;

• limiting our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, potential acquisitions, debt obligations and other general corporate

requirements, and making it more difficult for us to satisfy our obligations with respect to any such additional financing;

• increasing our vulnerability to general economic downturns, competition and industry conditions, which could place us at a competitive disadvantage compared to our competitors with no debt obligations or with debt obligations on more favorable terms;

• requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;

• limiting our flexibility to plan for, or react to, changes in our business; and

• diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Convertible Notes.

The occurrence of any one of these events could have an adverse effect on our business, financial condition, operating results or cash flows and ability to satisfy our obligations under the indenture governing the Convertible Notes and any other indebtedness.

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Convertible Notes, and our cash needs may increase in the future. In addition, the agreements governing indebtedness that we may incur in the future may contain financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

We may be unable to raise the funds necessary to repurchase the Convertible Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and the terms of our then-existing borrowing arrangements may limit our ability to repurchase the Convertible Notes or pay cash upon their conversion.

Noteholders may require us to repurchase their Convertible Notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Convertible Notes or pay the cash amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing any of our then-existing borrowing arrangements may restrict our ability to repurchase the Convertible Notes or pay the cash amounts due upon conversion. If we fail to repurchase Convertible Notes or to pay the cash amounts due upon conversion when required, we will be in default under the indenture governing the Convertible Notes and may be in default under any other then-existing borrowing arrangements. A default under the indenture governing the Convertible Notes or the fundamental change itself could also lead to a default under any of our then-existing agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the Convertible Notes and any other then-existing indebtedness.

The accounting method for the Convertible Notes could adversely affect our reported financial condition and results.

The accounting method for reflecting the Convertible Notes on our balance sheet, accruing interest expense for the Convertible Notes and reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 470, Debt , an entity must separately account for the liability and equity components of convertible debt instruments (such as the Convertible Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC 470-20 requires the value of the conversion option of the Convertible Notes, representing the equity component, to be recorded as additional paid-in capital within stockholders’ equity in our consolidated balance sheets and as a discount to the Convertible Notes, which reduces their initial carrying value. In addition, under the treasury stock method, if the conversion value of the Convertible Notes exceeds their principal amount for a reporting period, then we will calculate our diluted earnings per share assuming that all the Convertible Notes were converted and that we issued shares of our common stock to settle the excess. However, if reflecting the Convertible Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Convertible Notes does not exceed their principal amount for a reporting period, then the shares of common stock underlying the Convertible Notes will not be reflected in our diluted earnings per share.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”), which eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. This would reduce non-cash interest expense, and thereby decrease net loss (or increase net income). Additionally, the treasury stock method for calculating earnings per share will no longer be allowed for convertible debt instruments whose principal amount may be settled using shares and the if-converted method will be required.

ASU 2020-06 became effective beginning with our fiscal year ending December 31, 2022, including any interim periods within that fiscal year. Under ASU 2020-06, the Convertible Notes will be subject to the “if-converted” method for calculating diluted earnings per share. Accordingly, under the “if-converted” method, diluted earnings per share will be calculated assuming that all of the Convertible Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. This new method of calculating earnings per share may adversely affect our reported financial condition and results.

If any of the conditions to the convertibility of the Convertible Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Convertible Notes as a current, rather than a long-term, liability. This reclassification could be required even if no noteholders convert their Convertible Notes and could materially reduce our reported working capital.

The capped call transactions may affect the value of our common stock.

In connection with the issuance of the Convertible Notes, we entered into capped call transactions with certain option counterparties. The capped call transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the aggregate principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap. The option counterparties or their respective affiliates are expected to modify their hedge positions from time to time by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock, the Convertible Notes or other securities or instruments of ours (if any) in secondary market transactions prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of Convertible Notes or following any issuance of a notice of redemption with respect to the Convertible Notes). Any of these activities could adversely affect the market price of our common stock.

We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the market price of the shares of our common stock.

We are subject to counterparty risk with respect to the capped call transactions.

The counterparties to the capped call transactions are financial institutions, and we are subject to the risk that one or more of the counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the capped call transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Global economic conditions have in the past resulted in the actual or perceived failure or financial difficulties of many financial institutions. If any option counterparty becomes subject to proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under any capped call transactions with that option counterparty. Our exposure will depend on many factors but, generally, our exposure will increase if the market price or the volatility of our common stock increases. In addition, upon a default or other failure to perform, or a termination of obligations, by a counterparty, the counterparty may fail to deliver the shares of common stock required to be delivered to us under the capped call transactions and we may suffer adverse tax consequences or experience more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the counterparties.

We may sell additional debt or equity securities at any time, which may result in dilution to our stockholders and impose restrictions on our business.

In order to raise additional funds to support our operations, business strategies and growth, or if we decide based on ongoing forecast updates, new strategic initiatives, market conditions or for other reasons that additional financings are desirable or needed, we may sell additional equity or debt securities. The issuance of additional equity would result in dilution to all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our

business. If we are unable to expand our operations or otherwise capitalize on our business opportunities, our business, financial condition and results of operations could be materially adversely affected.

Determining our income tax rate is complex and subject to uncertainty.

The computation of income tax provisions is complex, as it is based on the laws of federal, state, local and non-U.S. taxing jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under U.S. GAAP. Our provision for income tax can be materially impacted, for example, by the geographical mix of our profits and losses, changes in our business, such as internal restructuring and acquisitions, changes in tax laws and accounting guidance and other regulatory, legislative or judicial developments, transfer pricing policies, tax audit determinations, changes in our uncertain tax positions, changes in our capital structure and leverage, changes to our transfer pricing practices, tax deductions attributed to equity and other compensation and limitations on such deductions and changes in our need for a valuation allowance for deferred tax assets. In addition, relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates and reduced cash flows than otherwise would be expected. For these reasons, our actual income taxes may be materially different than our provision for income tax.

Our ability to use our net operating loss carryforwards may be limited.

If we experience an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”), or similar state provisions, we may be subject to annual limits on our ability to utilize net operating loss carryforwards. An ownership change is, as a general matter, triggered by sales or acquisitions of our stock in excess of 50% on a cumulative basis during a three-year period by persons owning 5% or more of our total equity value.

As of December 31, 2021, we had U.S. federal and state net operating losses (“NOLs”) of approximately $635.1 million and $616.3 million, respectively. If not utilized, U.S. federal NOLs that arose before 2018 and state NOLs begin to expire at various dates beginning in 2031 and 2023, respectively. U.S. federal NOLs that arose on or after January 1, 2018 can be carried forward indefinitely to be utilized against future income, but can only be used to offset a maximum of 80% of our federal taxable income in any year. As of December 31, 2021, we also had foreign NOLs of $66.0 million which are available solely to offset taxable income of our foreign subsidiaries, subject to any applicable limitations under foreign law. Our U.S. federal, state and foreign NOLs are included as deferred tax assets and have been fully offset by a valuation allowance as of December 31, 2021.

Changes to the United States tax laws could materially impact our financial position and results of operations.

We are subject to income and non-income-based taxes in the United States under federal, state and local jurisdictions and in certain foreign jurisdictions in which we operate. Tax laws, regulations and administrative practices in these jurisdictions may be subject to significant change, with or without advance notice. For example, in 2021, there have been numerous changes proposed to U.S. federal income tax law, including an increase to the U.S. corporate tax rate, modifications of the provisions addressing taxation of international business operations and the imposition of a global minimum tax. Such changes may adversely affect our effective tax rates, cash flows, financial position and results of operations.

Our international operations subject us to potentially adverse tax consequences.

We generally conduct our international operations through wholly-owned subsidiaries and report our taxable income, if any, in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with any of our determinations including as to the income and expenses attributable to specific jurisdictions and the statutory domiciles of our intellectual property. If such a disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates and reduced cash flows.

Risks Related to Our Business Operations and Industry

The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, such as COVID-19, could adversely affect our business, results of operations and financial condition.

We could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, there was an outbreak of a new strain of COVID-19 and on March 11, 2020, the World Health Organization declared

COVID-19 a pandemic. The COVID-19 pandemic and its variants continue to negatively impact the global economy, disrupt global supply chains and workforce participation due to curtailment of travel and “stay at home” restrictions by various governments worldwide and create significant volatility and disruption of financial markets. Although state and local governments began to ease COVID-19 restrictions in the second quarter of 2021, as we have seen with the onset of the Delta and Omicron variants, the extent to which COVID-19 continues to impact our business will depend on future developments that are highly uncertain and cannot be predicted.

The COVID-19 pandemic has affected demand for our products because quarantines or other government restrictions on movements have caused and continue to cause changes in demand. While a majority of eye-care professionals’ offices returned to in-person appointments in the second half of 2021, patients may still not visit their eye-care professionals for an extended period of time due to logistical issues or safety concerns, resulting in fewer new diagnoses or prescriptions as the COVID-19 pandemic continues to progress. Additionally, patients may continue to change the quantities in, or the frequency with, which they order our products. Our sales force is also limited in its ability to meet with current and potential prescribers, which may negatively affect sales. Our current efforts to utilize virtual tools to remain in contact with eye-care professionals, in addition to face-to-face meetings, may not be adequate to address any negative effect on sales. If the overall economy is negatively affected, including by entering into a recession, current and potential patients may alter their spending patterns and may have less disposable income with which to spend on prescriptions, amongst other changes. The changes in eye-care professional and patient behavior have had, and could continue to have, a material adverse effect on our results of operations.

The progress of the COVID-19 pandemic may disrupt our clinical operations and regulatory approvals. We are in the process of advancing our products towards approval in jurisdictions outside the United States and advancing our product candidates towards regulatory approval. We also have applications for regulatory approval pending. We cannot be certain as to how the progress of the COVID-19 pandemic will continue to affect our clinical operations or the timing of regulatory approvals.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of COVID-19 and its variants; the continued availability and efficacy of vaccines and treatments for COVID-19 and its variants; the effect on eye-care professionals and patients and demand for our products; our ability to sell and provide our products, including as a result of people staying home, the health and safety of our employees and any closures of our offices and our manufacturing plant in Athlone, Ireland, our eye-care professionals’ offices and regulatory agencies, all of which are uncertain and cannot be predicted. In addition, any adverse conditions discussed above in the financial and credit markets due to the market conditions described above may limit the availability of liquidity or increase the cost of such liquidity, which could adversely affect our business, financial position and results of operations. COVID-19, and the volatile economic conditions stemming from the pandemic, as well as reactions to future pandemics or new variants of COVID-19, could also precipitate or aggravate the other risk factors that we identify in this section, including our ability to achieve market acceptance of our products, our competitiveness, our reliance on third parties, our dependence on key personnel, our risks related to security breaches and other cybersecurity risks and our manufacturing capabilities. An extended period of global supply chain and economic disruption could materially adversely affect our business, our results of operations, our access to sources of liquidity, our financial condition and the price of our common stock.

We depend upon our key personnel and our ability to attract and retain employees.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team and our scientific founders, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of a member of our senior management could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of executive management. The competition for qualified members of senior management and other personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified members of senior management and other personnel necessary for the development of our business or to recruit suitable replacement personnel. Furthermore, as we continue to expand our commercialization efforts, particularly on a global scale, we may not be able to attract and retain qualified members of senior management, which could adversely affect our ability to execute our business plan and harm our operating results.

We also rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We are currently searching for new members of our senior management team and there are no assurances concerning the timing or outcome of our search.

We are currently searching for a new Chief Financial Officer, a head of commercial operations and a Chief Medical Officer; however, the marketplace for attracting senior executives, particularly in the pharmaceutical industry, is competitive and identifying and hiring a new executive may take several months or longer. Although we anticipate a smooth transition, any changes to members of our senior management may be disruptive to our operations, including by diverting our Board of Directors and management’s time and attention and a decline in employee morale. There are no assurances concerning the timing or outcome of our search for new members of our senior management team. If there are any delays in this process, our business could be negatively impacted.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Our business may be negatively impacted by macroeconomic conditions.

Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass through price increases to patients. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients, payers and distributors to purchase, pay for and effectively distribute Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved. Similarly, these macroeconomic factors could affect the ability of our contract manufacturers, sole-source or single-source suppliers, collaboration partners or licensees to remain in business or otherwise develop, manufacture or supply product. Failure by any of them to remain in business could affect our ability to manufacture Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, or develop additional product candidates or technologies.

If we engage in acquisitions or licenses in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions or licenses.

We may attempt to acquire or license businesses, technologies, services, products, product candidates or implants in the future that we believe are a strategic fit with our business. For example, in October 2017, we acquired the rights to use PRINT ® technology and certain other assets from Envisia. Further, in August 2018 we entered into an Amended and Restated Collaborative Research, Development, and License Agreement with DSM, 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. Additionally, in late 2019 we acquired Avizorex, a Spanish ophthalmic pharmaceutical company developing therapeutics for the treatment of dry eye disease. We expended considerable capital in

connection with these acquisitions. While we believe these acquisition will provide material benefits to our business, to date, there has been no commercial return. We have no present agreement regarding any material acquisitions. If we do undertake any additional acquisitions or additional licenses, the process of integrating an acquired or licensed business, technology, service, product or product candidate into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of the companies we acquire, which may reduce the value of the acquisition or give rise to additional integration costs. Future acquisitions or licenses could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions or licenses could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to intangible assets, any of which could adversely affect our operating results.

We have limited experience identifying, negotiating and implementing acquisitions or licenses of additional businesses, technologies, services, products or product candidates, which is a lengthy and complex process. The market for acquiring or licensing businesses, technologies, services, products or product candidates is intensely competitive, and other companies, including some with substantially greater financial, marketing and sales resources, may also pursue strategies to acquire or license businesses, technologies, products or product candidates that we may consider attractive. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.

We have limited resources to identify and execute the acquisition or licensing of additional businesses, technologies, services, products or product candidates and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire or license the rights to additional businesses, technologies, services, products or product candidates on terms that we find acceptable, or at all. In particular, any product candidate that we acquire or license may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.

Business interruptions could delay the development of our potential products and our manufacturing activities and could disrupt our potential sales.

Our principal executive office and research facility is located in Durham, North Carolina, our regulatory, commercial support and other administrative activities are located in Irvine, California and our clinical, finance and legal operations are located in Bedminster, New Jersey. We also lease space for a manufacturing plant in Athlone, Ireland, and small offices in Ireland, the United Kingdom and Japan. We are vulnerable to natural disasters, such as severe storms, and other adverse events that could disrupt our operations. We carry limited insurance for natural disasters and other adverse events, and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our business operations.

Our business and operations would suffer in the event of system failures, cyber-attacks or other security breaches.

Despite the implementation of security measures, our internal computer systems, and those of our CROs, sales force, collaborators and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, ransomware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber-intrusions, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate our proprietary and confidential information including e-mails and other electronic communications. In addition, an employee, supplier, collaboration partner or other third party with whom we do business may attempt to obtain such information and may purposefully or inadvertently cause a breach involving such information. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs, manufacturing activities and/or commercialization efforts, damage our reputation, provide competitors with valuable information and subject us to additional liabilities, including criminal penalties and civil sanctions. We have not been subject to cyber-attacks or other cyber incidents to date which, individually or in the aggregate, have been material to our business, but the actions we take to prevent or detect the risk of cyber incidents and protect our information technology networks and infrastructure may be insufficient to prevent or detect a major cyber-attack or other cyber incident in the future.

In addition, there is a risk created by our lack of redundancy across our systems and if any of these events were to occur, this could result in a loss of materials that would be difficult to replace, such as proprietary information including intellectual property and business information and/or customer, supplier, employee, business partner and, in certain instances, patient personally identifiable information. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture Rhopressa ® and Rocklatan ® , and similar events relating to their systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the commercialization of Rhopressa ® and Rocklatan ® and the further development of any product candidates or future product candidates could be delayed.

Our actual or perceived failure to comply with U.S. federal, state, and foreign governmental regulations and other legal obligations related to privacy, data protection and information security could harm our reputation and business.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information, data about our clinical participants, suppliers and business partners and personally identifiable information. The secure storage, maintenance, and transmission of and access to this information is important to our operations and reputation. Any access, disclosure or other loss of information could result in legal claims or proceedings, disruption of our operations and damage to our reputation, all of which could materially adversely affect our business. In addition, we are subject to various U.S. federal and state and international privacy and security regulations. For example, HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many U.S. states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent than HIPAA.

The California Consumer Privacy Act (“CCPA”) took effect in January 2020 and became enforceable in July 2020. The CCPA created new individual privacy rights for California consumers (as the word is broadly defined in the law) and placed increased privacy and security obligations on many organizations that handle personal information of consumers or households. The CCPA requires covered companies to provide new disclosure to consumers about such companies’ data collection, use and sharing practices, provide such consumers a new right to opt-out of certain sales or transfers of personal information, and provides consumers with a new cause of action for certain data breaches. Additionally, California voters voted to approve the California Privacy Rights Act (“CPRA”) in November 2020, which modifies the CCPA significantly, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. The CCPA and CPRA may impact our business activities and increase our compliance costs and potential liability. Many similar privacy laws have been proposed at the federal level and in other states, such as Virginia and Colorado, which have instituted privacy and data security laws, rules, and regulations, and all of which may have potentially conflicting requirements that would make compliance challenging.

With our increasing international presence, we are also subject to the laws of jurisdictions outside the United States. Privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements, which could increase the costs incurred by us in complying with such laws. The E.U. member states, Switzerland, Japan and other countries have established, or are in the process of establishing, legal frameworks for privacy and data security that impose significant compliance obligations with which our customers, our vendors or we must comply. For example, the E.U. General Data Protection Regulation (the “GDPR”), which became effective on May 25, 2018, imposes strict requirements on data controllers and processors of personal data. The GDPR is wide-ranging in scope and imposes numerous requirements, including requirements relating to processing sensitive data (including health, biometric and genetic information), obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches and taking certain measures when engaging third-party processors. In addition, the GDPR grants individuals an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the European Union, including to the United States and other regions.

The GDPR imposes new fines and penalties for a breach of requirements, which may result in significant fines of up to 4% of annual global revenues, or €20.0 million, whichever is greater. Compliance with the GDPR is a rigorous and time-intensive process that has increased our cost of doing business and required us to change our business practices, in particular as regards data processing in the context of clinical trials. As a result of the implementation of the GDPR, we were required to put in place additional mechanisms to ensure compliance with the new data protection rules, although there is a risk that the measures will not be implemented correctly or that individuals within our business will not be fully compliant with the new procedures. If

there are any breaches of these measures, we could face significant administrative and monetary sanctions as well as reputational damage, which may have a material adverse effect on our business.

Our disclosure controls and procedures and our systems to implement such disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

As a public company, we are subject to the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.

We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates. We face an additional risk from our commercial sales of Rhopressa ® and Rocklatan ® and will face further risk to the extent we commercialize any product candidates or future product candidates, if approved. We maintain primary product liability insurance and excess product liability insurance that cover our clinical trials, and we have and plan to maintain insurance against product liability lawsuits for commercial sale of Rhopressa ® and Rocklatan ® and any product candidates or future product candidates, if approved. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials or commercial use of Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.

For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved. Regardless of the merits or eventual outcome, liability claims may result in:

• reduced resources of our management to pursue our business strategy;

• decreased demand for Rhopressa ® or Rocklatan ® or any product candidates or future product candidates, if approved;

• injury to our reputation and significant negative media attention;

• withdrawal of clinical trial participants;

• termination of clinical trial sites or entire trial programs;

• initiation of investigations by regulators;

• product recalls, withdrawals or labeling, marketing or promotional restrictions;

• significant costs to defend resulting litigation;

• diversion of management and scientific resources from our business operations;

• substantial monetary awards to trial participants or patients;

• loss of revenue; and

• the inability to commercialize any products that we may develop.

We increased our insurance coverage when each of Rhopressa ® and Rocklatan ® received FDA approval. However, the product liability insurance we will need to maintain in connection with the continued commercial sales of Rhopressa ® and Rocklatan ® and any product candidates or future product candidates if and when they receive regulatory approval, may be unavailable in adequate amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could inhibit the continued commercial production and sale of Rhopressa ® or Rocklatan ® or any product candidates or future product candidates if and when they obtain regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.

Additionally, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, property, auto, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results of operations.

The failure by the U.S. Congress to timely approve a budget for the federal government and its agencies, including the FDA, could have a material adverse effect on our business.

On an annual basis, the U.S. Congress must approve budgets that govern spending by the federal agencies, including the FDA. If Congress cannot agree on a budget, or if the President vetoes a budget approved by Congress, then the federal government may be shut down and non-essential federal employees, including many FDA employees, may be furloughed. Such a shutdown would prevent the FDA from performing many of its duties, which are crucial to our business. For example, on December 22, 2018, due to a lapse in appropriations for the federal government, most of the federal government was shut down, including many functions of the FDA, and most federal employees were furloughed for several weeks. Any future government shutdown could affect, among other things, the FDA approval process of one or more of our product candidates or future product candidates, or the ability of the FDA to inspect a manufacturing facility supporting our business, each of which could have a material adverse effect on our business.

Risks Related to Ownership of Our Common Stock

The market price of our common stock has been, and may continue to be, highly volatile.

Our stock price has been volatile and is likely to continue to be volatile. The following factors, in addition to other factors described elsewhere in this “Risk Factors” section, may have a significant impact on the market price of our common stock:

• overall company profitability and ability to generate positive cash flows;

• our ability to maintain adequate product supply to meet demand at an acceptable per unit cost;

• our ability to obtain regulatory approval in jurisdictions outside the United States;

• our ability to obtain and maintain successful collaboration arrangements;

• the results of our testing and clinical trials for our product candidates and future product candidates;

• announcements of therapeutic innovations or new products by us or our competitors;

• adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;

• any adverse changes to our relationships with manufacturers, suppliers or licensees;

• the results of our efforts to develop, acquire or license additional product candidates or technologies;

• changes in laws or regulations;

• any intellectual property infringement actions in which we may become involved;

• actual or anticipated fluctuations in our quarterly or annual operating results;

• changes in financial estimates or recommendations by securities analysts;

• trading volume of our common stock;

• sales of our common stock by us or our stockholders in the future;

• general economic and market conditions and overall fluctuations in the capital markets;

• changes in accounting principles; and

• the loss of any of our key scientific or management personnel.

In addition, the stock market, in general, and pharmaceutical and biotechnology companies have historically experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Further, any decline in the financial markets and related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.

Any securities litigation could result in substantial damages and may divert management’s time and attention from our business.

A putative securities class action lawsuit was filed against us and certain of our officers and directors in 2015, which has now concluded. If our stock price experiences volatility, we may be the subject of additional securities litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business. Monitoring and defending against legal actions is time-consuming for our management and detracts from our ability to fully focus on our business activities. Any adverse determination in litigation could also subject us to significant liabilities.

Certain of our existing stockholders, executive officers and directors own a significant percentage of our common stock and may be able to influence or control matters submitted to our stockholders for approval.

Our officers and directors, and stockholders who own more than 5% of our outstanding common stock, beneficially own approximately 24.3% of our common stock as of December 31, 2021. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with ownership concentration. Some of our stockholders may be able to influence or determine matters requiring stockholder approval. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders.

This may also prevent or discourage unsolicited acquisition proposals or offers for our common stock that other stockholders may feel are in their best interest, and certain of our existing stockholders may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.

Additionally, under certain circumstances, our amended and restated certificate of incorporation renounces any interest or expectancy that we have in, or in being offered an opportunity to participate in, corporate opportunities that are presented to certain entities or their affiliates and certain other related parties (whether or not any such person is our director). These provisions will apply even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so.

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading volume could decline.

The trading market for our common stock may be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will continue to cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Because we do not intend to declare cash dividends on our shares of common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, we expect that only appreciation of the price of our common stock, if any, will provide a return to investors for the foreseeable future.

The requirements associated with being a public company require significant company resources and management attention.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), the listing requirements of The Nasdaq Global Market, and other applicable securities rules and regulations. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and The Nasdaq Global Market may also impose various additional requirements on public companies. We have made, and will continue to make, changes to our corporate governance standards, disclosure controls and financial reporting and accounting systems to continue to meet our reporting obligations. However, the measures we take may not be sufficient to satisfy our obligations as a public company, which could subject us to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

We are subject to Section 404(b) of the Sarbanes-Oxley Act (“Section 404”), which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting, among other additional requirements. Compliance with Section 404 is costly and time consuming for management and could result in the detection of internal control deficiencies. Moreover, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis, and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our common stock to fall. Any failure to file accurate and timely quarterly and annual reports that we are required to file with the SEC under the Exchange Act could result in sanctions, lawsuits, delisting of our shares from The Nasdaq Global Market or other adverse consequences that would materially harm our business.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our bylaws, as well as provisions of the Delaware General Corporation Law (“DGCL”), could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

• establishing a classified board of directors such that not all members of the board are elected at one time;

• allowing the authorized number of our directors to be changed only by resolution of our board of directors;

• limiting the removal of directors by the stockholders;

• authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

• prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

• eliminating the ability of stockholders to call a special meeting of stockholders;

• establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and

• requiring the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal our bylaws.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the

members of our management. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.

ITEM 7. 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 audited financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. This management’s 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 Part I, Item 1A of this report 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. Refer to Item 7. of our Form 10-K issued on February 26, 2021 for prior year discussion related to fiscal 2020.

Overview

We are a pharmaceutical company focused on the discovery, development and commercialization of first-in-class ophthalmic therapies for the treatment of patients with eye diseases and conditions including open-angle glaucoma, dry eye, DME and wet AMD.

U.S. Commercialization of the Glaucoma Franchise

Our strategy is to grow the market share of our FDA approved glaucoma franchise products, Rhopressa ® and Rocklatan ® in the United States. Both Rhopressa ® and Rocklatan ® are being sold to national and regional U.S. pharmaceutical distributors, and patients have access to them through pharmacies across the United States. We have obtained broad formulary coverage for Rhopressa ® and Rocklatan ® for the lives covered under commercial plans and Medicare Part D plans. Our commercial team responsible for sales of Rhopressa ® and Rocklatan ® is targeting select eye-care professionals who treat glaucoma throughout the United States.

Rhopressa ® is a once-daily eye drop designed to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension. Rhopressa ® is taken in the evening and has shown in preclinical and clinical trials to be effective in reducing IOP, with a favorable safety profile.

The active ingredient in Rhopressa ® , netarsudil, is an Aerie-owned ROCK inhibitor. Rhopressa ® increases the outflow of aqueous humor through the TM, which accounts for approximately 80% of fluid drainage from the healthy eye and is the diseased tissue responsible for elevated IOP in glaucoma. Using this MOA, we believe that Rhopressa ® represents the first of a new drug class for reducing IOP in patients with glaucoma in over 20 years.

Rocklatan ® is a once-daily fixed-dose combination of Rhopressa ® and latanoprost, a commonly prescribed drug for the treatment of patients with open-angle glaucoma or ocular hypertension. Rocklatan ® is also taken in the evening, and similar to Rhopressa ® , has shown in preclinical and clinical trials to be highly effective in reducing IOP, with a favorable safety profile.

Based on our clinical data, we believe that Rocklatan ® has the potential to provide a greater IOP-reducing effect than any glaucoma medication currently marketed in the United States.

Efforts Outside the United States

In addition to growing the market share of Rhopressa ® and Rocklatan ® in the United States, our strategy also includes developing business opportunities outside of the United States and we continue to make progress in our efforts to commercialize Rhopressa ® and Rocklatan ® in Europe, Japan and other regions of the world.

We have partnered and have collaboration agreements in place with Santen to develop and commercialize our products in Japan, East Asia, as well as Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries. The First Santen Agreement was executed in October 2020 to advance our clinical development and ultimately commercialize Rhopressa ® and Rocklatan ® in Japan and East Asia. The Second Santen Agreement was executed in December 2021 to develop and commercialize Rhopressa ® and Rocklatan ® in Europe, China, India, the Middle East, CIS, Africa, parts of Latin America and the Oceania countries.

In Europe, Rhopressa ® and Rocklatan ® will be marketed under the names Rhokiinsa ® and Roclanda ® , respectively. Rhokiinsa ® and Roclanda ® were granted a Centralised MA by the EC in November 2019 and January 2021, respectively. In April 2021, Roclanda ® received marketing authorisation from the MHRA in Great Britain.

In Japan, w e reported positive topline results for our Phase 3 clinical trial of netarsudil ophthalmic solution 0.02% in October 2021 , the first of three expected Phase 3 clinical trials in Japan. The results evaluated netarsudil 0.02% versus ripasudil 0.4% and showed that netarsudil 0.02% once daily was superior to ripasudil 0.4% twice daily in lowering IOP after four weeks (p<0.0001), the primary endpoint of the study. The medications were safe and well tolerated. The most common treatment emergent adverse event was conjunctival hyperemia, which is treatable. A second, confirmatory Phase 3 study, required for approval in Japan, is underway. Santen is taking the lead on next steps in preparation for registration in Japan. Clinical trials for Rocklatan ® have not yet begun.

Glaucoma Product Manufacturing

We have a sterile fill production facility in Athlone, Ireland, for the production of our FDA approved products and clinical supplies, with the intent of having the Athlone manufacturing plant supply our ophthalmic products in all markets for which we received regulatory approval and are commercialized. The Athlone manufacturing plant began manufacturing commercial supplies of Rocklatan ® in the first quarter of 2020 and Rhopressa ® in the third quarter of 2020 for distribution to the United States. Shipments of commercial supply of Rocklatan ® and Rhopressa ® from the Athlone manufacturing plant to the United States commenced in the second half of 2020, respectively . In addition, the Athlone manufacturing plant has manufactured clinical supplies of Rhopressa ® for the Phase 3 clinical trials in Japan as well as registration batches to support product approval in Japan. We e xpect to commence shipments of Rhopressa ® to Santen pursuant to the Second Santen Agreement in the fourth quarter of 2022 for its sales to third parties in early 2023.

As the Athlone manufacturing plant commenced operations in early 2020, it has not reached full capacity. We expect that the Athlone manufacturing plant will have adequate capacity to produce for the markets included in the Santen Agreements, as needed, which include Europe, Japan, East Asia and certain other regions of the world, if approved for commercial distribution in those markets. The Athlone manufacturing plant manufactures most of our ongoing needs for Rhopressa ® and R ocklatan ® in the United States. We may continue to use contract manufacturers to produce commercial supplies of Rhopressa ® and Rocklatan ® for distribution in the United States, but at reduced levels as a result of the Athlone manufacturing plant commencing manufacturing operations.

Product Candidates and Pipeline

Our strategy includes enhancing our longer-term commercial potential by identifying and advancing additional product candidates through our internal discovery efforts, our entry into potential research collaborations or in-licensing arrangements or our acquisition of additional ophthalmic products, technologies or product candidates that complement our current product portfolio.

Dry Eye Program

We are developing AR-15512 ophthalmic solution for the treatment of patients with dry eye disease. In September 2021, we reported topline results of our Phase 2b clinical study, named COMET-1, for AR-15512. We completed a dose ranging study evaluating two concentrations of AR-15512 (0.0014% and 0.003%) in a 90-day trial with 369 subjects. The COMET-1 clinical study achieved statistical significance for multiple pre-specified and validated signs and symptoms. The greatest efficacy was demonstrated with the higher concentration 0.003% formulation, which we plan to advance to Phase 3 studies. The study did not achieve statistical significance at the pre-determined primary endpoints at Day 28. We gained alignment with the FDA in the first quarter of 2022 on the results of the Phase 2b clinical trial and confirmed the design of the Phase 3 trials, which we currently expect to initiate in the second quarter of 2022.

Retina Program

Furthermore, we are currently developing two sustained-release implants focused on retinal diseases, AR-1105 and AR-14034 SR. For AR-1105, we completed a large Phase 2 clinical trial for patients with macular edema due to RVO in July 2020 and reported topline results indicating sustained efficacy of up to six months. We have received advice from regulatory agencies in both Europe and the United States regarding clinical and regulatory pathways for Phase 3 clinical trials. We are currently evaluating Phase 3 development options as well as partnership opportunities. In addition, we are also working to advance our preclinical sustained-release retinal implant, AR-14034 SR, for which we anticipate filing an IND with the FDA in the second half of 2022.

Pipeline

We own over 4,000 ROCK inhibitor molecules that provide a basis for further research and development opportunities. We discovered and developed the active ingredient in Rhopressa ® and Rocklatan ® and netarsudil through a rational drug design approach that coupled medicinal chemistry with high content screening of compounds in proprietary cell-based assays. We selected and formulated netarsudil for preclinical in vivo testing following a detailed characterization of over 3,000 synthesized ROCK inhibitors, a number that has since grown to approximately 4,000. We evaluate this library on an ongoing basis for additional development opportunities. Early-stage evaluations of these molecules are underway for other ophthalmic indications. We continue to evaluate external business development opportunities to provide access to technologies developed outside of Aerie to complement our internal research and development efforts.

Impact of the COVID-19 Pandemic

In December 2019, there was an outbreak of a new strain of COVID-19 and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and workforce participation due to “shelter-in-place” restrictions by various governments worldwide and created significant volatility and disruption of financial markets.

The health and safety of our employees, patients, prescribers and community are of utmost importance during this time. We are complying with all requirements and mandates from various agencies and governments and we continue to monitor applicable federal and state regulations, including with respect to vaccination mandates and required weekly testing of unvaccinated employees. We have taken precautionary measures to protect our employees and our stakeholders and adapted company policy to maintain the continuity of our business. We have continued to operate effectively as most of our manufacturing plant personnel are working at the manufacturing plant with precautionary measures in place, while the balance of our workforce has the option to work remotely or to return to the office in accordance with state and local mandates. We may take further actions as government authorities require or recommend or as we determine to be in the best interest of our employees.

We continue to see eye-care professionals’ offices returning to full capacity and are using traditional in-person office meetings to remain in contact with eye-care professionals, while adhering to strict national guidelines with social distancing, as appropriate. We have seen a majority of eye-care professionals’ offices back to pre-COVID-19 capacity. For those eye-care professionals’ offices that are operating at reduced capacity, we are using a combination of in-person and virtual tools and resources to remain in contact with eye-care professionals. Furthermore, Aerie territory managers are experiencing successful engagement with eye-care professionals through traditional face-to-face office meetings or, when necessary, virtual resources. Our sales force is interactively communicating with physicians via different technological platforms and local peer-to-peer educational meetings are primarily being implemented via webinars when in-person meetings are not available.

Many geographic communities have resumed in-person speaker programs, while adhering to strict national guidelines with social distancing, as appropriate. As part of the support of the eye-care community, our territory managers are either delivering or arranging for delivery of product samples to the eye-care professionals’ offices when needed.

Given the easing of certain COVID-19 restrictions during the second quarter of 2021, in accordance with state and local government mandates, traditional face-to-face office meetings and in-person peer-to-peer education meetings have increased during the period to near pre-COVID levels.

We have not observed any disruptions to date in the supply chain for the production of Rhopressa ® and Rocklatan ® . We believe we have more than two years of starting materials and API in inventory, with the exception of starting material 6AIQ which we currently have one year of supply and an additional two years on order to deliver in 2022, and adequate supply of finished product on hand to support our commercial efforts for at least the next six months. Production of Rhopressa ® and Rocklatan ® is continuing.

Financial Overview

Our cash, cash equivalents and investments totaled $139.8 million as of December 31, 2021. In January 2022, we received a $90 million payment from Santen in connection with the Second Santen Agreement. We believe that our cash, cash equivalents and investments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through at least the next twelve months from the date of this filing, though there may be need for additional financing activity as we continue to grow, in addition to our aggregate principal amount of $316.25 million of Convertible Notes which mature on October 1, 2024. We continue to evaluate our product candidates and pipeline for collaboration and licensing opportunities. See “—Liquidity and Capital Resources” below and Note 10 to our consolidated financial statements included elsewhere in this report for further discussion.

We have incurred net losses since our inception in June 2005. Until 2018, when we commenced commercial operations, our business activities were primarily limited to developing product candidates, raising capital and performing research and development activities. As of December 31, 2021, we had an accumulated deficit of $1,153.9 million. We recorded net losses of $74.8 million, $183.1 million and $199.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. Our capital resources and business efforts are largely focused on activities relating to the commercialization of Rhopressa ® and Rocklatan ® , advancing our product candidates and pipeline, international expansion and operating our manufacturing plant in Athlone, Ireland.

We expect to incur operating losses until such a time when Rhopressa ® or Rocklatan ® or any current or future product candidates, if approved, or proceeds in connection with collaboration and licensing arrangements, generate sufficient cash flows for us to achieve profitability. Accordingly, we may be required to obtain further funding through debt or equity offerings or other sources. 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

Rhopressa ® and Rocklatan ® , our glaucoma franchise products, were launched in the United States in April 2018 and May 2019, respectively. We commenced generating product revenues from sales of Rhopressa ® and Rocklatan ® during the second quarter of 2018 and 2019, respectively. Product affordability for the patient drives consumer acceptance, and this is generally managed through coverage by 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, forecasted customer mix and lagged claims. 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 may have an impact on earnings in the period of adjustment.

We will not generate any revenues from any product candidates or future product candidates unless and until we obtain regulatory approval and commercialize such products.

Licensing Revenues

Licensing revenues consist of the upfront license fee and supplemental upfront payment earned from the licensing of our intellectual property. We recognize revenues from license fees when the license is considered a right to use the intellectual property and we have provided all necessary information to the licensee to benefit from the license and the license term had begun. If it is probable that a significant reversal in the amount of cumulative revenue recognized will occur, we record the upfront license fees in deferred revenue, non-current until the uncertainty is resolved.

Cost of Goods Sold

Cost of goods sold consists of direct and indirect costs to procure and manufacture product sold, including third-party manufacturing costs. Prior to receiving FDA approval, these costs for Rhopressa ® and Rocklatan ® were expensed as pre-approval commercial manufacturing expenses (as defined below). We began capitalizing inventory costs for Rhopressa ® and Rocklatan ® after receipt of FDA approval. In January 2020 and September 2020, we received FDA approval to produce Rocklatan ® and Rhopressa ® , respectively, at the Athlone manufacturing plant for commercial distribution in the United States. Shipments of commercial supply of Rocklatan ® and Rhopressa ® from the Athlone manufacturing plant to the United States commenced in the second half of 2020. Production costs related to underutilized capacity at the manufacturing plant in Athlone, Ireland, are not included in the cost of inventory but are charged directly to cost of goods sold in our consolidated statements of operations and comprehensive loss in the period incurred. We expect cost of goods sold in 2022 to continue to be unfavorably impacted by production costs due to the underutilization at the Athlone manufacturing plant as a result of the Athlone manufacturing plant having become operational in early 2020 and has not reached full capacity. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time as the manufacturing plant reaches full capacity.

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, finance and administration. Other significant expenses include selling and marketing expenses, facilities expenses, shipping and handling costs and professional fees for audit, tax, legal and other services.

Pre-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 those associated with the manufacturing of inventory in anticipation of commercial launch, expenses associated with the establishment of both our manufacturing plant in Athlone, Ireland, and our additional API and drug product contract manufacturers as well as employee-related expenses, which includes salaries, benefits and stock-based compensation for commercial-related manufacturing personnel prior to regulatory approval.

We obtained regulatory approval to produce Rocklatan ® and Rhopressa ® in January 2020 and September 2020, respectively, in our Athlone, Ireland, plant for commercial distribution in the United States as well as approval for our additional drug product contract manufacturers during early 2020.

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, which include:

• employee-related expenses, including salaries, benefits, travel and stock-based compensation expense for research and development personnel;

• expenses incurred under agreements with CROs, contract manufacturing organizations and service providers that assist in conducting clinical trials and preclinical studies;

• costs associated with any collaboration arrangements, licenses or acquisitions of preclinical molecules, product candidates or technologies;

• costs associated with preclinical activities and development activities;

• costs associated with regulatory operations; and

• depreciation expense for assets used in research and development activities.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with research institutions, consultants and CROs that assist in conducting and managing clinical trials. We accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity according to the protocol. If future timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis. Historically, such modifications have not been material.

Other expense, net

Other expense, net primarily includes interest expense, interest income, foreign exchange gains and losses and other income and expense. Interest expense consists of interest expense under the Convertible Notes, including the amortization of debt discounts and issuance costs incurred. Interest income primarily consists of interest earned on our cash, cash equivalents and investments. See “—Liquidity and Capital Resources” below and Note 10 to our consolidated financial statements included elsewhere in this report for further discussion. Foreign exchange gains and losses are primarily due to the remeasurement of our lease liabilities, which are denominated in a foreign currency and held by a subsidiary with a U.S. dollar functional currency. Also included in other income and expense are changes in the fair value of equity securities and research and development tax credit refunds.

Income Tax Expense

Income tax expense primarily includes branch taxes of our non-U.S. subsidiaries.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our 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, 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 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.

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this report. The following accounting policies are the most critical in fully understanding and evaluating our reported financial results and affect significant judgments and estimates that we use in the preparation of our financial statements.

Revenue Recognition

Revenue transactions are accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,  Revenue from Contracts with Customers (“ASC Topic 606”). In accordance with ASC Topic 606, we recognize revenue when our customers obtain control of our product for 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 ASC Topic 606, we perform 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) we satisfy the performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to our customer. Once the contract is determined to be within the scope of ASC Topic 606, we assess 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 amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.

Product Revenues

Aerie’s customers 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. Product affordability for the patient drives consumer acceptance, and this is generally managed through coverage by Third-party Payers and such product may be subject to rebates and discounts payable directly to those Third-party Payers.

Net product revenues for the year ended December 31, 2021 were generated through sales of Rhopressa ® and Rocklatan ® in the United States. Product revenue is recorded net of trade discounts, allowances, commercial and government rebates, co-pay program coupons, 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. These reserves are classified as either reductions of accounts receivable or as current liabilities. Amounts billed or invoiced are included in accounts receivable, net on the consolidated balance sheet. We did not have any contract assets (unbilled receivables) at December 31, 2021, as customer invoicing generally occurs before or at the time of revenue recognition. We did not have any contract liabilities at December 31, 2021, 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 products, which occurs at a point in time, typically upon delivery of products to the distributors. For the year ended December 31, 2021, three distributors accounted for 36.9%, 31% and 30.9% 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 ® 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 donut hole, patient co-pay program coupon utilization, chargebacks and other discount programs 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, forecasted customer mix and lagged claims. Provisions for revenue reserves reduced product revenues by $247.1 million and $202.2 million in aggregate for the years ended December 31, 2021 and 2020, respectively, a significant portion of which related to commercial and Medicare Part D rebates. 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 ® and Rocklatan ® 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 ® and Rocklatan ® . 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 Rocklatan ® based on third-party data and utilization, (iii) inventory held by distributors and (iv) estimates of inventory held at the retail channel. 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 ® and Rocklatan ® 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 information regarding returns of Rhopressa ® and Rocklatan ® as well as historical industry information regarding rates for comparable pharmaceutical products and product portfolios, the estimated remaining shelf life of Rhopressa ® and Rocklatan ® 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.

Contract Revenues from License Agreements

In the normal course of business, we conduct research and development activities pursuant to which we may license certain rights of our intellectual property to third parties. The terms of these arrangements typically include payment for a combination of one or more of the following: upfront license fees; development, regulatory and sales-based milestone payments; clinical or commercial supply services and royalties on net sales of licensed products.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under such agreements, the five steps outlined in “— Revenue Recognition ” above are performed. As part of the accounting for these arrangements, judgment is used to determine: (a) the performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price under step (iv) above; and (d) in some circumstances when control transfers and the appropriate measure of progress in order to recognize revenue under step (v) above. Judgment is used to determine whether milestones or other variable consideration, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, non-current.

Upfront license fees : If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from upfront license fees allocated to the license when the

license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we determine whether the combined performance obligation is satisfied over time or at a point in time.

Development, regulatory or commercial milestone payments : At the inception of each arrangement that includes payments based on the achievement of certain development, regulatory and sales-based or commercial events, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until uncertainty associated with the approvals has been resolved. At the end of each subsequent reporting period, we will re-evaluate the probability of achieving such development and regulatory milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis and recorded as part of license revenues from collaborations during the period of adjustment.

Clinical or commercial supply services : Arrangements that include a promise for the future supply of drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as customer options. We assess if these options provide a material right to the licensee and if so, they would be accounted for as separate performance obligations.

Sales-based milestone payments and royalties : For arrangements that include sales-based royalties, including milestone payments based on the volume of sales, we will determine whether the license is deemed to be the predominant item to which the royalties or sales-based milestones relate and if such is the case, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Upfront payments and fees may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements or when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with any variable consideration is subsequently resolved. Amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

See Note 3 to our consolidated financial statements included elsewhere in this report for further discussion.

Stock-Based Compensation

We recognize compensation costs related to stock options granted to employees ratably over the requisite service period, which in most cases is the vesting period of the award for employees, based on the estimated fair value of the awards on the date of grant. The estimated fair value of stock options is determined using the Black-Scholes option pricing model. Compensation expense for options granted to non-employees is determined as the fair value of consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSU”), including restricted stock awards with non-market performance and service conditions (“PSAs”), are determined based on the fair value of our common stock on the date of grant. Compensation expense related to RSAs and RSUs are recognized ratably over the vesting period. As the PSAs have multiple performance conditions, compensation expense is recognized for each vesting tranche over the respective requisite service period of each tranche if and when we deem it probable that the performance conditions will be satisfied. Compensation expense for stock purchase rights under our employee stock purchase plan is measured and recognized on the date that we become obligated to issue shares of our common stock and is based on the difference between the fair value of our common stock and the purchase price on such date. The fair value of the stock appreciation rights (“SARs”) 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.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value

Determining the appropriate fair value measurement of stock-based awards requires the use of subjective assumptions. We estimate the fair value of options to purchase common stock using the Black-Scholes option pricing model, which is affected by our common stock fair values as well as assumptions regarding a number of other subjective variables. These other variables include the expected term of the options, our expected stock price volatility over the expected term of the options, risk-free interest rates and expected dividends.

We estimate the fair value of stock options at the grant date using the following assumptions:

• Fair Value of our Common Stock. The fair value for our underlying common stock is determined using the closing price on the date of grant as reported on The Nasdaq Global Market.

• Volatility . We calculate expected volatility based on our historical volatility in combination with reported data for a selected group of similar publicly traded companies, or guideline peer group, for which the relevant historical information is available. We selected representative companies from the pharmaceutical industry with similar characteristics to us, including stage of product development and commercialization.

• Expected Term . We used the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment , as we do not have sufficient historical exercise and post-vesting termination data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The midpoint between the vesting date and the maximum contractual expiration date is used as the expected term under this method.

• Risk-free Rate . The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to exercise.

• Forfeiture . Forfeitures are recognized in the period in which they occur.

• Dividend Yield . Except for a one-time cash dividend related to the spin-off of certain non-core intellectual property that occurred in 2012, we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future.

Key weighted average assumptions utilized in the fair value calculation for the underlying common stock as of December 31, 2021, 2020 and 2019 appear in the table below.

YEAR ENDED

DECEMBER 31,

Expected term (years)

Expected stock price volatility

Risk-free interest rate

Dividend yield

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes the results of our operations for the years ended December 31, 2021 and 2020:

YEAR ENDED

DECEMBER 31,

CHANGE

CHANGE

(in thousands, except percentages)

Product revenues, net

Licensing revenues

Total revenues, net

Costs and expenses:

Cost of goods sold

Selling, general and administrative

Pre-approval commercial manufacturing

Research and development

Total costs and expenses

Loss from operations

Other expense, net

Loss before income taxes

Income tax expense

Net loss

* Percentage not meaningful

Product revenues, net

Product revenues, net were $112.1 million and $83.1 million for the years ended December 31, 2021 and 2020, respectively. Revenues recorded during the year ended December 31, 2021 relate to sales of our U.S. glaucoma franchise products, Rhopressa ® and Rocklatan ® . The year-over-year revenue increase is primarily due to higher volumes and higher net sales per unit, which was mostly attributable to renegotiating wholesaler agreements. Our sales volumes have increased each successive quarter in 2021 compared to the volumes in the corresponding quarters in 2020 for our glaucoma franchise products.

Licensing revenues

Licensing revenues were $82.0 million for the year ended December 31, 2021 and consisted of (i) $80.0 million of the $88.0 million upfront license fee associated with the Second Santen Agreement (“Europe Upfront Payment”) and (ii) the $2.0 million supplemental upfront payment earned in connection with the Second Santen Agreement. We recorded $8.0 million of the total $88.0 million Europe Upfront Payment in deferred revenue, non-current in our consolidated balance sheet until we have certainty around events that permit the commercialization of our franchised products in China as required under the Second Santen Agreement.

Cost of goods sold

Cost of goods sold was $26.8 million and $25.3 million for the years ended December 31, 2021 and 2020, respectively. Our gross margin percentage (over product revenues, net) was 76.1% and 69.5% for the years ended December 31, 2021 and 2020, respectively. Our cost of goods sold and gross margin percentage for the years ended December 31, 2021 and 2020 were unfavorably impacted by costs due to underutilized capacity at the Athlone manufacturing plant which increased cost of goods sold by $17.0 million and $17.0 million and lowered the gross margin percentage by 15.1% and 20.4%, respectively. We expect the underutilization to continue to have an unfavorable impact on cost of goods sold that will decrease over time as the Athlone manufacturing plant reaches full capacity. We received FDA approval to produce Rocklatan ® and Rhopressa ® in January 2020 and September 2020, respectively, at the Athlone manufacturing plant for commercial distribution in the United States. Prior to this approval, costs incurred for commercial-related manufacturing activities for both products were recorded to pre-approval commercial manufacturing expenses.

Selling, general and administrative expenses

Selling, general and administrative expenses were $137.8 million and $137.2 million for the years ended December 31, 2021 and 2020, respectively. Selling, general and administrative expenses increased by $0.6 million primarily due to higher sales and marketing expenses as well as travel expenses as a result of the easing of COVID-19 related travel restrictions , partially offset by lower overall employment-related expenses, including stock-based compensation.

Pre-approval commercial manufacturing expenses

Pre-approval commercial manufacturing expenses were zero and $2.3 million for the years ended December 31, 2021 and 2020, respectively. We received regulatory approval in January 2020 and September 2020 to produce Rocklatan ® and Rhopressa ® , respectively, at our Athlone manufacturing plant. The cost of Rocklatan ® and Rhopressa ® produced by the Athlone manufacturing plant for commercial distribution following regulatory approval was capitalized as inventory or expensed to cost of goods sold. Further, we received regulatory approval for our additional Rocklatan ® drug product contract manufacturer, which began to supply commercial product in the first quarter of 2020. The cost of commercial Rocklatan ® produced by the additional contract manufacturer following regulatory approval was capitalized as inventory.

Research and development expenses

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of costs incurred for the research and development of our preclinical and clinical product candidates, which include but are not limited to: (1) expenses incurred under agreements with contract research organizations, contract manufacturing organizations and service providers that assist in conducting clinical and preclinical studies; (2) costs associated with any collaboration arrangements, licenses or acquisitions of preclinical molecules, product candidates or technologies; and (3) costs associated with our preclinical activities, development activities and regulatory operations. We do not allocate employee-related expenses, stock-based compensation or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs.

YEAR ENDED

DECEMBER 31,

CHANGE

CHANGE

(in thousands, except percentages)

Direct research and development expenses by program:

Rhopressa ®

Rocklatan ®

Retina programs (1)

Other direct research and development program costs (2)

Total direct research and development program costs

Employee-related costs

Stock-based compensation

Other indirect costs (3)

Research and development expenses

* Percentage not meaningful

(1) Consists of AR-1105, AR-13503 SR and AR-14034 SR in 2021. Consists of AR-1105 and AR-13503 SR in 2020.

(2) Other direct research development program costs primarily includes AR-6121.

(3) Consists primarily of other indirect costs incurred for the research and development of preclinical and clinical product candidates, including expenses associated with our research facilities such as lab supplies, depreciation and other research facility related costs. Also included in these costs are travel expenses, which were higher in 2021 as a result of the easing of COVID-19 related travel restrictions.

Research and development expenses were $75.8 million and $74.0 million for the years ended December 31, 2021 and 2020, respectively, and increased by $1.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase primarily relates to a $3.9 million increase in spend for the development of AR-15512 due to our Phase 2b clinical study, COMET-1, which we reported topline results in September 2021. Additionally, there was an increase of $3.1

million in expenses associated with Rhopressa ® , respectively, as described below, as well as a $2.3 million increase in spend related to the development of our retina program.

These increases were partially offset by a decrease of $5.6 million in expenses associated with Rocklatan ® due to lower costs related to the Mercury 3 registration trial in Europe and a decrease of $5.4 million in employee-related expenses, including stock-based compensation.

Furthermore, expenses for Rhopressa ® increased by $3.1 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, driven by ongoing costs for the Rhopressa ® Phase 3 clinical trial in Japan. Santen’s portion of these shared costs related to conducting the first Rhopressa ® Phase 3 clinical trial in Japan were recorded as deferred revenue, non-current in the condensed consolidated balance sheets. In October 2021, we reported positive topline results in this Phase 3 clinical trial, which is the first of three expected in Japan. Under the terms of the First Santen Agreement, Santen is responsible for the development and cost of the remaining two Phase 3 studies.

Other expense, net

Other expense, net consists of the following:

YEAR ENDED

DECEMBER 31

CHANGE

% CHANGE

(in thousands, except percentages)

Interest income

Interest expense

Other income

Other expense, net

Other expense, net increased by $5.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Interest expense increased by $2.4 million during the year ended December 31, 2021 due to the amortization of debt discounts and issuance costs associated with the Convertible Notes which were issued in September 2019.

Other income decreased by $1.4 million during the year ended December 31, 2021 primarily due to $2.3 million in realized loss on equity securities sold as of March 31, 2021 offset by an increase in the unrealized gain from foreign exchange and an increase in the realized gain from foreign exchange.

Interest income decreased by $1.8 million during the year ended December 31, 2021 and related to interest income on our cash, cash equivalents and investments.

Income tax expense

Income tax expense consists of the following:

YEAR ENDED

DECEMBER 31

CHANGE

% CHANGE

(in thousands, except percentages)

Income tax expense

Income tax expense decreased by $4.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to $5.0 million in withholding taxes incurred in the fourth quarter of 2020 related to the $50.0 million upfront payment made by Santen pursuant to the First Santen Agreement.

Liquidity and Capital Resources

Since our inception, we have funded operations primarily through the sale of equity securities and the issuance of convertible notes. In addition, we generate cash flow from product revenues related to sales of Rhopressa ® and Rocklatan ®  in the United States. Further, we entered into the Second Santen Agreement in December 2021 which included the Europe Upfront Payment of $88.0 million which we received in January 2022 and a supplemental upfront payment of $2.0 million. This was an expansion of the First Santen Agreement pursuant to which Santen made an upfront payment of $50.0 million (the “Japan Upfront Payment”) in the fourth quarter of 2020.

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 our current products and any future products, if commercialized, generate adequate revenues to render us profitable. We will not generate any revenue from any current or future product candidates unless and until we obtain regulatory approval and commercialize such products.

Sources of Liquidity

During years ended December 31, 2021 and 2020, we have:

• entered into the First Santen Agreement in October 2020 to advance our clinical development and ultimately commercialize Rhopressa ® and Rocklatan ® in Japan and East Asia. Pu rsuant to the First Santen Agreement, Santen made the $50.0 million Japan Upfront Payment in the fourth quarter of 2020, which was recognized in deferred revenue, non-current in our consolidated balance sheets. See Note 3 to our consolidated financial statements included elsewhere in this report for additional information; and

• entered into the Second Santen Agreement in December 2021, which expanded the territories of the First Santen Agreement to include Europe, China, India, the Middle East, CIS, parts of Latin America, the Oceania countries and certain other regions. Pursuant to the Second Santen Agreement , Santen paid the $88.0 million Europe Upfront Payment and $2.0 million supplemental upfront payment in January 2022, of which $82.0 million was recognized as licensing revenues in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2021 . See Note 3 to our consolidated financial statements included elsewhere in this report for additional information.

We also have outstanding $316.25 million aggregate principal amount of Convertible Notes which mature on October 1, 2024.

As of December 31, 2021, our principal sources of liquidity were our cash, cash equivalents and investments, which totaled approximately $139.8 million. In January 2022, we received a $90.0 million payment from Santen in connection with the Second Santen Agreement. See Note 3 to our consolidated financial statements included elsewhere in this report for additional information. We believe that our cash, cash equivalents and investments and projected cash flows from revenues will provide sufficient resources for our current ongoing needs through at least the next twelve months. See “— Operating Capital Requirements .” We continue to evaluate our product candidates and pipeline for collaboration and licensing opportunities.

Cash Flows

The following table summarizes our sources and uses of cash:

YEAR ENDED

DECEMBER 31,

Net cash (used in) provided by:

(in thousands)

Operating activities

Investing activities

Financing activities

Net (decrease) increase in cash and cash equivalents

Operating Activities

During the year ended December 31, 2021, net cash used in operating activities of $99.2 million related to a net loss of $74.8 million, adjusted for non-cash items of $68.2 million primarily related to amortization and accretion, stock-based compensation expense and depreciation and $92.6 million related to changes in operating assets and liabilities which primarily consisted of the $90.0 million licensing receivable related to the Second Santen Agreement received in January 2022 .

During the year ended December 31, 2020, net cash used in operating activities of $64.7 million related to a net loss of $183.1 million, adjusted for non-cash items of $73.5 million primarily related to stock-based compensation expense, amortization and accretion and depreciation and net cash inflows of $44.9 million related to changes in operating assets and liabilities. The changes in operating assets and liabilities included the $50.0 million Japan Upfront Payment in deferred revenue as of December 31, 2020.

Investing Activities

During the year ended December 31, 2021, our investing activities used net cash of $18.2 million primarily related to purchases of available-for-sale investments of $132.4 million and purchases of property, plant and equipment of $3.3 million, primarily related to our manufacturing plant in Athlone, Ireland, partially offset by sales and maturities of investments of $117.5 million.

During the year ended December 31, 2020, our investing activities provided net cash of $73.2 million primarily related to sales and maturities of investments of $192.9 million, which were partially offset by purchases of available-for-sale investments of $116.6 million and purchases of property, plant and equipment of $3.1 million, primarily related to the completion of the build-out of our manufacturing plant in Athlone, Ireland.

Financing Activities

During the year ended December 31, 2021, our financing activities provided net cash of $3.0 million primarily related to net proceeds from the issuance of common stock for stock-based compensation arrangements.

During the year ended December 31, 2020, our financing activities used net cash of $0.9 million, primarily related to tax payments made on employees’ behalf through withholding of shares on restricted stock.

Operating Capital Requirements

We expect to incur ongoing operating losses until such a time when Rhopressa ® , Rocklatan ® , Rhokiinsa ® or Roclanda ® or any product candidates or future product candidates, if approved, generate sufficient cash flows to achieve profitability.

Our principal liquidity requirements are for: working capital; 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 certain geographical regions around the world; contractual obligations; and capital expenditures.

We believe that our cash, cash equivalents and investments and projected cash flows from revenues will provide sufficient resources to support our operations through at least the next twelve months from the date of this filing. We are required to make semi-annual interest payments in cash in arrears on the Convertible Notes at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020.

Our future funding requirements will depend on many factors, including, but not limited to the following:

• commercial performance of Rhopressa ® , Rocklatan ® , Rhokiinsa ® or Roclanda ® or any current or future product candidates, if approved;

• costs of commercialization activities for Rhopressa ® , Rocklatan ® , Rhokiinsa ® or Roclanda ® and 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 including those related to our 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;

• terms and timing of any acquisitions, collaborations or other arrangements;

• costs related to the Convertible Notes; 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. Accordingly, we may be required to obtain further funding through debt or equity offerings or other sources. If such funding is required, we cannot guarantee that it will be available to us on favorable terms, if at all.

Income Taxes and Net Operating Loss Carryforwards

We have incurred significant net operating losses (“NOLs”) since our inception in June 2005. We expect to continue to incur U.S. NOLs until such a time when Rhopressa ® or Rocklatan ® or any other product, if approved in the future, generates adequate revenues to render Aerie profitable. We launched Rhopressa ® in the United States at the end of April 2018 and Rocklatan ® in May 2019. As a result, we commenced generating product revenues related to sales of Rhopressa ® in the second quarter of 2018 and Rocklatan ® in the second quarter of 2019; however, we did not generate U.S. taxable income in 2018 through 2021. The NOLs may be utilized to offset taxable income generated in the future.

As of December 31, 2021, we had federal and state NOL carryforwards of approximately $635.1 million and $616.3 million, respectively. Federal NOLs that arose prior to 2018 and state NOLs will begin to expire at various dates beginning in 2031 and 2023, respectively. Federal NOLs that arose on or after January 1, 2018, can be carried forward indefinitely to be utilized against future income, but can only be used to offset a maximum of 80% of our federal taxable income in any year. As of December 31, 2021, we had foreign NOL carryforwards of $66.0 million, which are available solely to offset taxable income of our foreign subsidiaries, subject to any applicable limitations under foreign law.

NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of our company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. State NOLs and tax credit carryforwards may be subject to similar limitations under state laws.

In December 2017, the Tax Act was signed into law and enacted significant changes to the Internal Revenue Code of 1986, as amended. This new tax legislation, among other changes, reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Tax Act also repealed the corporate alternative minimum tax (“AMT”) for tax years beginning after December 31, 2017 and provides that existing AMT credit carryovers are refundable in tax years beginning after December 31, 2017. Many provisions in the Tax Act were generally effective in tax years beginning in 2018. The Tax Act eliminated the expensing of R&D costs beginning in 2022 and would require these costs to be amortized over five years if the R&D activities are performed in the United States and 15 years if the activities are performed outside of the United States. This may result in us having more taxable income for the 2022 tax year and into the future which can be offset by existing net operating losses. Legislation has been introduced to delay the application of this new amortization requirement for five years until tax years beginning after 2025. The prospects for this legislation are uncertain. We will continue to analyze additional information and guidance related to certain aspects of the Tax Act in assessing the potential impact in the future. On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes several business tax provisions which include, but are not limited to modifications of federal net operating loss carrybacks and deductibility, changes to prior year refundable alternative minimum tax liabilities, increase of limitations on business interest deductions from 30 percent to 50 percent of earnings before interest, taxes, depreciation, and amortization, technical corrections of the classification of qualified improvement property making them eligible for bonus depreciation, increase of the limits on charitable contribution deductions from 10 percent to 25 percent of adjusted taxable income, modifications of the treatment of federal loans, loan guarantees, and other investments, suspension of industry specific excise taxes, deferral of the company portion of Old Age, Survivors, and Disability Insurance Program (“OASDI”), and implementation of a refundable employee retention tax credit. The CARES Act did not have a material impact on our consolidated financial statements as of and for the year ended December 31, 2020. We will continue to monitor additional guidance issued by the U.S. Treasury Department and the Internal Revenue Service.

The CARES Act provides for the delay in the required deposit of the employer portion of the OASDI payroll tax from the date of enactment through the end of 2020. Of the taxes that we deferred, 50 percent of the deferred payroll taxes in the amount of $0.7 million were deposited by the end of 2021 and the remaining 50 percent are required to be deposited by the end of 2022. As of December 31, 2021, we have deferred $0.7 million payroll taxes related to the employer portion of the OASDI tax.

Outstanding Indebtedness

In September 2019, we issued an aggregate principal amount of $316.25 million of Convertible Notes. The Convertible Notes are senior, unsecured obligations with interest payable semi-annually in cash in arrears at a rate of 1.50% per annum on April 1 and October 1 of each year, which began on April 1, 2020. The Convertible Notes will mature on October 1, 2024 unless they are redeemed, repurchased or converted prior to such date. Prior to April 1, 2024, the Convertible Notes will be convertible at the option of holders only during certain periods and upon satisfaction of certain conditions. On and after April 1, 2024, the Convertible Notes will be convertible at the option of the holders any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Convertible Notes may be settled in shares of our common stock, cash or a combination, thereof, at our election. We currently intend to settle the principal and interest amounts of the Convertible Notes in cash.

See Note 10 to our consolidated financial statements included elsewhere in this report for more information.

Contractual Obligations and Commitments

Our lease obligations are primarily related to our principal executive office and research facility in Durham, North Carolina, and corporate offices in Bedminster, New Jersey, Irvine, California and other foreign offices, and expire through October 2029. Additionally, we are leasing approximately 30,000 square feet of interior floor space related to our manufacturing plant in Athlone, Ireland. We are permitted to terminate the lease agreement beginning in September 2027. Refer to Note 8 to our consolidated financial statements included in this report for further information.

In September 2019, we issued Convertible Notes, which mature on October 1, 2024 and bear interest at a rate of 1.50% per annum. Refer to Note 10 to our consolidated financial statements included in this report for further information.

We have purchase obligations that consist primarily of non-cancelable commitments under our contract manufacturing agreements.

We have agreements with third-parties with contingent milestone payments that are potentially payable by us, as more fully described in Note 13 to our consolidated financial statements included elsewhere in this report. These payments are contingent upon achieving certain development and/or regulatory milestones that may or may not ever be achieved. Therefore, our requirement to make such payments in the future, if at all, as well as the timing of any such payments is highly uncertain.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC regulations.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this report regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.