Why Is Aerie Pharmaceuticals Inc (NASDAQ:AERI) Diluting Its Stock?

Aerie Pharmaceuticals Inc (NASDAQ:AERI) has announced a fundraiser through way of equity offering. The move will dilute value for existing shareholders, but boost Aerie’s cash position while avoiding taking on more debt.

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Aerie had total debt of $123.39 million on its balance sheet at the end of 2Q2016, a slight increase from $123.31 million in the prior quarter. Cash balance declined to $58.52 million from $74.27 million in the previous quarter and $100.92 million a year ago.

In the equity fundraiser, Aerie has priced $50 million worth of its common stock. The company said it intends to use the net proceeds from the equity sale to fund clinical programs and prepare the infrastructure for commercialization of its candidate that is in the process of regulatory approval.

A brief look at the pipeline

Aerie develops treatments for glaucoma and other eye diseases. It has a number of candidates in its pipeline that are at various stages of development. Aerie’s most advanced glaucoma candidate is Rhopressa, whose new drug application for one-daily use is already with the FDA. It is not clear when the regulator will make issue its final verdict on the compound, but Aerie is banking on positive trial data to support the candidate’s commercialization clearance.

As such, the management of Aerie can be seen exuding confidence that Rhopressa will successfully sail through regulatory review. That is why the company is going in with commercialization preparations for the drug.

Aerie’s other candidate targeting glaucoma market is Roclatan, which produced encouraging results in a Phase 3 study and is currently in a second Phase 3 trial. If the second Phase 3 study backs up the finding of the first Phase 3 study, Aerie should have robust data to seek regulatory clearance for Roclatan.

A $2.2 billion revenue opportunity

The glaucoma market that Aerie is targeting is worth more than $2.2 billion annually in the U.S. alone and the company can pursue marketing opportunities for its drugs in Japan and other markets outside the U.S.

The aging baby boomer popular has contributed to the massive glaucoma market.

Aerie posted EPS loss of $0.72 in 2Q2016, beating the consensus that called for EPS loss of $0.79 for the quarter.

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