“We,Vertex,” “we,” “us,” “Vertex” and the “Company”“our” as used in this Quarterly Report on Form 10-Q refer to Vertex Pharmaceuticals Incorporated, a Massachusetts corporation, and its subsidiaries.

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (“Vertex”Vertex,” “we,” “us” or the “Company”“our”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016,2021, which are contained in the Company’sour 2021 Annual Report on Form 10-K for the year ended December 31, 2016 that was filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2017 (the “2016 Annual Report on Form 10-K”).10-K.

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires managementus to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theour condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, inventories, research and development expenses, stock-based compensation expense, restructuring expense, the fair value of intangible assets, goodwill, contingent consideration, noncontrolling interest, the consolidation and deconsolidation of VIEs, leases, the fair value of cash flow hedges and the provision for or benefit from income taxes. The Company bases itsWe base our estimates on historical experience and various other assumptions, including in certain circumstances future projections that management believeswe believe to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Our significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in the 2016our 2021 Annual Report on Form 10-K.

Product revenues, net consisted of the new standard. Based on the Company’s assessment performed to date, the new revenue recognition guidance could impact the Company’s accounting forfollowing:

Total net product shipments to certain countries through early access programs, including the French early access programs, whereby the associated product has received regulatory approval but the price is not fixed or determinablerevenues by geographic region, based on the status of ongoing pricing discussions, and could impact the Company’s accounting for certain reimbursement agreements that the Company plans to negotiate in the fourth quarter of 2017. As the Company completes its assessment, it is implementing appropriate changes to its controls to support revenue recognition and additional revenue-related disclosures under the new standard.

We had contract liabilities of this standard to have an impact on its consolidated financial statements$119.5 million and related disclosures, as the Company held publicly traded equity investments$171.7 million as of September 30, 2017 as well as equity investments accounted2022 and December 31, 2021, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right. These contracts include upfront payments and fees. We defer a portion of the consideration received for under the cost method. A cumulative-effect adjustmentshipments made up to the balance sheet will be recordedannual reimbursement limit as a portion of “Other current liabilities.” The deferred amount is recognized as revenue when the free products are shipped. Our product revenue contracts include performance obligations that are one year or less.

Our contract liabilities at the end of each fiscal year relate to contracts with annual reimbursement limits in international markets in which the annual period associated with the contract is not the same as our fiscal year. In these markets, we recognize revenues related to performance obligations satisfied in previous years; however, these revenues do not relate to any performance obligations that were satisfied more than 12 months prior to the beginning of the fiscal year of adoption. The implementation of this amended guidance is expected to increase volatility in net income as the volatility currently recorded in other comprehensive income related to changes in the fair market value of available-for-sale equity investments will be reflected in net income after adoption.current year.

In 2017,We have entered into numerous agreements with third parties to collaborate on research, development and commercialization programs, license technologies, or acquire assets. Our “Acquired in-process research and development expenses” included $29.0 million and $92.9 million for the FASB issued amended guidancethree and nine months ended September 30, 2022, respectively, and $26.7 million and $986.8 million, for the three and nine months ended September 30, 2021, respectively, related to upfront, contingent milestone, or other payments pursuant to our business combinations. The amended guidance clarifies the definitiondevelopment transactions, including collaborations, licenses of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new accounting guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company early adopted this new guidance as of January 1, 2017third-party technologies, and will apply this new guidance to futureasset acquisitions.

Pursuant to the terms of our in-license agreements, our collaborators typically lead the discovery efforts and we lead all preclinical, development and commercialization activities associated with the advancement of any product candidates and fund all expenses.

We typically can terminate our in-license agreements by providing advance notice to our collaborators; the required length of notice is dependent on whether any product developed under the license agreement as amended, the Company has agreed to pay royalties ranging from low-single digits to mid-single digits on potential sales of certain compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016 and tiered royalties ranging from single digits to sub-teens on any approved drugs first synthesized and/or tested duringreceived marketing approval. Our license agreements may be terminated by either party for a research term on or before February 28, 2014, including (i) KALYDECO (ivacaftor) and ORKAMBI (lumacaftor in combination with ivacaftor), which are the Company’s current products and (ii) tezacaftor in combination with ivacaftor. For combination products, such as ORKAMBI, sales will be allocated equally to each of the active pharmaceutical ingredients in the combination product.

In 2015, the Companywe entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with CRISPR Therapeutics AG and its affiliates (“CRISPR”) to collaborate on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene editinggene-editing technology. The Company hasWe had the exclusive right to license upcertain targets. In 2019, we elected to six CRISPR-Cas9-basedexclusively license three targets, including targets for the potential treatment of sickle cell disease. In connection with the CRISPR Agreement, the Company made an upfront payment to CRISPR of $75.0 million and a $30.0 million investment in CRISPR pursuant to a convertible loan agreement that converted into preferred stock in January 2016. The Company expensed $75.0 million to research and development, and the $30.0 million investment was recorded at cost and was classified as a long-term asset on the Company’s condensed consolidated balance sheets. In the second quarter of 2016, the Company made an additional preferred stock investment in CRISPR of approximately $3.1 million. In connection with CRISPR’s initial public offering in October 2016, the Company purchased $10.0 million of common shares at the public offering price and the Company’s preferred stock investments in CRISPR converted into common shares. As of September 30, 2017, the Company recorded the fair value of its investment in CRISPR common shares of $56.9 million in marketable securities and a $13.7 million unrealized gain related to these common shares in accumulated other comprehensive income (loss) on the condensed consolidated balance sheet.

In connection with the deconsolidation of Parion, the Company evaluated whether the results of Parion should be presented as discontinued operations for the three and nine month period ending September 30, 2017. The Company concluded that the deconsolidation of Parion based on data from the Phase 2 clinical trial of VX-371 is notA&R JDCA, we made a development that significantly impacts the Company’s overall operations and financial results or plans$900.0 million upfront payment to treat patients with CF. Research

We and CRISPR shared equally all expenses incurred under the Original CTX001 JDCA. On July 1, 2021, the net profits and net losses incurred with respect to exa-cel pursuant to the A&R JDCA began to be allocated 60% to us and 40% to CRISPR, subject to certain adjustments, while all other product candidates and products continue to have net profits and net losses shared equally between the parties. We concluded that the Original CTX001 JDCA and the A&R JDCA are cost-sharing arrangements, which result in the net impact of the arrangements being recorded in “Total costs and expenses” within our condensed consolidated statements of operations. During the three and nine months ended September 30, 2017. The2022 and 2021, we recognized the following amounts in total, purchase pricenot including amounts recorded to “Acquired in-process research and development expenses,” related to these agreements:

In July 2022, we entered into a research collaboration with Verve Therapeutics, Inc. (“Verve”) focused on discovering and developing an in vivo gene-editing program for a liver disease. Under the terms of the agreement, we made a $25.0 million upfront payment to Verve and purchased $35.0 million of Verve’s common stock. We concluded that there is no alternative future use for the transactionacquired in-process research and development and recorded the upfront payment to “Acquired in-process research and development expenses.” The investment in Verve’s common stock is recorded at fair value on our condensed consolidated balance sheet within “Marketable securities.”

In May 2022, pursuant to an asset purchase agreement, we acquired Catalyst Biosciences, Inc.’s portfolio of protease medicines that target the complement system (the “complement portfolio”) and related intellectual property, including CB 2782-PEG, which is a pre-clinical complement component 3 degrader program for geographic atrophy in dry age-related macular degeneration. We determined that substantially all the fair value acquired was $165.1concentrated in the CB-2782 PEG in-process research and development assets, which did not constitute a business, and for which we determined there was no alternative future use. As a result, we recorded our $60.0 million upfront payment to “Acquired in-process research and development expenses” in the nine months ended September 30, 2022.

We have a research, development and commercialization agreement that was originally entered into in 2004 with the Cystic Fibrosis Foundation, as successor in interest to the Cystic Fibrosis Foundation Therapeutics, Inc. This agreement was most recently amended in 2016. Pursuant to the agreement, as amended, we agreed to pay royalties ranging from low-single digits to mid-single digits on potential sales of certain compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016, including $5.1 million of transaction costs that were recordedelexacaftor, and tiered royalties ranging from single digits to sub-teens on covered compounds first synthesized and/or tested during a research term on or before February 28, 2014, including KALYDECO (ivacaftor), ORKAMBI (lumacaftor in combination with ivacaftor) and SYMDEKO/SYMKEVI (tezacaftor in combination with ivacaftor). For combination products, such as ORKAMBI, SYMDEKO/SYMKEVI and TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), sales general and administrative expenses. If the Company achieves one or moreare allocated equally to each of the $90.0 million of regulatory approval and reimbursement milestones, the Company will record the value of the milestone as an intangible asset and will begin amortizing the asset in cost of product revenuesactive pharmaceutical ingredients in the period thatcombination product. We record our royalties payable to the relevant milestone is achieved.

The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods ended: