SECURITIES AND EXCHANGE COMMISSION

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 Par Value Per Share

VRTX

The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐



~~Large accelerated filer~~ x	~~Accelerated filer~~ o	~~Non-accelerated filer~~ o	~~Smaller reporting company~~ o

~~Emerging growth company~~ o	~~(Do not check if a smaller reporting company)~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Common Stock, par value $0.01 per share		~~252,902,848~~
~~Class~~257,683,184	Outstanding at October ~~20, 2017~~31, 2023

FOR THE QUARTER ENDED SEPTEMBER 30, ~~2017~~2023

“~~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.

“Vertex®,” “KALYDECO^®,” “ORKAMBI®,” “SYMDEKO®,” “SYMKEVI®,” “TRIKAFTA®” and ~~“ORKAMBI~~^“KAFTRIO®” are registered trademarks of Vertex. Other brands, names and trademarks contained in this Quarterly Report on Form 10-Q are the property of their respective owners.

We use the brand name for our products when we refer to the product that has been approved and with respect to the indications on the approved label. Otherwise, including in discussions of our development programs, we refer to our compounds by their scientific (or generic) name or VX developmental designation.

Item 1. Financial Statements

~~(unaudited)~~Income

(in ~~thousands,~~millions, except per share amounts)(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:
Product revenues, net $ 549,642
$ 409,689
$ 1,544,252
$ 1,229,750
Royalty revenues 2,231
3,835
6,643
12,713
Collaborative revenues 26,292
259
286,123
1,008
Total revenues 578,165
413,783
1,837,018
1,243,471
Costs and expenses:
Cost of product revenues 72,186
53,222
188,963
147,165
Royalty expenses 688
855
2,104
2,813
Research and development expenses 454,947
272,370
1,017,961
799,238
Sales, general and administrative expenses 120,710
106,055
361,285
322,921
Restructuring expenses, net 337
8
13,859
1,038
Intangible asset impairment charge 255,340
—
255,340
—
Total costs and expenses 904,208
432,510
1,839,512
1,273,175
Loss from operations (326,043 ) (18,727 ) (2,494 ) (29,704 )
Interest expense, net (13,574 ) (20,140 ) (45,003 ) (60,993 )
Other (expenses) income, net (77,553 ) (167 ) (80,634 ) 3,025
Loss before (benefit from) provision for income taxes (417,170 ) (39,034 ) (128,131 ) (87,672 )
(Benefit from) provision for income taxes (125,903 ) 503
(117,581 ) 24,118
Net loss (291,267 ) (39,537 ) (10,550 ) (111,790 )
Loss (income) attributable to noncontrolling interest 188,315
696
173,350
(33,207 )
Net (loss) income attributable to Vertex $ (102,952 ) $ (38,841 ) $ 162,800
$ (144,997 )

Amounts per share attributable to Vertex common shareholders:
Net (loss) income:
Basic $ (0.41 ) $ (0.16 ) $ 0.66
$ (0.59 )
Diluted $ (0.41 ) $ (0.16 ) $ 0.64
$ (0.59 )
Shares used in per share calculations:
Basic 250,268
244,920
247,963
244,529
Diluted 250,268
244,920
252,095
244,529


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Product revenues, net	$	2,483.5	$	2,334.3	$	7,351.5	$	6,628.0


Costs and expenses:
Cost of sales	318.7		289.4		894.2		797.0
Research and development expenses	810.0		645.0		2,338.3		1,846.2
Acquired in-process research and development expenses	51.7		29.0		509.3		92.9
Selling, general and administrative expenses	263.8		246.8		767.5		677.3
Change in fair value of contingent consideration	1.2		(2.6)		(1.3)		(59.3)
Total costs and expenses	1,445.4		1,207.6		4,508.0		3,354.1
Income from operations	1,038.1		1,126.7		2,843.5		3,273.9
Interest income	167.9		46.2		435.2		58.6
Interest expense	(10.9)		(13.7)		(33.5)		(43.2)
Other (expense) income, net	(15.9)		17.2		(13.0)		(133.7)
Income before provision for income taxes	1,179.2		1,176.4		3,232.2		3,155.6
Provision for income taxes	143.9		245.9		581.4		652.5
Net income	$	1,035.3	$	930.5	$	2,650.8	$	2,503.1

Net income per common share:
Basic	$	4.01	$	3.63	$	10.29	$	9.78
Diluted	$	3.97	$	3.59	$	10.18	$	9.68
Shares used in per share calculations:
Basic	258.0		256.5		257.7		255.8
Diluted	260.6		259.5		260.4		258.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

(in ~~thousands)~~millions)(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net loss $ (291,267 ) $ (39,537 ) $ (10,550 ) $ (111,790 )
Changes in other comprehensive loss:
Unrealized holding gains (losses) on marketable securities, net of tax of zero, respectively 5,961
(96 ) (7,786 ) 104
Unrealized (losses) gains on foreign currency forward contracts, net of tax of $0.9 million, $0.2 million, $2.9 million and $(0.4) million, respectively (5,453 ) 2,149
(27,379 ) 1,936
Foreign currency translation adjustment (3,884 ) (2,508 ) (11,137 ) (7,709 )
Total changes in other comprehensive loss (3,376 ) (455 ) (46,302 ) (5,669 )
Comprehensive loss (294,643 ) (39,992 ) (56,852 ) (117,459 )
Comprehensive loss (income) attributable to noncontrolling interest 188,315
696
173,350
(33,207 )
Comprehensive (loss) income attributable to Vertex $ (106,328 ) $ (39,296 ) $ 116,498
$ (150,666 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	1,035.3	$	930.5	$	2,650.8	$	2,503.1
Other comprehensive income (loss):
Unrealized holding losses on marketable securities, net of tax of $1.7, zero, $5.2 and zero, respectively	(6.2)		(0.6)		(18.8)		(3.6)
Unrealized gains on foreign currency forward contracts, net of tax of $(13.2), $(16.0), $(1.6) and $(34.3), respectively	48.0		58.8		5.9		128.1
Foreign currency translation adjustment	(5.0)		(18.1)		9.1		(42.8)
Total other comprehensive income (loss)	36.8		40.1		(3.8)		81.7
Comprehensive income	$	1,072.1	$	970.6	$	2,647.0	$	2,584.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

(in ~~thousands,~~millions, except share ~~and per share amounts)~~data)(unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

(in millions)(unaudited)

Common Stock Additional
Paid-in Capital Accumulated
Other
Comprehensive (Loss) Income Accumulated Deficit Total Vertex
Shareholders’ Equity Noncontrolling
Interest Total
Shareholders’ Equity
Shares Amount
Balance at December 31, 2015 246,307
$ 2,427
$ 6,197,500
$ 1,824
$ (5,261,784 ) $ 939,967
$ 153,661
$ 1,093,628
Other comprehensive loss, net of tax —
—
—
(5,669 ) —
(5,669 ) —
(5,669 )
Net (loss) income —
—
—
—
(144,997 ) (144,997 ) 33,207
(111,790 )
Issuance of common stock under benefit plans 1,722
19
50,875
—
—
50,894
—
50,894
Stock-based compensation expense —
—
181,351
—
—
181,351
(73 ) 181,278
Balance at September 30, 2016 248,029
$ 2,446
$ 6,429,726
$ (3,845 ) $ (5,406,781 ) $ 1,021,546
$ 186,795
$ 1,208,341

Balance at December 31, 2016 248,301
$ 2,450
$ 6,506,795
$ 21,173
$ (5,373,836 ) $ 1,156,582
$ 181,609
$ 1,338,191
Cumulative effect adjustment for adoption of new accounting guidance —
—
9,371
(9,371 ) —
—
—
Other comprehensive loss, net of tax —
—
—
(46,302 ) —
(46,302 ) —
(46,302 )
Net income (loss) —
—
—
—
162,800
162,800
(173,350 ) (10,550 )
Issuance of common stock under benefit plans 4,382
50
298,956
—
—
299,006
33
299,039
Stock-based compensation expense —
—
218,991
—
—
218,991
—
218,991
VIE noncontrolling interest upon deconsolidation —
—
—
—
—
—
3,910
3,910
Other —
—
—
—
—
—
(35 ) (35 )
Balance at September 30, 2017 252,683
$ 2,500
$ 7,034,113
$ (25,129 ) $ (5,220,407 ) $ 1,791,077
$ 12,167
$ 1,803,244


	Three Months Ended
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Balance at June 30, 2022	256.0	$	2.6	$	7,100.0	$	57.5	$	4,773.4	$	11,933.5
Other comprehensive income, net of tax	—	—		—		40.1		—		40.1
Net income	—	—		—		—		930.5		930.5

Common stock withheld for employee tax obligations	(0.2)	(0.0)		(48.0)		—		—		(48.0)
Issuance of common stock under benefit plans	0.8	0.0		38.2		—		—		38.2
Stock-based compensation expense	—	—		135.3		—		—		135.3
Balance at September 30, 2022	256.6	$	2.6	$	7,225.5	$	97.6	$	5,703.9	$	13,029.6

Balance at June 30, 2023	257.8	$	2.6	$	7,369.1	$	(39.8)	$	8,138.3	$	15,470.2
Other comprehensive income, net of tax	—	—		—		36.8		—		36.8
Net income	—	—		—		—		1,035.3		1,035.3
Repurchase of common stock	(0.4)	(0.0)		(123.0)		—		—		(123.0)
Common stock withheld for employee tax obligations	(0.1)	(0.0)		(53.2)		—		—		(53.2)
Issuance of common stock under benefit plans	0.5	0.0		15.0		—		—		15.0
Stock-based compensation expense	—	—		131.7		—		—		131.7
Balance at September 30, 2023	257.8	$	2.6	$	7,339.6	$	(3.0)	$	9,173.6	$	16,512.8

	Nine Months Ended
	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2021	254.5	$	2.5	$	6,880.8	$	15.9	$	3,200.8	$	10,100.0
Other comprehensive income, net of tax	—	—		—		81.7		—		81.7
Net income	—	—		—		—		2,503.1		2,503.1

Common stock withheld for employee tax obligations	(0.7)	(0.0)		(169.9)		—		—		(169.9)
Issuance of common stock under benefit plans	2.8	0.1		135.2		—		—		135.3
Stock-based compensation expense	—	—		379.4		—		—		379.4
Balance at September 30, 2022	256.6	$	2.6	$	7,225.5	$	97.6	$	5,703.9	$	13,029.6

Balance at December 31, 2022	257.0	$	2.6	$	7,386.5	$	0.8	$	6,522.8	$	13,912.7
Other comprehensive loss, net of tax	—	—		—		(3.8)		—		(3.8)
Net income	—	—		—		—		2,650.8		2,650.8
Repurchase of common stock	(0.9)	(0.0)		(284.1)		—		—		(284.1)
Common stock withheld for employee tax obligations	(0.7)	(0.0)		(222.9)		—		—		(222.9)
Issuance of common stock under benefit plans	2.4	0.0		85.7		—		—		85.7
Stock-based compensation expense	—	—		374.4		—		—		374.4
Balance at September 30, 2023	257.8	$	2.6	$	7,339.6	$	(3.0)	$	9,173.6	$	16,512.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

(in millions)(unaudited)

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Net loss $ (10,550 ) $ (111,790 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense 215,334
178,623
Depreciation and amortization expense 44,965
45,947
Write-downs of inventories to net realizable value 11,138
—
Deferred income taxes (113,969 ) 23,544
Impairment of property and equipment 1,946
—
Intangible asset impairment charge 255,340
—
Acquired in-process research & development 160,000
—
Deconsolidation of VIE 76,644
—
Other non-cash items, net (4,787 ) (904 )
Changes in operating assets and liabilities:
Accounts receivable, net (54,455 ) (9,760 )
Inventories (28,570 ) (11,536 )
Prepaid expenses and other assets (90,006 ) (8,979 )
Accounts payable 6,925
(21,532 )
Accrued expenses and other liabilities 148,102
26,121
Accrued restructuring expense (3,863 ) (8,151 )
Deferred revenues 3,237
(10,204 )
Net cash provided by operating activities 617,431
91,379
Cash flows from investing activities:
Purchases of marketable securities (431,653 ) (616,625 )
Maturities of marketable securities 247,149
535,379
Expenditures for property and equipment (56,817 ) (41,775 )
Purchase of in-process research & development (160,000 ) —
(Decrease) increase in restricted cash and cash equivalents (VIE) (15,643 ) 20,490
Investment in equity securities —
(23,075 )
Decrease (increase) in other assets 380
(93 )
Net cash used in investing activities (416,584 ) (125,699 )
Cash flows from financing activities:
Issuances of common stock under benefit plans 298,205
51,165
Payments on revolving credit facility (300,000 ) —
Advance from collaborator 10,000
—
Payments on capital lease obligations (14,188 ) (13,330 )
Proceeds from capital lease financing —
2,030
Payments on construction financing lease obligation (412 ) (356 )
Proceeds related to construction financing lease obligation 4,700

—
Repayments of advanced funding (3,132 ) —
Net cash (used in) provided by financing activities (4,827 ) 39,509
Effect of changes in exchange rates on cash 5,001
(265 )
Net increase in cash and cash equivalents 201,021
4,924
Cash and cash equivalents—beginning of period 1,183,945
714,768
Cash and cash equivalents—end of period $ 1,384,966
$ 719,692

Supplemental disclosure of cash flow information:
Cash paid for interest $ 51,990
$ 64,662
Cash paid for income taxes $ 4,154
$ 1,617
Capitalization of costs related to construction financing lease obligation $ 33,827
$ 824
Issuances of common stock from employee benefit plans receivable $ 868
$ 19


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	2,650.8	$	2,503.1
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	372.6		379.8
Depreciation expense	122.3		109.9
Deferred income taxes	(405.5)		(424.0)
Losses on equity securities	0.2		143.1
Decrease in fair value of contingent consideration	(1.3)		(59.3)
Other non-cash items, net	(9.6)		(32.8)
Changes in operating assets and liabilities:
Accounts receivable, net	(99.5)		(368.8)
Inventories	(252.9)		(58.1)
Prepaid expenses and other assets	(94.4)		(41.9)
Accounts payable	80.5		(39.1)
Accrued expenses	786.1		980.3
Other liabilities	153.4		(40.7)
Net cash provided by operating activities	3,302.7		3,051.5
Cash flows from investing activities:
Purchases of available-for-sale debt securities	(2,798.0)		(417.8)
Sales and maturities of available-for-sale debt securities	621.0		435.9
Purchases of property and equipment	(142.3)		(171.1)
Sale of equity securities	95.1		—
Investment in equity securities and notes receivable	(31.0)		(47.8)
Payment to acquire ViaCyte, Inc., net of cash acquired	—		(295.9)
Net cash used in investing activities	(2,255.2)		(496.7)
Cash flows from financing activities:
Issuances of common stock under benefit plans	88.2		134.7
Repurchases of common stock	(278.1)		—
Payments in connection with common stock withheld for employee tax obligations	(222.9)		(169.9)
Payments on finance leases	(32.9)		(75.1)
Other financing activities	3.3		2.4
Net cash used in financing activities	(442.4)		(107.9)
Effect of changes in exchange rates on cash	(0.5)		(70.0)
Net increase in cash, cash equivalents and restricted cash	604.6		2,376.9
Cash, cash equivalents and restricted cash—beginning of period	10,512.0		6,800.1
Cash, cash equivalents and restricted cash—end of period	$	11,116.6	$	9,177.0

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	919.1	$	840.1
Cash paid for interest	$	32.6	$	41.1

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

A.Basis of Presentation and Accounting Policies

Basis of Presentation

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 condensed consolidated financial statements reflect the operations of ~~(i) the Company, (ii) its~~Vertex and our wholly-owned ~~subsidiaries and (iii) consolidated variable interest entities (VIEs).~~subsidiaries. All material intercompany balances and transactions have been eliminated. ~~The Company operates in~~ ~~one~~ ~~segment, pharmaceuticals. As of September 30, 2017,~~We have reclassified certain items from the ~~Company deconsolidated Parion Sciences, Inc. (“Parion”), a VIE the Company has consolidated since 2015. The Company's~~prior year’s condensed consolidated balance sheet ~~as of September 30, 2017 excludes Parion. Please refer~~ to ~~Note C, “Collaborative Arrangements and Acquisitions” for further information regarding~~conform to the ~~deconsolidation of Parion.~~current year’s presentation. We operate in one segment, pharmaceuticals.

Certain information and footnote disclosures normally included in our Annual Report on Form 10-K for the ~~Company’s annual financial statements~~fiscal year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”) have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of ~~operations~~income for the interim periods ended September 30, ~~2017~~2023 and ~~2016.~~2022.

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,~~2022, which are contained in ~~the Company’s~~our 2022 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.

Use of Estimates ~~and Summary of Significant Accounting Policies~~

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires ~~management~~us 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 ~~the~~our 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 believes~~we 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.

~~The Company’s~~Recently Adopted and Issued Accounting Standards

For a discussion of recently adopted accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies,” in our 2022 Annual Report on Form 10-K. We do not expect any recently issued accounting standards to have a significant impact on our condensed consolidated financial statements.

Summary of Significant Accounting Policies

Our significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in ~~the 2016~~our 2022 Annual Report on Form 10-K.

~~Recent Accounting Pronouncements~~

In 2014, the Financial Accounting Standards Board (“FASB”) issued new guidance applicable to revenue recognition that will be effective January 1, 2018. Early adoption was permitted for the year-ending December 31, 2017. The new guidance applies a more principles based approach to recognizing revenue. Under the new guidance, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance must be adopted using either a modified retrospective approach or a full retrospective approach for all periods presented. Under the modified retrospective method, the cumulative effect of applying the standard would be recognized at the date of initial application within retained earnings. Under the full retrospective approach, the standard would be applied to each prior reporting period presented. Upon adoption, the Company will use the modified retrospective method. The Company continues to evaluate the new guidance and the effect the adoption will have on the condensed consolidated financial

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

B.Revenue Recognition

~~statements. The Company’s project team is finalizing its review~~Disaggregation of ~~existing customer contracts and current accounting policies to identify and assess the potential differences that would result from applying the requirements~~Revenue

“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 for 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 determinablefollowing:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions)
TRIKAFTA/KAFTRIO	$	2,274.3	$	2,010.5	$	6,611.4	$	5,665.3
KALYDECO	112.8		139.4		363.1		417.1
ORKAMBI	63.0		146.2		281.8		399.9
SYMDEKO/SYMKEVI	33.4		38.2		95.2		145.7
Total product revenues, net	$	2,483.5	$	2,334.3	$	7,351.5	$	6,628.0

Product Revenues by Geographic Location

“Product revenues, net” 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.

In 2016, the FASB issued amended guidance applicable to share-based compensation to employees that simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The amended guidance became effective for the Company during the first quarter of 2017. The amended guidance eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized as an increase in additional paid-in capital. This created approximately $410.8 million of deferred tax asset (“DTA”) relating to federal and state net operating losses (“NOLs”) that are fully reserved by an equal increase in valuation allowance. The Company recorded DTAs of approximately $404.7 million relating to Federal NOLs and approximately $6.1 million relating to State NOLs, both of which are offset by a full valuation allowance. Upon adoption, the Company also elected to change its accounting policy to account for forfeitures of options and awards as they occur. The change was applied on a modified retrospective basis with a cumulative effect adjustment to the Company’s accumulated deficit of $9.4 million, which increased the accumulated deficit as of January 1, 2017. This change also resulted in an increase to the DTA of $3.4 million, which is offset by a full valuation allowance. As a result, there was no cumulative-effect adjustment to accumulated deficit. The provisions related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted prospectively, and as such, the prior periods were not retrospectively adjusted.

In 2016, the FASB issued amended guidance related to the recording of financial assets and financial liabilities. Under the amended guidance, equity investments (except those accounted for under the equity method of accounting or those that result in consolidationlocation of the ~~investee) are to be measured at fair value with changes in fair value recognized in net income. However, an entity has~~customer, consisted of the option to either measure equity investments without readily determinable fair values at fair value or at cost adjusted for changes in observable prices minus impairment. Changes in measurement under either alternative will be recognized in net income. The amended guidance is effective for the year ending December 31, 2018. Early adoption is permitted. The Company expects the implementationfollowing:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions)
United States	$	1,554.2	$	1,455.6	$	4,465.8	$	4,238.9
Outside of the United States
Europe	766.5		730.5		2,373.7		2,018.3
Other	162.8		148.2		512.0		370.8
Total product revenues outside of the United States	929.3		878.7		2,885.7		2,389.1
Total product revenues, net	$	2,483.5	$	2,334.3	$	7,351.5	$	6,628.0

Contract Liabilities

We had contract liabilities of ~~this standard to have an impact on its consolidated financial statements~~$157.1 million and ~~related disclosures, as the Company held publicly traded equity investments~~$159.6 million as of September 30, ~~2017 as well as equity investments accounted~~2023 and December 31, 2022, 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 adjustment~~shipments made up to the ~~balance sheet will be recorded~~annual 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 2016, the FASB issued amended guidance applicable to leases that will be effective for the year ending December 31, 2019. Early adoption is permitted. This guidance requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet. The Company is in the process of evaluating this guidance and determining the expected effect on its condensed consolidated financial statements.

In 2016, the FASB issued amended guidance related to intra-entity transfers other than inventory. This guidance removes the current exception in GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The amended guidance is effective for the year ending December 31, 2018. Early adoption is permitted. The Company is in the process of evaluating this guidance and determining the expected effect on its condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

C.Acquired In-Process Research and Development and Other Arrangements

~~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 $51.7 million and $509.3 million for the ~~FASB issued amended guidance~~three and nine months ended September 30, 2023, respectively, and $29.0 million and $92.9 million, for the three and nine months ended September 30, 2022, respectively, related to upfront, contingent milestone, or other payments pursuant to our business ~~combinations. The amended guidance clarifies the definition~~development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions that qualify as in-process research and development.

Our collaboration, licensing and asset acquisition agreements that had 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, 2017 and will apply this new guidance to future acquisitions.

In 2017, the FASB issued amended guidance related to measurements of goodwill. The amended guidance eliminates a step from the goodwill impairment test. Under the amended guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity would recognize an impairment chargesignificant impact on our financial statements for the ~~amount by which~~three and nine months ended September 30, 2023 and 2022, or were new or materially revised during the ~~carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount~~three and nine months ended September 30, 2023, are described below. Additional agreements were described in Note B, “Acquired In-Process Research and Development and Other Arrangements,” of goodwill allocated to that reporting unit. The amended guidance is effective for the year-ending December 31, 2020. Early adoption is permitted. The Company does not expect a significant effect on its condensed consolidated financial statements upon adoption of this new guidance.

In 2017, the FASB issued amended guidance related to the scope of stock option modification accounting, to reduce diversity in practice and provide clarity regarding existing guidance. 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 does not expect the adoption of this guidance to have a material effect on its condensed consolidated financial statements and related disclosures.

In 2017, the FASB issued amended guidance applicable to hedge accounting. The new accounting guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The amended guidance helps simplify certain aspects of hedge accounting and enables entities to more accurately present their risk management activities in their financial statements. The Company is in the process of evaluating this guidance and determining the expected effect on its condensed consolidated financial statements.

~~For a discussion of other recent accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies—Recent Accounting Pronouncements,” in the 2016~~our 2022 Annual Report on Form 10-K.

In-license Agreements

~~The Company sells its products principally~~We have entered into several in-license agreements to ~~a limited number of specialty pharmacy providers in North America as well as government-owned~~advance and ~~supported customers in international markets (collectively, its “Customers”). The Company’s Customers in North America subsequently resell the products~~obtain access to ~~patients~~technologies and health care providers. The Company recognizes net revenues from product sales upon delivery to the Customer as long as (i) there is persuasive evidence that an arrangement exists between the Company and the Customer, (ii) collectibility is reasonably assured and (iii) the price is fixed or determinable.

In order to conclude that the price is fixed or determinable, the Company must be able to (i) calculate its gross product revenues from sales to Customers and (ii) reasonably estimate its net product revenues upon delivery to its Customers’ locations. The Company calculates gross product revenues based on the price that the Company charges its Customers. The Company estimates its net product revenues by deducting from its gross product revenues (a) trade allowances, such as invoice discounts for prompt payment and Customer fees, (b) estimated government and private payor rebates, chargebacks and discounts, (c) estimated reserves for expected product returns and (d) estimated costs of co-pay assistance programs for patients, as well as other incentives for certain indirect customers.

The Company makes significant estimates and judgments that materially affect the Company’s recognition of net product revenues. In certain instances, the Company may be unable to reasonably conclude that the price is fixed or determinable at the time of delivery, in which case it defers the recognition of revenues. Once the Company is able to determine that the price is fixed or determinable, it recognizes the net product revenues associated with the units in which revenue recognition was deferred.

~~Revenue recognition~~services related to our research and early-development activities. We are generally required to make an upfront payment upon execution of our license agreements; development, regulatory and commercialization milestones payments upon the ~~Company’s French early access programs could be impacted by the new revenue recognition guidance that is effective January 1, 2018 and described in Note A, “Basis~~achievement of ~~Presentation and Accounting~~

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Policies”. The Company’s ORKAMBI net~~certain product revenues to date do not include any revenues from product sales in France because the price is not fixed or determinable. The Company began distributing ORKAMBI through early access programs in France during the fourth quarter of 2015. As of September 30, 2017, the Company’s condensed consolidated balance sheet includes $190.3 million collected in France related to shipments of ORKAMBI under the early access programs that is classified as Customer deposits. The Company expects that the difference between the amounts collected based on the invoiced price and the final price for ORKAMBI in France will be returned to the French government.

If the Company concludes as of December 31, 2017 that the price of the ORKAMBI supplied under the early access programs is fixed or determinable based on, among other factors, the status of negotiations in France, it would record net product revenues for all sales since the inception of the early access programs for ORKAMBI based on the fixed or determinable price in the fourth quarter of 2017.

If the Company concludes that the price is not fixed or determinable as of December 31, 2017, these amounts would be subject to the new guidance applicable to revenue recognition effective January 1, 2018 using the modified retrospective adoption approach. Pursuant to the new guidance, the Company would record a cumulative effect adjustment to the Company’s accumulated deficit in the first quarter of 2018. The amount of the adjustment to accumulated deficit would be determined based upon (i) the status of pricing discussions in France upon adoption and (ii) the Company’s estimate of the amount of consideration the Company expects to retain related to the French ORKAMBI sales that occurred on or prior to December 31, 2017 that would not be subject to a significant reversal in amounts recognized. For French ORKAMBI sales after December 31, 2017 under the early access programs, the Company would recognize product revenues based on the Company’s estimate of consideration the Company expects to retain for which it is probable that a significant reversal in amounts recognized will not occur. In future periods, if the Company’s estimates regarding the amounts it will receive for ORKAMBI supplied pursuant to these programs change, the effect of the change in estimates would be reflected in net product revenues in the period in which the change in estimate occurred.

~~The following table summarizes activity in each of the product revenue allowance and reserve categories for the nine months ended September 30, 2017:~~

Trade
Allowances Rebates,
Chargebacks
and Discounts Product
Returns Other
Incentives Total
(in thousands)
Balance at December 31, 2016 $ 2,568
$ 81,927
$ 3,492
$ 1,214
$ 89,201
Provision related to current period sales 18,776
118,592
3,603
12,238
153,209
Adjustments related to prior period sales (188 ) (4,327 ) (13 ) (355 ) (4,883 )
Credits/payments made (18,409 ) (97,393 ) (1,809 ) (10,021 ) (127,632 )
Balance at September 30, 2017 $ 2,747
$ 98,799
$ 5,273
$ 3,076
$ 109,895

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Cystic Fibrosis Foundation Therapeutics Incorporated~~

~~The Company has a~~ research, development and commercialization ~~agreement with Cystic Fibrosis Foundation Therapeutics Incorporated (“CFFT”) that was originally entered into in May 2004,~~objectives; and ~~was most recently amended in October 2016 (the “2016 Amendment”).~~ royalty payments on future sales, if any, of commercial products resulting from our collaborations.

Pursuant to the ~~agreement, as amended,~~terms of our in-license agreements, our collaborators typically lead the ~~Company has agreed~~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 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 duringour collaborators. 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 the first quarter of 2016, CFFT earned a commercial milestone payment of $13.9 million from the Company upon achievement of certain sales levels of lumacaftor. There are no additional commercial milestone payments payablematerial breach by the ~~Company~~other, subject to ~~CFFT pursuant to~~notice and cure provisions. Unless earlier terminated, these license agreements generally remain in effect until the ~~agreement. Pursuant to~~date on which the 2016 Amendment, the CFFT provided the Company an upfront program award of $75.0 million and agreed to provide development funding to the Company of up to $6.0 million annually. The program award plus any future development funding represent a form of financing pursuant to Accounting Standards Codification (ASC) 730, ~~Research and Development, and thus the amounts are recorded as a liability on the condensed consolidated balance sheet, primarily reflected in Advance from collaborator. The liability is reduced over the estimated~~ royalty term ~~of the agreement. Reductions~~and all payment obligations with respect to all products in ~~the liability are reflected as an offset to cost of product revenues and as interest expense.~~

The Company has royalty obligations to CFFT for ivacaftor, lumacaftor and tezacaftor until the expiration of patents covering those compounds. The Company has patents in the United States and European Union covering the composition-of-matter of ivacaftor that expire in 2027 and 2025, respectively, subject to potential patent extensions. The Company has patents in the United States and European Union covering the composition-of-matter of lumacaftor that expire in 2030 and 2026, respectively, subject to potential extension. The Company has patents in the United States and European Union covering the composition-of-matter of tezacaftor that expire in 2027 and 2028, respectively, subject to potential extension.all countries have expired.

CRISPR Therapeutics AG

CRISPR-Cas9 Gene-editing Therapies Agreements

In 2015, ~~the Company~~we 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 editing~~gene-editing technology. ~~The Company has~~We had the exclusive right to license upcertain targets. In 2019, we elected to ~~six CRISPR-Cas9-based~~exclusively 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.

~~The Company will fund all of the discovery activities conducted~~cystic fibrosis, pursuant to the CRISPR Agreement. For ~~potential hemoglobinapathy treatments, including treatments for sickle cell disease,~~each of the ~~Company and CRISPR will share equally all development costs and worldwide revenues. For other~~three targets that ~~the Company elects~~we elected to license, ~~the Company would lead all development and global commercialization activities. For each of up to six targets that the Company elects to license, other than hemoglobinapathy targets,~~ CRISPR has the potential to receive up to ~~$420.0~~an additional $410.0 million in development, regulatory and commercial milestones ~~and~~as well as royalties on resulting net product sales.

In 2017, we entered into a joint development and commercialization agreement with CRISPR (the “CRISPR JDCA”), which we amended and restated in 2021, pursuant to the terms of the CRISPR Agreement. Under the CRISPR JDCA, we and CRISPR are co-developing and preparing to co-commercialize exagamglogene autotemcel (“exa-cel”), for the treatment of hemoglobinopathies, including treatments for sickle cell disease and transfusion-dependent beta thalassemia. Pursuant to the CRISPR JDCA, we lead global development, manufacturing, and commercialization of exa-cel, with support from CRISPR. We also conduct all research, development, manufacturing, and commercialization activities relating to other product candidates and products under the CRISPR JDCA throughout the world subject to CRISPR’s reserved right to conduct certain activities.

In connection with the CRISPR JDCA, CRISPR has the potential to receive a one-time $200.0 million milestone payment upon receipt of the first marketing approval of exa-cel from the U.S. Food and Drug Administration or the European Commission.

We account for the CRISPR JDCA as a cost-sharing arrangement, with costs incurred related to exa-cel allocated 60% to us and 40% to CRISPR, subject to certain adjustments. We recognized the net impact of the CRISPR JDCA as “Research and

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

development expenses” of $74.9 million and $45.5 million during the three months ended September 30, 2023 and 2022, respectively, and $193.2 million and $120.6 million during the nine months ended September 30, 2023 and 2022, respectively; and as “Selling, general and administrative expenses” of $26.0 million and $13.5 million during the three months ended September 30, 2023 and 2022, respectively, and $66.1 million and $35.3 million during the nine months ended September 30, 2023 and 2022, respectively.

~~The Company may terminate~~ In March 2023, we entered into a non-exclusive license agreement (“the CRISPR T1D Agreement”) for the use of CRISPR’s CRISPR-Cas9 gene-editing technology to accelerate the development of our hypoimmune cell therapies for type 1 diabetes. Pursuant to the CRISPR T1D Agreement, ~~upon 90 days’ notice~~we made a $100.0 million upfront payment to CRISPR. In the second quarter of 2023, we achieved a research milestone that resulted in a $70.0 million payment to CRISPR ~~prior~~in the third quarter of 2023. CRISPR is eligible to receive up to an additional $160.0 million in research, development, regulatory and commercial milestones for any products that may result from the agreement, as well as royalties on resulting net product ~~receiving marketing approval or upon 270 days’ notice after a product has received marketing approval. The CRISPR Agreement also may be terminated by either party for a material breach by~~sales. We determined that substantially all the ~~other, subject to notice and cure provisions. Unless earlier terminated, the CRISPR Agreement will continue in effect until the expiration~~fair value of the ~~Company’s~~collaboration agreement was attributable to in-process research and development and no substantive processes were acquired that would constitute a business. We concluded that there is no alternative future use for the acquired in-process research and development and recorded the upfront payment ~~obligations under~~and the ~~CRISPR Agreement.~~research milestone to “Acquired in-process research and development expenses” in the first and second quarters of 2023, respectively, resulting in $170.0 million of “Acquired in-process research and development expenses” in the nine months ended September 30, 2023.

~~Merck KGaA~~Entrada Therapeutics, Inc.

~~On January 10, 2017, the Company entered into~~In February 2023, we closed a strategic collaboration and license agreement (the ~~“Merck KGaA~~“Entrada Agreement”) with ~~Merck KGaA, Darmstadt, Germany~~Entrada Therapeutics, Inc. (“~~Merck KGaA”~~Entrada”) focused on discovering and developing intracellular Endosomal Escape Vehicle (EEV) therapeutics for myotonic dystrophy type 1 (“DM1”). ~~Pursuant~~Upon closing, we made an upfront payment of $225.1 million to Entrada, and purchased $24.9 million of Entrada’s common stock in connection with the ~~Merck KGaA~~Entrada Agreement. Entrada is eligible to receive up to an additional $485.0 million in research, development, regulatory and commercial milestones for any products that may result from the Entrada Agreement, as well as royalties on resulting net product sales. We determined that substantially all the ~~Company granted Merck KGaA an exclusive worldwide license~~fair value of the collaboration agreement was attributable to ~~research, develop and commercialize four oncology~~in-process research and development ~~programs. Under~~and no substantive processes were acquired that would constitute a business. We concluded that there is no alternative future use for the ~~Merck KGaA Agreement,~~acquired in-process research and development and recorded the Company granted Merck KGaA exclusive, worldwide rights to two clinical-stage programs targeting DNA damage repair: its ataxia telangiectasia and Rad3-related protein inhibitor program, including VX-970 and VX-803, and its DNA-dependent protein kinase inhibitor program, including VX-984. In addition, the Company granted Merck KGaA exclusive, worldwide rights to two pre-clinical programs.

~~The Merck KGaA Agreement provided for an~~ upfront payment ~~from Merck KGaA~~ to ~~the Company of $230.0 million. During~~“Acquired in-process research and development expenses” in the first quarter of ~~2017,~~2023. The investment in Entrada’s common stock is recorded at fair value on our condensed consolidated balance sheet within “Marketable securities.”

Verve Therapeutics, Inc.

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 ~~Company received $193.6~~terms of the agreement, we made a $25.0 million upfront payment to Verve and purchased $35.0 million of ~~the upfront payment and the remaining $36.4 million was remitted to the German tax authorities. Pursuant to a tax treaty between the United States and Germany, the Company filed a refund application~~Verve’s common stock. We concluded that there is no alternative future use for the tax withholding and expects to receive the refund in the fourth quarter of 2017. The income tax receivable is included in Prepaid expenses and other current assets at September 30, 2017. In addition to the upfront payment, the Company will receive tiered royalties on potential sales of licensed products, calculated as a percentage of net sales, that range from (i) mid-single digits to mid-twenties for clinical-stage programs and (ii) mid-single digits to high single digits for the pre-clinical research programs. Merck KGaA has assumed full responsibility for development and commercialization costs for all programs.

~~The Company evaluated the deliverables, primarily consisting of a license to the four programs and the obligation to complete certain fully-reimbursable~~acquired in-process research and development and ~~transition activities as directed by Merck KGaA, pursuant~~recorded the upfront payment to ~~the Merck KGaA Agreement, under the multiple element arrangement accounting guidance. The Company concluded that the license has stand-alone value from the~~“Acquired in-process research and development ~~and transition activities based~~expenses.” The investment in Verve’s common stock is recorded at fair value on our condensed consolidated balance sheet within “Marketable securities.”

Septerna, Inc. - Novel G Protein-coupled Receptor Program

In September 2023, pursuant to an asset purchase agreement, we acquired a novel G protein-coupled receptor (“GPCR”) program from Septerna, Inc. We determined that substantially all the ~~resources and know-how possessed by Merck KGaA, and thus concluded that there are two units of accounting~~fair value acquired is concentrated in the arrangement. The Company determined the relative selling price of the units of accounting based on the Company’s best estimate of selling price. The Company utilized key assumptions to determine the best estimate of selling price for the license, which included future potential net sales of licensed products, development timelines, reimbursement rates for personnel costs, discount rates, and estimated third-party development costs. The Company utilized a discounted cash flow model to determine its best estimate of selling price for the license and determined the best estimate of selling price for theGPCR in-process research and development asset, which does not constitute a business, and ~~transition activities based on what it would sell the services~~ for ~~separately. Based on this analysis, the Company recognized approximately $231.7~~which we determined there is no alternative future use. As a result, we recorded $47.5 million ~~in collaborative revenues related~~ to ~~the upfront payment upon delivery of the license and to the~~“Acquired in-process research and development ~~and transition activities provided during the first quarter of 2017. During~~expenses” in the three and nine months ended September 30, ~~2017,~~2023.

Catalyst Biosciences, Inc. - Complement 3 Degrader Program

In May 2022, pursuant to an asset purchase agreement, we acquired Catalyst Biosciences, Inc.’s portfolio of protease medicines that target the ~~Company recorded~~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 ~~reimbursement for the research and development and transition activities of $5.2 million and $12.8 million, respectively, as revenue~~fair value acquired is concentrated in the Company’s consolidated statements of operations primarily due to the fact that the Company is the primary obligor in the arrangement. The Company is providing research and development and transition activities and will recognize the revenues and associated expenses as the services are provided.

Merck KGaA may terminate the Merck KGaA Agreement or any individual program by providing 90 days’ notice, or, in the case of termination of a program with a product that has received marketing approval, 180 days’ notice. The Merck KGaA Agreement also may be terminated by either party for a material breach by the other party, subject to notice and cure provisions. Unless earlier terminated, the Merck KGaA Agreement will continue in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~Variable Interest Entities~~

~~The Company has entered into several agreements pursuant~~process research and development assets, which do not constitute a business, and for which we determined there is no alternative future use. As a result, we recorded our $60.0 million upfront payment to which it has licensed rights to certain drug candidates from third-party collaborators, resulting in the consolidation of the third parties’ financial statements into the Company’s condensed consolidated financial statements as VIEs. In order to account for the fair value of the contingent payments, which consist of milestone, royalty and option payments, related to these collaborations under GAAP, the Company uses present-value models based on assumptions regarding the probability of achieving the relevant milestones, estimates regarding the timing of achieving the milestones, estimates of future product sales and the appropriate discount rates. The Company bases its estimate of the probability of achieving the relevant milestones on industry data for similar assets and its own experience. The discount rates used in the valuation model represent a measure of credit risk and market risk associated with settling the liabilities. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period. Changes in these assumptions could have a material effect on the fair value of the contingent payments. The following collaborations are reflected in the Company’s financial statements as consolidated VIEs for portions or all of the periods presented:

~~Parion Sciences, Inc.~~

In June 2015, the Company entered into a strategic collaboration and license agreement (the “Parion Agreement”) with Parion. Pursuant to the agreement, the Company is collaborating with Parion to develop investigational epithelial sodium channel (“ENaC”) inhibitors, including VX-371 (formerly P-1037) and VX-551 (formerly P-1055), for the potential treatment of CF and all other pulmonary diseases. The Company is leading development activities for VX-371 and VX-551 and is responsible for all costs, subject to certain exceptions, related to development and commercialization of the compounds.

Pursuant to the Parion Agreement, the Company has worldwide development and commercial rights to Parion’s lead investigational ENaC inhibitors, VX-371 and VX-551, for the potential treatment of CF and all other pulmonary diseases and has the option to select additional compounds discovered in Parion’s research program. Parion received an $80.0 million up-front payment and has the potential to receive up to an additional (i) $490.0 million in development and regulatory milestone payments for development of ENaC inhibitors in CF, including $360.0 million related to global filing and approval milestones, (ii) $370.0 million in development and regulatory milestones for VX-371 and VX-551 in non-CF pulmonary indications and (iii) $230.0 million in development and regulatory milestones should the Company elect to develop an additional ENaC inhibitor from Parion’s research program. The Company has agreed to pay Parion tiered royalties that range from the low double digits to mid-teens as a percentage of potential sales of licensed products.

The Company may terminate the Parion Agreement upon 90 days’ notice to Parion prior to any licensed product receiving marketing approval or upon 180 days’ notice after a licensed product has received marketing approval. If the Company experiences a change of control prior to the initiation of the first Phase 3 clinical trial for a licensed product, Parion may terminate the Parion Agreement upon 30 days’ notice, subject to the Company’s right to receive specified royalties on any subsequent commercialization of licensed products. The Parion Agreement also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, the Parion Agreement will continue in effect until the expiration of the Company’s royalty obligations, which expire on a country-by-country basis on the later of (i) the date the last-to-expire patent covering a licensed product expires or (ii) ten years after the first commercial sale in the country.

The Company determined that it had a variable interest in Parion via the Parion Agreement, and that the variable interest represented a variable interest in Parion as a whole because the fair value of the ENaC inhibitors represented more than half of the total fair value of Parion’s assets. The Company also concluded that it was the primary beneficiary as it had the power to direct the activities that most significantly affect the economic performance of Parion and it had the obligation to absorb losses and right to receive benefits that potentially could be significant to Parion. Accordingly, the Company consolidated Parion's financial statements from June 4, 2015 through September 30, 2017. The Company deconsolidated Parion effective September 30, 2017. Notwithstanding the applicable accounting treatment, the Company's interests in Parion have been and continue to be limited to those accorded to the Company in the Parion Agreement.

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~As of June 4, 2015, the Company consolidated Parion’s financial statements, which included $255.3 million of intangible assets on the Company’s condensed consolidated balance sheet for Parion’s~~“Acquired in-process research and development assets. These in-process research and development assets relate to Parion’s pulmonary ENaC platform, including the intellectual property related to VX-371 and VX-551, that are licensed by Parion to the Company. The Company also recorded the fair value of the net assets attributable to noncontrolling interest of $164.3 million, deferred tax liability of $91.0 million resulting primarily from a basis difference in the intangible assets and certain other net liabilities held by Parion of $10.5 million. The difference between the fair values of the consideration and noncontrolling interest and the fair value of Parion’s net assets was recorded as goodwill. When determining the valuation of goodwill, the fair value of consideration for the license was zero since there was no consideration transferred outside the condensed consolidated financial statements. While there was a transfer of $80.0 million for the upfront payment to Parion, the cash remained within the Company’s condensed consolidated balance sheet since Parion was part of the consolidated entity. The cash received, net of any cash spent by Parion, was classified as restricted cash and cash equivalents (VIE) within the condensed consolidated balance sheet as it was attributed to the noncontrolling interest holders of Parion.

In the second quarter of 2017, Parion signed a license agreement with an affiliate of Shire plc related to the development of a drug candidate for the potential treatment of dry eye disease. The Company evaluated the license agreement entered into by Parion as a reconsideration event to determine whether it should continue to consolidate Parion as a variable interest entity into its condensed consolidated financial statements. The Company determined that there was no substantive change in the design of Parion subsequent to Parion’s agreement with Shire. Additionally, the Company concluded that it was appropriate to continue to consolidate the financial results of Parion because it continued to have (i) the power to direct the activities that most significantly affect the economic performance of Parion and (ii) the obligation to absorb losses and right to receive benefits that potentially could be significant to Parion. Based on the consolidation of Parion’s financial statements, during the three and nine months ended September 30, 2017, the Company has recognized (i) $20.0 million and $40.0 million, respectively, of collaborative revenues and (ii) a tax provision of $7.4 million and $14.8 million, respectively, both of which were attributable to noncontrolling interest related to payments that Parion received from Shireexpenses” in the three and nine months ended September 30, ~~2017. The Company has no interest in Parion’s license~~2022.

Cystic Fibrosis Foundation

In 2004, we entered into a collaboration agreement with ~~Shire, including~~ the ~~economic benefits and/or obligations derived therefrom.~~

~~As of September 30, 2017, the Company determined that the fair value of Parion’s pulmonary ENaC platform had declined significantly based on data received~~Cystic Fibrosis Foundation, as successor in September 2017 from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. The Company recorded an impairment charge of $255.3 million, which represented the entire value of the intangible asset in the third quarter of 2017. After evaluating the results of the clinical trial, the Company determined that it was no longer the primary beneficiary of Parion as it no longer had the power to direct the significant activities of Parion. The most important factor in this determination was the decrease in the fair value of Parion’s pulmonary ENaC platform relative to Parion’s other activities. Accordingly, the Company deconsolidated Parion as of September 30, 2017. The impairment charge of $255.3 million, decrease in the fair value of the contingent payments payable by the Company to Parion of $69.6 million and benefit from income taxes of $126.2 million resulting from these charges were recorded in the third quarter of 2017 attributable to noncontrolling interest. The benefit from income taxes consisted of benefits of $97.7 million and $28.5 million attributableinterest to the impairment charge and decrease in the fair value of contingent payments, respectively. The net effect of these charges and impact of the deconsolidation was a loss of $7.1 million recorded in other income (expense)Cystic Fibrosis Foundation Therapeutics, Inc., ~~net attributable~~ to Vertex in the consolidated statement of operations for the three and nine months ended September 30, 2017. The loss of $7.1 million was approximately the difference between (i) the aggregate of $85.0 million in upfront and milestone payments that the Company has made to Parion to date pursuant to the Parion Agreement and (ii) losses the Company recorded in 2015, 2016, and the first half of 2017 based on increases in the fair value of contingent payments payable by the Company to Parion.

~~Please refer to Note J, "Intangible Assets and Goodwill," for further information regarding the impairment of Parion’s pulmonary ENaC platform.~~

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 not a development that significantly impacts the Company’s overall operations and financial results or plans to treat patients with CF. Research

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~and development expenses incurred related to this program accounted for a minor portion of the Company’s overall annual~~support research and development ~~expenses and~~activities. Pursuant to the Company remains focused on developing medicines to treat CF. Therefore, the Company has not presented the results related to Parion as discontinued operations in its condensed consolidated statements of operations for the three and nine month ending September 30, 2017.

~~BioAxone Biosciences, Inc.~~

~~In October 2014, the Company entered into a license and~~ collaboration agreement, ~~(the “BioAxone Agreement”) with BioAxone Biosciences, Inc. (“BioAxone”), which resulted in the consolidation of BioAxone~~ as amended, we have agreed to pay tiered royalties ranging from single digits to sub-teens on covered compounds first synthesized and/or tested during a ~~VIE beginning~~research term on ~~October 1, 2014. The Company paid BioAxone initial payments of $10.0 million in the fourth quarter of 2014.~~

~~BioAxone has the~~or before February 28, 2014, including ivacaftor, lumacaftor and tezacaftor and royalties ranging from low-single digits to mid-single digits on potential to receive up to $90.0 million in milestones and fees, including development, regulatory and milestone payments and a license continuation fee. In addition, BioAxone would receive royalties and commercial milestones on future net ~~product~~ sales of ~~VX-210, if any. The Company recorded an in-process research~~certain compounds first synthesized and/or tested between March 1, 2014 and development intangible asset of $29.0 million for VX-210 and a corresponding deferred tax liability of $11.3 million attributable to BioAxone. The Company holds an option to purchase BioAxone at a predetermined price. The option expires on the earliest of (a) the day the FDA accepts the Biologics License Application submission for VX-210, (b) the day the Company elects to continue the license instead of exercising the option to purchase BioAxone and (c) March 15, 2018, subject to the Company’s option to extend this date by one year.

~~Aggregate VIE Financial Information~~

~~An aggregate summary of net income attributable to noncontrolling interest related to the Company’s VIEs for the three and nine months ended September 30, 2017 and 2016 is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Loss attributable to noncontrolling interest before (benefit from) provision for income taxes and changes in fair value of contingent payments $ 238,946
$ 2,406
$ 222,448
$ 6,080
(Benefit from) provision for income taxes (120,181 ) (510 ) (111,658 ) 20,063
Decrease (increase) in fair value of contingent payments 69,550
(1,200 ) 62,560
(59,350 )
Net loss (income) attributable to noncontrolling interest $ 188,315
$ 696
$ 173,350
$ (33,207 )

The decreases in the noncontrolling interest holders’ claim to net assets with respect to the fair value of the contingent payments in the three and nine months ended September 30, 2017 were primarily due to the decrease in the fair value of Parion’s pulmonary ENaC platform described above. The increases in the fair value of the contingent payments in the three and nine months ended September 30, 2016 were primarily due to a separate Phase 2 clinical trial of VX-371 achieving its primary safety endpoint in the second quarter of 2016. During the three and nine months ended September 30, 2017 and 2016, the (increases) decreases in the fair value of the contingent payments related to the Company’s VIEs were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Parion $ 69,550
$ (1,100 ) $ 63,460
$ (58,500 )
BioAxone —
(100 ) (900 ) (850 )

~~The fair value of the contingent payments related to the Parion Agreement and the BioAxone Agreement as of the dates set forth in the table:~~

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

September 30, 2017 December 31, 2016
(in thousands)
Parion $ —
$ 238,800
BioAxone 18,900
18,000

The table below summarizes items related to the Company’s VIEs included in the Company’s condensed consolidated balance sheets as of the dates set forth in the table. Amounts as of September 30, 2017 related to BioAxone while amounts as of DecemberAugust 31, 2016, ~~related to Parion and BioAxone.~~

September 30, 2017 December 31, 2016
(in thousands)
Restricted cash and cash equivalents (VIE) $ 1,803
$ 47,762
Prepaid expenses and other current assets 42
6,812
Intangible assets 29,000
284,340
Other assets 280
399
Accounts payable 455
415
Accrued expenses 1,021
1,330
Other liabilities, current portion 119
2,137
Deferred tax liability 8,338
131,446
Other liabilities, excluding current portion —
300
Noncontrolling interest 12,167
181,609

~~The Company has recorded the VIEs’ cash and cash equivalents as restricted cash and cash equivalents (VIE) because (i) the Company does~~including elexacaftor. We do not have any ~~interest in~~royalty obligations on compounds first synthesized and tested on or ~~control over the VIEs’ cash~~after September 1, 2016. For combination products, such as ORKAMBI, SYMDEKO/SYMKEVI and ~~cash equivalents and (ii) the Company’s agreements with~~TRIKAFTA/KAFTRIO, sales are allocated equally to each ~~VIE do not provide for the VIEs’ cash and cash equivalents to be used for the development~~ of the assets that the Company licensed from the applicable VIE. Assets recorded as a result of consolidating the Company’s VIEs’ financial condition into the Company’s balance sheets do not represent additional assets that could be used to satisfy claims against the Company’s general assets.

~~Other Collaborations~~

The Company has entered into various agreements pursuant to which it collaborates with third parties, including inlicensing and outlicensing arrangements. Although the Company does not consider any of these arrangements to be material, the most notable of these arrangements are described below.

~~Moderna Therapeutics, Inc.~~

In July 2016, the Company entered into a strategic collaboration and licensing agreement (the “Moderna Agreement”) with Moderna Therapeutics, Inc. (“Moderna”) pursuant to which the parties are seeking to identify and develop messenger Ribonucleic Acid (“mRNA”) Therapeutics for the treatment of CF. In connection with the Moderna Agreement,active pharmaceutical ingredients in the third quarter of 2016, the Company made an upfront payment to Moderna of $20.0 million and a $20.0 million cost-method investment in Moderna pursuant to a convertible promissory note that converted into preferred stock in August 2016. Moderna has the potential to receive future development and regulatory milestones of up to $275.0 million, including $220.0 million in approval and reimbursement milestones, as well as tiered royalty payments on future sales.

Under the terms of the Moderna Agreement, Moderna will lead discovery efforts and the Company will lead all preclinical, development and commercialization activities associated with the advancement of mRNA Therapeutics that result from this collaboration and will fund allcombination product. We record expenses related to ~~the collaboration.~~these royalty obligations to “Cost of sales.”

The Company may terminate the Moderna Agreement by providing advance notice to Moderna, with the required length of notice dependent on whether any product developed under the Moderna Agreement has received marketing approval. The Moderna Agreement also may be terminated by either party for a material breach by the other, subject to notice and cure

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~provisions. Unless earlier terminated, the Moderna Agreement will continue in effect until the expiration of the Company’s payment obligations under the Moderna Agreement.~~

The Company evaluates the carrying value of its $20.0 million cost-method investment in Moderna, which is not a publicly traded company, for impairment on a quarterly basis and has not recorded any adjustments to the carrying value of its investment to date.

~~Janssen Pharmaceuticals, Inc.~~

In June 2014, the Company entered into an agreement (the “Janssen Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen Inc.”), which was amended in October 2014 to clarify certain roles and responsibilities of the parties.

Pursuant to the Janssen Agreement, Janssen Inc. has an exclusive worldwide license to develop and commercialize certain drug candidates for the treatment of influenza, including JNJ-3872 (formerly VX-787). The Company received non-refundable payments of $35.0 million from Janssen Inc. in 2014, which were recorded as collaborative revenue. The Company has the potential to receive development, regulatory and commercial milestone payments as well as royalties on future product sales, if any. Janssen Inc. may terminate the Janssen Agreement, subject to certain exceptions, upon six months’ notice.

Janssen Inc. is responsible for costs related to the development and commercialization of the compounds. During the three and nine months ended September 30, 2017 the Company recorded reimbursement for these development activities of zero and $1.8 million, respectively. During the three and nine months ended September 30, 2016 the Company recorded reimbursement for these development activities of $2.8 million and $10.6 million, respectively. The reimbursements are recorded as a reduction to development expense in the Company’s condensed consolidated statements of operations primarily due to the fact that Janssen Inc. directs the activities and selects the suppliers associated with these activities.

~~Asset Acquisition~~

~~Concert Pharmaceuticals~~

In July 2017, the Company completed the acquisition of certain CF assets including VX-561 (formerly CTP-656) from Concert Pharmaceuticals Inc. (“Concert”) pursuant to an asset purchase agreement that was entered into in March 2017 (the “Concert Agreement”). VX-561 is an investigational CFTR potentiator that has the potential to be used as part of future once-daily combination regimens of CFTR modulators that treat the underlying cause of CF. As part of the Concert Agreement, Vertex paid Concert $160.0 million in cash for all worldwide development and commercialization rights to VX-561. If VX-561 is approved as part of a combination regimen to treat CF, Concert could receive up to an additional $90.0 million in milestones based on regulatory approval in the U.S. and reimbursement in the UK, Germany or France. The Company determined that substantially all of the fair value of the Concert Agreement was attributable to a single in-process research and development asset, VX-561, which did not constitute a business. The Company cannot conclude that there is any alternative future use for the acquired in-process research and development asset. Thus, the Company recorded the $160.0 million upfront payment as a research and development expense in the three and nine months ended September 30, 2017. The total purchase price for the transaction was $165.1 million including $5.1 million of transaction costs that were recorded as sales, general and administrative expenses. If the Company achieves one or more 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 revenues in the period that the relevant milestone is achieved.

Basic net income (loss) per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding during the period, excluding restricted stock and restricted stock units that have been issued but are not yet vested. Diluted net income (loss) per share attributable to Vertex common shareholders is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

D.Earnings Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions, except per share amounts)
Net income	$	1,035.3	$	930.5	$	2,650.8	$	2,503.1

Basic weighted-average common shares outstanding	258.0		256.5		257.7		255.8
Effect of potentially dilutive securities:
Stock options	1.2		1.4		1.2		1.4
Restricted stock units (including PSUs)	1.4		1.6		1.5		1.4
Employee stock purchase program	0.0		0.0		0.0		0.1
Diluted weighted-average common shares outstanding	260.6		259.5		260.4		258.7

Basic net income per common share	$	4.01	$	3.63	$	10.29	$	9.78
Diluted net income per common share	$	3.97	$	3.59	$	10.18	$	9.68

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands, except per share amounts)
Basic net income (loss) attributable to Vertex per common share calculation:
Net income (loss) attributable to Vertex common shareholders $ (102,952 ) $ (38,841 ) $ 162,800
$ (144,997 )
Less: Undistributed earnings allocated to participating securities —
—
(203 ) —
Net income (loss) attributable to Vertex common shareholders—basic $ (102,952 ) $ (38,841 ) $ 162,597
$ (144,997 )

Basic weighted-average common shares outstanding 250,268
244,920
247,963
244,529
Basic net income (loss) attributable to Vertex per common share $ (0.41 ) $ (0.16 ) $ 0.66
$ (0.59 )

Diluted net income (loss) attributable to Vertex per common share calculation:
Net income (loss) attributable to Vertex common shareholders $ (102,952 ) $ (38,841 ) $ 162,800
$ (144,997 )
Less: Undistributed earnings allocated to participating securities —
—
(200 ) —
Net income (loss) attributable to Vertex common shareholders—diluted $ (102,952 ) $ (38,841 ) $ 162,600
$ (144,997 )

Weighted-average shares used to compute basic net income (loss) per common share 250,268
244,920
247,963
244,529
Effect of potentially dilutive securities:
Stock options —
—
2,700
—
Restricted stock and restricted stock units —
—
1,204
—
Other —
—
228
—
Weighted-average shares used to compute diluted net income (loss) per common share 250,268
244,920
252,095
244,529
Diluted net income (loss) attributable to Vertex per common share $ (0.41 ) $ (0.16 ) $ 0.64
$ (0.59 )

~~The Company~~We did not include the securities in the following table in the computation of the ~~dilutive~~diluted net income ~~(loss)~~ per ~~share attributable to Vertex~~ common ~~shareholders calculations~~share because the effect would have been anti-dilutive during each period:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022

	(in millions)
Stock options	—	—	0.0	0.0
Unvested restricted stock units (including PSUs)	—	0.0	0.2	0.2

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Stock options 10,278
12,947
3,904
12,947
Unvested restricted stock and restricted stock units 4,241
3,624
281
3,624

The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

E.Fair Value Measurements

~~participants would price assets and liabilities).~~ The following fair value hierarchy is used to classify assets and liabilities based on ~~the~~ observable inputs and unobservable inputs used in order to determine the fair value ~~the~~of our financial assets and liabilities:



Level 1:			Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:			Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:			Unobservable inputs based on ~~the Company’s~~our assessment of the assumptions that market participants would use in pricing the asset or liability.

~~The Company’s~~Our investment strategy is focused on capital preservation. ~~The Company invests~~We invest in instruments that meet the credit quality standards outlined in ~~the Company’s~~our investment ~~policy. This~~ policy, which also limits the amount of credit exposure to any one issue or type of instrument. ~~As of~~ ~~September 30, 2017~~,We maintain strategic equity investments separately from the ~~Company’s investments were primarily~~investment policy that governs our other cash, cash equivalents and marketable securities as described in ~~money market funds, government-sponsored enterprise securities, corporate equity securities, corporate debt securities~~Note F, “Marketable Securities and ~~commercial paper.~~Equity Investments.” Additionally, ~~the Company utilizes~~we utilize foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on ~~its~~our condensed consolidated statement of ~~operations.~~

~~As of~~ ~~September 30, 2017~~, all of the Company’s financial assets and liabilities that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consisted of money market funds, government-sponsored enterprise securities and corporate equity securities. The Company’s financial assets and liabilities valued based on Level 2 inputs consisted of corporate debt securities and commercial paper, which consisted of investments in highly-rated investment-grade corporations and foreign currency forward contracts with highly reputable and creditworthy counterparties.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following ~~table sets~~tables set forth ~~the Company’s~~our financial assets ~~(excluding VIE cash and cash equivalents, which are recorded as Restricted cash and cash equivalents (VIE))~~ and liabilities subject to fair value ~~measurements:~~measurements by level within the fair value hierarchy (and does not include $5.5 billion and $3.1 billion of cash as of September 30, 2023 and December 31, 2022, respectively):


	As of September 30, 2023								As of December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

	(in millions)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds	$	3,753.4	$	3,753.4	$	—	$	—	$	5,162.6	$	5,162.6	$	—	$	—
Time deposits	1,550.0		—		1,550.0		—		2,000.0		—		2,000.0		—
U.S. Treasury securities	236.8		236.8		—		—		—		—		—		—
Corporate debt securities	—		—		—		—		5.8		—		5.8		—
Commercial paper	96.5		—		96.5		—		204.5		—		204.5		—
Marketable securities:
Corporate equity securities	46.4		46.4		—		—		116.8		88.8		28.0		—
U.S. Treasury securities	408.2		408.2		—		—		—		—		—		—
Government-sponsored enterprise securities	421.0		421.0		—		—		127.1		127.1		—		—
Asset-backed securities	237.8		—		237.8		—		—		—		—		—
Certificates of deposit	31.7		—		31.7		—		—		—		—		—
Corporate debt securities	1,214.2		—		1,214.2		—		87.0		—		87.0		—
Commercial paper	158.7		—		158.7		—		55.8		—		55.8		—
Prepaid expenses and other current assets:
Foreign currency forward contracts	37.8		—		37.8		—		47.5		—		47.5		—
Other assets:
Foreign currency forward contracts	3.4		—		3.4		—		0.8		—		0.8		—
Total financial assets	$	8,195.9	$	4,865.8	$	3,330.1	$	—	$	7,807.9	$	5,378.5	$	2,429.4	$	—

Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts	$	(0.7)	$	—	$	(0.7)	$	—	$	(14.3)	$	—	$	(14.3)	$	—
Contingent consideration	(15.0)		—		—		(15.0)		(14.6)		—		—		(14.6)
Other long-term liabilities:
Foreign currency forward contracts	—		—		—		—		(0.9)		—		(0.9)		—
Contingent consideration	(112.7)		—		—		(112.7)		(114.4)		—		—		(114.4)
Total financial liabilities	$	(128.4)	$	—	$	(0.7)	$	(127.7)	$	(144.2)	$	—	$	(15.2)	$	(129.0)

Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.

Fair Value of Corporate Equity Securities

We classify our investments in publicly traded corporate equity securities as “Marketable securities” on our condensed consolidated balance sheets. Generally, our investments in the common stock of publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of our investments in publicly traded companies have been or continue to be valued based on Level 2 inputs due to transfer restrictions associated with these investments.

As of September 30, 2023, one of our investments in publicly traded corporate equity securities was subject to a contractual sales restriction expiring partially in 2024 and partially in 2025 with a total fair value of $25.5 million. We purchased this investment directly from the publicly traded company in the first quarter of 2023, and do not anticipate any circumstances that would cause this restriction to lapse prior to the periods listed above.

Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.

Fair Value Measurements as of September 30, 2017
Fair Value Hierarchy
Total Level 1 Level 2 Level 3
(in thousands)
Financial instruments carried at fair value (asset position):
Cash equivalents:
Money market funds $ 466,702
$ 466,702
$ —
$ —
Government-sponsored enterprise securities 14,979
14,979
—
—
Corporate debt securities 4,488
—
4,488
—
Commercial paper 14,608
—
14,608
—
Marketable securities:
Corporate equity securities 56,944
56,944
—
—
Corporate debt securities 295,171
—
295,171
—
Commercial paper 75,167
—
75,167
—
Prepaid and other current assets:
Foreign currency forward contracts 42
—
42
—
Other assets:
Foreign currency forward contracts 8
—
8
—
Total financial assets $ 928,109

$ 538,625
$ 389,484
$ —
Financial instruments carried at fair value (liability position):
Other liabilities, current portion:
Foreign currency forward contracts $ (13,897 ) $ —
$ (13,897 ) $ —
Other liabilities, excluding current portion:
Foreign currency forward contracts (977 ) —
(977 ) —
Total financial liabilities $ (14,874 ) $ —
$ (14,874 ) $ —

Fair Value Measurements as of December 31, 2016
Fair Value Hierarchy
Total Level 1 Level 2 Level 3
(in thousands)
Financial instruments carried at fair value (asset position):
Cash equivalents:
Money market funds $ 280,560
$ 280,560
$ —
$ —
Marketable securities:
Government-sponsored enterprise securities 15,508
15,508
—
—
Corporate equity securities 64,560
64,560
—
—
Commercial paper 59,404
—
59,404
—
Corporate debt securities 111,140
—
111,140
—
Prepaid and other current assets:
Foreign currency forward contracts 14,407
—
14,407
—
Other assets:
Foreign currency forward contracts 1,186
$ —
1,186
$ —
Total financial assets $ 546,765
$ 360,628
$ 186,137
$ —
Financial instruments carried at fair value (liability position):
Other liabilities, current portion:
Foreign currency forward contracts $ (144 ) $ —
$ (144 ) $ —
Total financial liabilities $ (144 ) $ —
$ (144 ) $ —
13

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

Fair Value of Contingent Consideration

~~The Company’s VIE invested in cash equivalents consisting of money market funds of $1.5 million as of September 30, 2017, which~~In 2019, we acquired Exonics Therapeutics, Inc. (“Exonics”), a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause Duchenne muscular dystrophy (“DMD”) and other severe neuromuscular diseases, including DM1. Our Level 3 contingent consideration liabilities are ~~valued based on Level 1 inputs. These cash equivalents are not included in the table above. The Company’s noncontrolling interest~~ related to $678.3 million of development and regulatory milestones potentially payable to former Exonics equity holders. We base our estimates of the ~~Company’s VIE includes~~probability of achieving the milestones relevant to the fair value of ~~the~~ contingent payments, which ~~consist of~~could include milestone, royalty and option payments, ~~which are valued based~~ on ~~Level 3 inputs. Please refer~~industry data attributable to ~~Note C, “Collaborative Arrangements~~rare diseases and ~~Acquisitions,” for further information.~~


F.	~~Marketable Securities~~

~~A summary~~our knowledge of the ~~Company’s cash, cash equivalents~~progress and ~~marketable securities is shown below:~~

Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
(in thousands)
As of September 30, 2017
Cash and cash equivalents:
Cash and money market funds $ 1,350,891
$ —
$ —
$ 1,350,891
Government-sponsored enterprise securities 14,979
—
—
14,979
Commercial paper 14,610
—
(2 ) 14,608
Corporate debt securities 4,488
—
—
4,488
Total cash and cash equivalents $ 1,384,968
$ —
$ (2 ) $ 1,384,966
Marketable securities:
Corporate equity securities 43,213
13,731
—
56,944
Commercial paper (matures within 1 year) 75,186
1
(20 ) 75,167
Corporate debt securities (matures within 1 year) 235,679
8
(106 ) 235,581
Corporate debt securities (matures after 1 year) 59,651
—
(61 ) 59,590
Total marketable securities $ 413,729
$ 13,740
$ (187 ) $ 427,282
Total cash, cash equivalents and marketable securities $ 1,798,697
$ 13,740
$ (189 ) $ 1,812,248

As of December 31, 2016
Cash and cash equivalents:
Cash and money market funds $ 1,183,945
$ —
$ —
$ 1,183,945
Total cash and cash equivalents $ 1,183,945
$ —
$ —
$ 1,183,945
Marketable securities:
Government-sponsored enterprise securities (matures within 1 year) $ 15,506
$ 2
$ —
$ 15,508
Corporate equity securities 43,213
21,347
—
64,560
Commercial paper (matures within 1 year) 59,331
73
—
59,404
Corporate debt securities (matures within 1 year) 111,225
—
(85 ) 111,140
Total marketable securities $ 229,275
$ 21,422
$ (85 ) $ 250,612
Total cash, cash equivalents and marketable securities $ 1,413,220
$ 21,422
$ (85 ) $ 1,434,557

viability of the programs. The ~~Company has a limited number of marketable securities~~discount rates used in ~~insignificant loss positions~~the valuation model for contingent payments, which were between 5.5% and 6.5% as of September 30, ~~2017, which~~2023, represent a measure of credit risk and market risk associated with settling the ~~Company does not intend to sell and has concluded it will not be required to sell before recovery~~liabilities. Significant judgment is used in determining the appropriateness of ~~the amortized costs~~these assumptions at each reporting period.

The following table represents a rollforward of the ~~investment at maturity. There were no charges recorded for other-than-temporary declines in~~ fair value of ~~marketable securities nor gross realized gains or losses~~our contingent consideration liabilities:


	Nine Months Ended September 30, 2023
	(in millions)
Balance at December 31, 2022	$	129.0
Decrease in fair value of contingent payments	(1.3)
Balance at September 30, 2023	$	127.7

In November 2023, we determined that additional pre-clinical studies of the delivery system for our gene-editing components for DMD will be required. Any potential impact on the fair value of our contingent consideration liabilities will be recognized ~~in the three and nine months ended September 30, 2017 and 2016.~~as of December 31, 2023.

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Notes to Condensed Consolidated Financial Statements

(unaudited)

F.Marketable Securities and Equity Investments


G.	~~Accumulated Other Comprehensive Income (Loss)~~

A summary of our cash equivalents and marketable securities, which are recorded at fair value (and do not include $5.5 billion and $3.1 billion of cash as of September 30, 2023 and December 31, 2022, respectively), is shown below:


	As of September 30, 2023								As of December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

	(in millions)
Cash equivalents:
Money market funds	$	3,753.4	$	—	$	—	$	3,753.4	$	5,162.6	$	—	$	—	$	5,162.6
Time deposits	1,550.0		—		—		1,550.0		2,000.0		—		—		2,000.0
U.S. Treasury securities	236.8		—		—		236.8		—		—		—		—
Corporate debt securities	—		—		—		—		5.8		—		—		5.8
Commercial paper	96.5		—		—		96.5		204.5		—		—		204.5
Total cash equivalents	$	5,636.7	$	—	$	—	$	5,636.7	$	7,372.9	$	—	$	—	$	7,372.9
Marketable securities:
U.S. Treasury securities	$	414.6	$	0.1	$	(6.5)	$	408.2	$	—	$	—	$	—	$	—
Government-sponsored enterprise securities	422.9		—		(1.9)		421.0		127.0		0.2		(0.1)		127.1
Asset-backed securities	239.3		0.0		(1.5)		237.8		—		—		—		—
Certificates of deposit	31.7		0.0		—		31.7		—		—		—		—
Corporate debt securities	1,228.4		0.0		(14.2)		1,214.2		87.2		—		(0.2)		87.0
Commercial paper	158.8		0.0		(0.1)		158.7		55.8		—		—		55.8
Total marketable debt securities	2,495.7		0.1		(24.2)		2,471.6		270.0		0.2		(0.3)		269.9
Corporate equity securities	72.1		0.5		(26.2)		46.4		104.4		30.9		(18.5)		116.8
Total marketable securities	$	2,567.8	$	0.6	$	(50.4)	$	2,518.0	$	374.4	$	31.1	$	(18.8)	$	386.7

Available-for-sale debt securities were classified on our condensed consolidated balance sheets at fair value as follows:


	As of September 30, 2023		As of December 31, 2022

	(in millions)
Cash and cash equivalents	$	4,086.7	$	5,372.9
Marketable securities	771.6		157.7
Long-term marketable securities	1,700.0		112.2
Total	$	6,558.3	$	5,642.8

Available-for-sale debt securities by contractual maturity were as follows:


	As of September 30, 2023		As of December 31, 2022

	(in millions)
Matures within one year	$	4,858.3	$	5,530.6
Matures after one year through five years	1,700.0		112.2
Total	$	6,558.3	$	5,642.8

We did not record any allowances for credit losses to adjust the ~~Company’s~~fair value of available-for-sale debt securities or gross realized gains or losses in the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023, we held available-for-sale debt securities with a total fair value of $2.28 billion that were in unrealized loss positions totaling $24.2 million; however, none of these investments had been in an unrealized loss position for greater than twelve months.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

We record changes in the fair value of our investments in corporate equity securities to “Other (expense) income, net” in our condensed consolidated statements of income. During the three and nine months ended September 30, 2023 and 2022, our net unrealized (losses) gains on corporate equity securities held at the conclusion of each period were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions)
Net unrealized (losses) gains	$	(6.2)	$	16.7	$	(7.1)	$	(143.1)

During the nine months ended September 30, 2023, we received proceeds of $95.1 million related to the sale of the common stock of a publicly traded company, which had a total original cost basis of $57.3 million. There were no sales of the common stock of publicly traded companies during the nine months ended September 30, 2022.

As of September 30, 2023, the carrying value of our equity investments without readily determinable fair values, which are recorded in “Other assets” on our condensed consolidated balance sheets, was $98.6 million.

G.Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss) by ~~component is shown below:~~component:


			Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment		On Available-For-Sale Debt Securities		On Foreign Currency Forward Contracts		Total

	(in millions)
Balance at December 31, 2022	$	(25.0)	$	(0.1)	$	25.9	$	0.8
Other comprehensive income (loss) before reclassifications	9.1		(18.8)		31.8		22.1
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		(25.9)		(25.9)
Net current period other comprehensive income (loss)	9.1		(18.8)		5.9		(3.8)
Balance at September 30, 2023	$	(15.9)	$	(18.9)	$	31.8	$	(3.0)

Balance at December 31, 2021	$	(13.6)	$	(0.5)	$	30.0	$	15.9
Other comprehensive (loss) income before reclassifications	(42.8)		(3.6)		230.2		183.8
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		(102.1)		(102.1)
Net current period other comprehensive (loss) income	(42.8)		(3.6)		128.1		81.7
Balance at September 30, 2022	$	(56.4)	$	(4.1)	$	158.1	$	97.6

H.Hedging

Foreign Currency Translation Adjustment Unrealized Holding Gains (Losses) on Marketable Securities, Net of Tax Unrealized Gains (Losses) on Foreign Currency Forward Contracts, Net of Tax Total
(in thousands)
Balance at December 31, 2016 $ (7,862 ) $ 17,521
$ 11,514
$ 21,173
Other comprehensive loss before reclassifications (11,137 ) (7,786 ) (25,981 ) (44,904 )
Amounts reclassified from accumulated other comprehensive income (loss) —
—
(1,398 ) (1,398 )
Net current period other comprehensive (loss) income $ (11,137 ) $ (7,786 ) $ (27,379 ) $ (46,302 )
Balance at September 30, 2017 $ (18,999 ) $ 9,735
$ (15,865 ) $ (25,129 )
Foreign currency forward contracts - Designated as hedging instruments

Foreign Currency Translation Adjustment Unrealized Holding Gains on Marketable Securities Unrealized Gains (Losses) on Foreign Currency Forward Contracts, Net of Tax Total
(in thousands)
Balance at December 31, 2015 $ (2,080 ) $ 126
$ 3,778
$ 1,824
Other comprehensive (loss) income before reclassifications (7,709 ) 104
6,715
(890 )
Amounts reclassified from accumulated other comprehensive income (loss) —
—
(4,779 ) (4,779 )
Net current period other comprehensive (loss) income $ (7,709 ) $ 104
$ 1,936
$ (5,669 )
Balance at September 30, 2016 $ (9,789 ) $ 230
$ 5,714
$ (3,845 )


H.	~~Hedging~~

~~The Company maintains~~We maintain a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of ~~the Company’s~~our forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under U.S. GAAP having contractual durations from one to eighteen months. We recognize realized gains and losses for the effective portion of such contracts in “Product revenues, net” in our

~~The Company~~

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

condensed consolidated statements of income in the same period that we recognize the product revenues that were impacted by the hedged foreign exchange rate changes.

We formally ~~documents~~document the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as ~~the Company’s~~our risk management objective and strategy for undertaking various hedging activities, which includes matching all foreign currency forward contracts that are designated as cash flow hedges to forecasted transactions. ~~The Company~~We also formally ~~assesses,~~assess, both at the hedge’s inception and on an ongoing basis, whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. If ~~the Company determines~~we were to determine that a (i) foreign currency forward contract is not highly effective as a cash flow hedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, ~~the Company~~we would discontinue hedge accounting treatment prospectively. ~~The Company measures~~We measure effectiveness based on the change in fair value of the forward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. As of September 30, ~~2017~~,2023, all hedges were determined to be highly ~~effective~~effective.

We consider the impact of our counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of September 30, 2023 and December 31, 2022, credit risk did not change the ~~Company had not recorded any ineffectiveness related to the hedging program.~~fair value of our foreign currency forward contracts.

The following table summarizes the notional amount in U.S. dollars of ~~the Company’s~~our outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP:


	As of September 30, 2023		As of December 31, 2022

Foreign Currency	(in millions)
Euro	$	1,343.3	$	1,497.7
Canadian dollar	192.6		216.3
British pound sterling	191.9		247.4
Australian dollar	136.2		174.9
Swiss Franc	51.7		65.2
Total foreign currency forward contracts	$	1,915.7	$	2,201.5

Foreign currency forward contracts - Not designated as hedging instruments

We also enter into foreign currency forward contracts with contractual maturities of less than one month, which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under U.S. GAAP. We recognize realized gains and losses for such contracts in “Other (expense) income, net” in our condensed consolidated statements of income each period. As of September 30, 2023, the notional amount of our outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP is not applied was $922.8 million.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

During the three and nine months ended September 30, 2023 and 2022, we recognized the following related to foreign currency forward contracts in our condensed consolidated statements of income:

As of September 30, 2017 As of December 31, 2016
Foreign Currency (in thousands)
Euro $ 234,477
$ 164,368
British pound sterling 77,387
65,237
Australian dollar 31,283
23,776
Total foreign currency forward contracts $ 343,147
$ 253,381


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	$	2.8	$	65.2	$	33.0	$	130.3
Not designated as hedging instruments
Other (expense) income, net	$	(22.0)	$	(22.1)	$	(17.8)	$	(38.9)

Total reported in the Condensed Consolidated Statements of Income
Product revenues, net	$	2,483.5	$	2,334.3	$	7,351.5	$	6,628.0
Other (expense) income, net	$	(15.9)	$	17.2	$	(13.0)	$	(133.7)

The following table summarizes the fair value of ~~the Company’s~~our outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP included on ~~the Company’s~~our condensed consolidated balance sheets:


As of September 30, 2023
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value

(in millions)
Prepaid expenses and other current assets	$	37.8	Other current liabilities	$	(0.7)
Other assets	3.4		Other long-term liabilities	—
Total assets	$	41.2	Total liabilities	$	(0.7)

As of September 30, 2017
Assets Liabilities
Classification Fair Value Classification Fair Value
(in thousands)
Prepaid and other current assets $ 42
Other liabilities, current portion $ (13,897 )
Other assets 8
Other liabilities, excluding current portion (977 )
Total assets $ 50
Total liabilities $ (14,874 )


As of December 31, 2016
As of December 31, 2022								As of December 31, 2022
Assets	Assets			Liabilities				Assets			Liabilities
Classification		Fair Value		Classification	Fair Value			Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid and other current assets		$	14,407	Other liabilities, current portion	$	(144	)

(in millions)								(in millions)
Prepaid expenses and other current assets								Prepaid expenses and other current assets	$	47.5	Other current liabilities	$	(14.3)
Other assets		1,186		Other liabilities, excluding current portion	—			Other assets	0.8		Other long-term liabilities	(0.9)
Total assets		$	15,593	Total liabilities	$	(144	)	Total assets	$	48.3	Total liabilities	$	(15.2)

As of September 30, ~~2017,~~2023, we expect the ~~Company expects~~ amounts that are related to foreign exchange forward contracts designated as cash flow hedges under U.S. GAAP recorded in ~~prepaid~~“Prepaid expenses and other ~~currents assets~~current assets” and ~~other liabilities,~~“Other current ~~portion~~liabilities” to be ~~reclassed~~reclassified to earnings within twelve months.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

We present the fair value of our foreign currency forward contracts on a gross basis within our condensed consolidated balance sheets. The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under U.S. GAAP on ~~the Company’s~~our condensed consolidated balance sheets:


	As of September 30, 2023
	Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset

Foreign currency forward contracts	(in millions)
Total assets	$	41.2	$	—	$	41.2	$	(0.7)	$	40.5
Total liabilities	(0.7)		—		(0.7)		0.7		—


	As of December 31, 2022
	Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset

Foreign currency forward contracts	(in millions)
Total assets	$	48.3	$	—	$	48.3	$	(15.2)	$	33.1
Total liabilities	(15.2)		—		(15.2)		15.2		—

Inventories consisted of the following:

As of September 30, 2017
Gross Amounts Recognized Gross Amounts Offset Gross Amounts Presented Gross Amounts Not Offset Legal Offset
Foreign currency forward contracts (in thousands)
Total assets $ 50
$ —
$ 50
$ (50 ) $ —
Total liabilities $ (14,874 ) $ —
$ (14,874 ) $ 50
$ (14,824 )

As of December 31, 2016
Gross Amounts Recognized Gross Amounts Offset Gross Amounts Presented Gross Amounts Not Offset Legal Offset
Foreign currency forward contracts (in thousands)
Total assets $ 15,593
$ —
$ 15,593
$ (144 ) $ 15,449
Total liabilities $ (144 ) $ —
$ (144 ) $ 144
$ —

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

J.Stock-based Compensation Expense and Share Repurchase Programs

The Company also enters into foreign exchange forward contracts with contractual maturities of less than one month designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities including intercompany balances. The Company recognized losses of $4.1 million and $13.0 million, recorded in other income (expense), net, forStock-based compensation expense

During the three and nine months ended September 30, ~~2017, respectively, related~~2023 and 2022, we recognized the following stock-based compensation expense:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs)	$	129.1	$	130.3	$	358.6	$	351.5
Stock options	0.2		3.1		4.0		14.9
ESPP share issuances	2.4		1.9		11.8		13.0
Stock-based compensation expense related to inventories	(0.8)		0.3		(1.8)		0.4
Total stock-based compensation expense included in “Total costs and expenses”	$	130.9	$	135.6	$	372.6	$	379.8

Stock-based compensation expense by line item:
Cost of sales	$	1.7	$	2.4	$	5.4	$	7.0
Research and development expenses	81.1		80.0		231.9		229.9
Selling, general and administrative expenses	48.1		53.2		135.3		142.9
Total stock-based compensation expense included in costs and expenses	130.9		135.6		372.6		379.8
Income tax effect	(37.1)		(38.8)		(109.0)		(101.3)
Total stock-based compensation expense, net of tax	$	93.8	$	96.8	$	263.6	$	278.5

Share repurchase program

In February 2023, our Board of Directors approved a share repurchase program (our “Share Repurchase Program”), pursuant to which we are authorized to repurchase up to $3.0 billion of our common stock. Our Share Repurchase Program does not have an expiration date and can be discontinued at any time. During the nine months ended September 30, 2023, we repurchased 891,060 shares of our common stock under our Share Repurchase Program for an aggregate of $284.1 million. As of September 30, 2023, a total of $2.7 billion remained authorized for future repurchases.

We are subject to U.S. federal, state, and foreign ~~exchange contracts, which are not designated as hedging instruments under GAAP. The Company recognized a loss of $1.2 million and a gain of $0.5 million, for~~income taxes. During the three and nine months ended September 30, ~~2016, respectively, related~~2023 and 2022, we recorded the following provisions for income taxes and effective tax rates as compared to ~~foreign exchange contracts not designated as hedging instruments.~~our income before provision for income taxes:

As of September 30, 2017, the notional amount of foreign exchange contracts where hedge accounting under GAAP is not applied was $113.8 million. The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts not designated for hedge accounting included on the Company’s condensed consolidated balance sheets:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

	(in millions, except percentages)
Income before provision for income taxes	$	1,179.2	$	1,176.4	$	3,232.2	$	3,155.6
Provision for income taxes	$	143.9	$	245.9	$	581.4	$	652.5


Effective tax rate			12.2		%				20.9		%				18.0		%				20.7		%

As of September 30, 2017 As of December 31, 2016
(in thousands)
Prepaid expenses and other current assets $ 1,709
$ 660
20

~~I. Inventories~~

~~Inventories consisted of the following:~~

As of September 30, 2017 As of December 31, 2016
(in thousands)
Raw materials $ 12,678
$ 6,348
Work-in-process 67,826
56,672
Finished goods 17,688
14,584
Total $ 98,192
$ 77,604

Based on its evaluation of, among other factors, information regarding tezacaftor's safety and efficacy, the Company has capitalized $9.6 million of inventory costs for tezacaftor manufactured in preparation for its potential product launch as of September 30, 2017. In periods prior, the Company expensed costs associated with tezacaftor’s raw materials and work-in-process as a development expense. The Company submitted a New Drug Application to the United States Food and Drug Administration and a Marketing Authorization Application to the European Medicines Agency for tezacaftor in combination with ivacaftor. The Company plans to continue to monitor the status of the tezacaftor regulatory process and the other factors used to determine whether or not to capitalize the tezacaftor inventory and, if there are significant negative developments regarding tezacaftor, the Company could be required to impair previously capitalized costs.

~~J. Intangible Assets and Goodwill~~

~~Intangible Assets~~

As of September 30, 2017 and December 31, 2016, in-process research and development intangible assets of $29.0 million and $284.3 million, respectively, were recorded on the Company’s condensed consolidated balance sheet. In 2015, the Company recorded an in-process research development intangible asset of $255.3 million related to Parion’s pulmonary ENaC platform, including the intellectual property related to VX-371 and VX-551, that are licensed by Parion to the Company. In 2014, the Company recorded an in-process research development intangible asset of $29.0 million related to VX-210 that is licensed by BioAxone to the Company.

In connection with its preparation of its financial statements for the three and nine months ended September 30, 2017, the Company determined that there were indicators that the value of the pulmonary ENaC platform intangible asset had become impaired. The Company determined that the fair value of the intangible asset had decreased significantly based on data received in September 2017 from a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. Based on this data, the Company evaluated the fair value of Parion’s pulmonary ENaC platform using the discounted cash

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~flow approach from the perspective~~Our effective tax rate for each of a market participant and determined that the fair value of the intangible asset was zero as of September 30, 2017. The discounted cash flow model pertaining to the impairment of the pulmonary ENaC platform includes (i) assumptions regarding the probability of obtaining marketing approval for the drug candidate, (ii) estimates regarding the timing of and the expected costs to develop and commercialize the drug candidate, (iii) estimates of future cash flows from potential product sales with respect to the drug candidate and (iv) appropriate discount and tax rates. The Company recorded a $255.3 million impairment charge and a benefit from income taxes of $97.7 million in the three and nine months ended September 30, ~~2017 attributable~~2023 was lower than the U.S. statutory rate primarily due to ~~noncontrolling interest.~~a benefit from a research and development tax credit study that was completed in the third quarter of 2023 and excess tax benefits related to stock-based compensation, partially offset by changes in uncertain tax positions.

~~Goodwill~~Our effective tax rate was similar to the U.S. statutory rate for each of the three and nine months ended September 30, 2022.

We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of September 30, ~~2017~~2023 and December 31, ~~2016, goodwill~~2022, we had $245.4 million and $208.5 million, respectively, of ~~$50.4 million was recorded~~net unrecognized tax benefits, which would affect our tax rate if recognized.

We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. We have various income tax audits ongoing at any time throughout the world. Except for jurisdictions where we have net operating losses or tax credit carryforwards, we are no longer subject to any tax assessment from tax authorities for years prior to 2014 in jurisdictions that have a material impact on ~~the Company’s condensed~~our consolidated ~~balance sheet.~~financial statements.

~~K. Long-term Obligations~~

~~Fan Pier Leases~~L.Commitments and Contingencies

2022 Credit Facility

In ~~2011, the Company entered into two lease agreements, pursuant to which the Company leases approximately 1.1 million square feet~~July 2022, Vertex and certain of office and laboratory space in two buildings (the “Fan Pier Buildings”) at Fan Pier in Boston, Massachusetts (the “Fan Pier Leases”). The Company commenced lease payments in December 2013, and will make lease payments pursuant to the Fan Pier Leases through December 2028. The Company has an option to extend the term of the Fan Pier Leases for an additional ten years.

Because the Company was involved in the construction project, the Company was deemed for accounting purposes to be the owner of the Fan Pier Buildings during the construction period and recorded project construction costs incurred by the landlord. Upon completion of the Fan Pier Buildings, the Company evaluated the Fan Pier Leases and determined that the Fan Pier Leases did not meet the criteria for “sale-leaseback” treatment. Accordingly, the Company began depreciating the asset and incurring interest expense related to the financing obligation in 2013. The Company bifurcates its lease payments pursuant to the Fan Pier Leases into (i) a portion that is allocated to the Buildings and (ii) a portion that is allocated to the land on which the Fan Pier Buildings were constructed. The portion of the lease obligations allocated to the land is treated as an operating lease that commenced in 2011.

Property and equipment, net, included $479.0 million and $489.0 million as of September 30, 2017 and December 31, 2016, respectively, related to construction costs for the Fan Pier Buildings. The carrying value of the Company’s lease agreement liability for the Fan Pier Buildings was $472.2 million and $472.6 million as of ~~September 30, 2017~~ ~~and December 31, 2016, respectively.~~

~~San Diego Lease~~

~~On December 2, 2015, the Company~~subsidiaries entered into a lease agreement for 3215 Merryfield Row, San Diego, California with ARE-SD Region No. 23, LLC (the “San Diego Building”). Pursuant to this agreement, the Company agreed to lease approximately 170,000 square feet of office and laboratory space in a building to be built in San Diego, California. The lease will commence upon completion of the building, scheduled for the first half of 2018, and will extend for 16 years from the commencement date. Pursuant to the lease agreement, during the initial 16-year term, the Company will pay an average of approximately $10.2$500.0 million ~~per year in aggregate rent, exclusive of operating expenses. The Company has the option to extend the lease term for up to two additional five-year terms.~~

Because the Company is involved in the construction project, the Company is deemed for accounting purposes to be the owner of the San Diego Building during the construction period and recorded project construction costs incurred by the landlord. The Company bifurcates its lease payments pursuant to the San Diego Lease into (i) a portion that is allocated to the San Diego Building and (ii) a portion that is allocated to the land on which the San Diego Building was constructed. Although the Company will not begin making lease payments pursuant to the San Diego Lease until the commencement date, the portion of the lease obligation allocated to the land is treated for accounting purposes as an operating lease that commenced in the fourth quarter of 2016. Upon completion of the San Diego Building, the Company will evaluate the San

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Diego Lease and determine if the San Diego Lease meets the criteria for “sale-leaseback” treatment. If the San Diego Lease meets the “sale-leaseback” criteria, the Company will remove the asset and the related liability from its consolidated balance sheet and treat the San Diego Lease as either an operating or a capital lease based on the Company’s assessment of the accounting guidance. The Company expects that upon completion of construction of the San Diego Building the San Diego Lease will not meet the “sale-leaseback” criteria. If the San Diego Lease does not meet “sale-leaseback” criteria, the Company will treat the San Diego Lease as a financing obligation and will depreciate the asset over its estimated useful life.

Property and equipment, net, included $73.9 million and $15.0 million as of September 30, 2017 and December 31, 2016, respectively, related to construction costs for the San Diego Building. The carrying value of the Company’s lease agreement liability for the San Diego Building was $71.8 million and $12.6 million as of September 30, 2017 and December 31, 2016, respectively.

~~Revolving Credit Facility~~

~~In October 2016, the Company entered into a Credit Agreement~~unsecured revolving facility (the “Credit Agreement”) with Bank of America, N.A., as administrative agent and the lenders referred to ~~therein.~~therein (the “Lenders”), which matures on July 1, 2027. The Credit Agreement ~~provides for a $500.0 million revolving facility, $300.0 million of which~~ was not drawn upon at closing ~~(the “Loans”)~~ and ~~was repaid in February 2017. The~~we have not drawn upon it to date. Amounts drawn pursuant to the Credit Agreement, ~~also provides that, subject~~if any, will be used for general corporate purposes. Subject to satisfaction of certain conditions, ~~the Company~~we may request that the borrowing capacity ~~under~~for the Credit Agreement be increased by an additional ~~$300.0~~$500.0 million. ~~The~~Additionally, the Credit Agreement ~~matures on October 13, 2021.~~provides a sublimit of $100.0 million for letters of credit.

~~The proceeds of the borrowing~~Any amounts borrowed under the Credit Agreement ~~were used primarily to repay the Company’s then outstanding indebtedness under the Macquarie Loan (as defined below). The Loans~~ will bear interest, at ~~the Company’s~~our option, at either a base rate or a ~~Eurodollar rate,~~Secured Overnight Financing Rate (“SOFR”), in each case plus an applicable margin. Under the Credit Agreement, the applicable margins on base rate loans range from ~~0.75%~~0.000% to ~~1.50%~~0.500% and the applicable margins on ~~Eurodollar~~SOFR loans range from ~~1.75%~~1.000% to ~~2.50%~~1.500%, in each case based on ~~the Company’s~~our consolidated leverage ratio (the ratio of ~~the Company’s~~our total consolidated ~~debt~~funded indebtedness to our consolidated EBITDA for the most recently completed four fiscal quarter period).

Any amounts borrowed pursuant to the ~~Company’s trailing twelve-month EBITDA).~~

~~The Loans~~Credit Agreement are guaranteed by certain of ~~the Company’s~~our existing and future domestic subsidiaries and secured by substantially all of the Company’s assets and the assets of the Company’s domestic subsidiaries (excluding intellectual property, owned and leased real property and certain other excluded property) and by the equity interests of the Company’s subsidiaries, subject to certain exceptions. ~~Under the terms of the~~

The Credit Agreement ~~the Company must~~contains customary representations and warranties and affirmative and negative covenants, including a financial covenant to maintain subject to certain limited exceptions, a consolidated leverage ratio of ~~3.00~~3.50 to 1.00, ~~and consolidated EBITDA~~subject to an increase to 4.00 to 1.00 following a material acquisition. As of ~~at least $200.0 million,~~September 30, 2023, we were in ~~each case to be measured on a quarterly basis.~~

~~The Credit Agreement contains customary representations and warranties and usual and customary affirmative and negative covenants.~~compliance with the covenants described above. The Credit Agreement also contains customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of amounts due under outstanding loans.

~~Term Loan~~

In July 2014, the Company entered into a credit agreement with the lenders party thereto, and Macquarie US Trading LLC (“Macquarie”), as administrative agent. The credit agreement provided for a $300.0 million senior secured term loan (the “Macquarie Loan”). On October 13, 2016, the Company terminated and repaid all outstanding obligations under the Macquarie Loan.

The Macquarie Loan initially bore interest at a rate of 7.2% per annum, which was reduced to 6.2% per annum based on the FDA’s approval of ORKAMBI. The Term Loan bore interest at a rate of LIBOR plus 5.0% per annum during the third year of the term.

The Company incurred $5.3 million in fees paid to Macquarie that were recorded as a discount on the Macquarie Loan and were recorded as interest expense using the effective interest method over the term of the loan in the Company’s condensed consolidated statements of operations.

~~L. Stock-based Compensation Expense~~

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~During the three and nine months ended September 30, 2017 and 2016, the Company recognized the following stock-based compensation expense:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Stock-based compensation expense by type of award:
Stock options $ 25,969
$ 28,773
$ 80,865
$ 86,859
Restricted stock and restricted stock units 46,737
30,966
131,388
88,107
ESPP share issuances 2,428
2,425
6,738
6,385
Less stock-based compensation expense capitalized to inventories (1,364 ) (955 ) (3,657 ) (2,728 )
Total stock-based compensation included in costs and expenses $ 73,770
$ 61,209
$ 215,334
$ 178,623

Stock-based compensation expense by line item:
Research and development expenses $ 46,186
$ 39,980
$ 134,855
$ 115,068
Sales, general and administrative expenses 27,584
21,229
80,479
63,555
Total stock-based compensation included in costs and expenses $ 73,770
$ 61,209
$ 215,334
$ 178,623

~~The following table sets forth the Company’s unrecognized stock-based compensation expense by type of award and the weighted-average period over which that expense is expected to be recognized:~~

As of September 30, 2017
Unrecognized Expense Weighted-average
Recognition Period
(in thousands) (in years)
Type of award:
Stock options $ 175,298
2.60
Restricted stock and restricted stock units $ 289,008
2.64
ESPP share issuances $ 2,636
0.46

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~The following table summarizes information about stock options outstanding and exercisable at~~ ~~September 30, 2017~~:

Options Outstanding Options Exercisable
Range of Exercise Prices Number
Outstanding Weighted-average
Remaining
Contractual Life Weighted-average
Exercise Price Number
Exercisable Weighted-average
Exercise Price
(in thousands) (in years) (per share) (in thousands) (per share)
$18.93–$20.00 128
0.35 $ 18.93
128
$ 18.93
$20.01–$40.00 834
2.21 $ 34.51
834
$ 34.51
$40.01–$60.00 877
4.83 $ 49.17
877
$ 49.17
$60.01–$80.00 821
6.46 $ 75.62
649
$ 75.44
$80.01–$100.00 4,587
8.33 $ 89.37
1,397
$ 89.47
$100.01–$120.00 1,137
7.36 $ 109.34
586
$ 109.24
$120.01–$140.00 1,260
7.88 $ 130.24
688
$ 129.86
$140.01–$160.00 —
0.00 $ —
—
$ —
$160.01–$163.74 634
9.80 $ 162.94
3
$ 162.94
Total 10,278
7.22 $ 91.28
5,162
$ 77.92

~~M. Other Arrangements~~

~~Sale of HIV Protease Inhibitor Royalty Stream~~

In 2008, the Company sold to a third party its rights to receive royalty payments from GlaxoSmithKline plc, net of royalty amounts to be earned by and due to a third party, for a one-time cash payment of $160.0 million. These royalty payments relate to net sales of HIV protease inhibitors, which had been developed pursuant to a collaboration agreement between the Company and GlaxoSmithKline plc. As of ~~September 30, 2017, the Company had $8.0 million in deferred revenues~~Direct costs related to the ~~one-time cash payment, which it is recognizing~~Credit Agreement are recorded over the life of the collaboration agreement with GlaxoSmithKline plc based on the units-of-revenue method. In addition, the Company continues to recognize royalty revenues equal to the amount of the third-party subroyaltyits term and ~~an offsetting royalty expense for the third-party subroyalty payment.~~

~~N. Income Taxes~~

~~The Company is subject to United States federal, state, and foreign income taxes. For~~ ~~the three and nine months ended September 30, 2017~~, the Company recorded a benefit from income taxes of $125.9 million and $117.6 million, respectively, which included a benefit of $120.2 million and $111.7 million, respectively, related to the Company’s VIEs’ income tax provision. The VIEs’ benefit from income taxes during the the three and nine months ended September 30, 2017 related primarily to the impairment of Parion’s pulmonary ENaC platform and decrease in the fair value of the contingent payments payable by the Company to Parion. The Company has no liability for taxes payable by the Company’s VIEs and the income tax provision and related liability have been allocated to noncontrolling interest. For the three and nine months ended September 30, 2016, the Company recorded a provision for income taxes of $0.5 million and $24.1 million, respectively, which included a benefit of $0.5 million and a provision of $20.1 million, respectively, related to the Company’s VIEs’ income tax provision.

As of September 30, 2017 and December 31, 2016, the Company did not have unrecognized tax benefits. The Company recognizes interest and penalties related to income taxes as a component of income tax expense. As of September 30, 2017, no interest and penalties have been accrued. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company did not recognize any material interest or penalties related to uncertain tax positions as of September 30, 2017 and December 31, 2016.

The Company continues to maintain a valuation allowance on the majority of its net operating losses and other deferred tax assets because it has a history of cumulative losses. Accordingly, the Company has not reported any tax benefit relating

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

to the remaining net operating loss carryforwards (NOLs) and income tax credit carryforwards that will be utilized in future periods in these jurisdictions. The Company’s U.S. federal net operating loss carryforwards totaled approximately $4.1 billion as of December 31, 2016. On a quarterly basis, the Company reassesses the valuation allowance on its deferred income tax assets weighing positive and negative evidence to assess the recoverability of the deferred tax assets. Based on the Company’s recent financial performance and its future projections, it could record a reversal of all, or a portion of the valuation allowance associated with U.S. deferred tax assets in future periods. However, any such change is subject to actual performance and other considerations that may present positive or negative evidence at the time of the assessment. The Company’s total deferred tax asset balance subject to the valuation allowance was approximately $1.7 billion at December 31, 2016.

As described in Note A, “Basis of Presentation and Accounting Policies”, the Company adopted amended guidance, during the nine month period ended September 30, 2017. The amended guidance eliminates the requirement that excess tax benefits be realized as a reduction in current taxes payable before the associated tax benefit can be recognized as an increase in additional paid-in capital and requires excess tax benefits and tax deficiencies to be recorded in the condensed consolidated statement of operations when the awards vest or are settled. Amendments related to accounting for excess tax benefits have been adopted prospectively, resulting in a tax benefit of $31.4 million and $62.2 million for the three and nine months ended September 30, 2017, respectively. In connection with the adoption of this new standard, the Company recorded a cumulative-effect adjustment of $410.8 million as of January 1, 2017 to accumulated deficit and deferred tax assets, with an equal offsetting adjustment to the Company’s valuation allowance. In addition, the Company has recorded $9.4 million related to the impact from adoption of the provisions related to forfeiture rates to accumulated deficit. This change also increased the Company’s deferred tax assets by $3.4 million that is offset by an increase to the valuation allowance in the same amount.

The Company files United States federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United States or any other major taxing jurisdiction for years before 2011, except where the Company has net operating losses or tax credit carryforwards that originate before 2011. The Company currently is under examination by the Canada Revenue Agency for the years ending December 31, 2011 through December 31, 2013. No adjustments have been reported.

~~At September 30, 2017, foreign earnings, which~~ were not significant, have been retained indefinitely by foreign subsidiary companies for reinvestment; therefore, no provision has been made for income taxes that would be payable upon the distribution of such earnings, and it would not be practicablematerial to determine the amount of the related unrecognized deferred income tax liability. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to United States federal income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries.

~~O. Restructuring Liabilities~~

~~Research and Development Restructuring~~

In February 2017, the Company decided to consolidate its research activities into its Boston, Milton Park and San Diego locations and closed its research site in Canada affecting approximately 70 positions. The Company has incurred aggregate restructuring charges of approximately $12.3 million in the nine months ended September 30, 2017. As of September 30, 2017, the restructuring liability primarily relates to laboratory and office space for the research site in Canada that terminates in October 2018. The Company does not anticipate any significant additional charges related to this restructuring event in the future.

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~The restructuring charge and other activities recorded during the the three and nine months ended September 30, 2017 and the related liability balance as of September 30, 2017 were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2017
(in thousands)
Liability, beginning of the period $ 3,507
$ —
Restructuring (credits) expense (125 ) 12,315
Cash payments (750 ) (7,869 )
Asset impairments and other non-cash items —
(1,814 )
Liability, end of the period $ 2,632
$ 2,632

~~2003 Kendall Restructuring~~

In 2003, the Company adopted a plan to restructure its operations to coincide with its increasing internal emphasis on advancing drug candidates through clinical development to commercialization. The restructuring liability relates to specialized laboratory and office space that is leased to the Company pursuant to a 15-year lease that terminates in April 2018. The Company has not used more than 50% of this space since it adopted the plan to restructure its operations in 2003. This unused laboratory and office space currently is subleased to third parties.

~~The activities related to the restructuring liability for the three and nine months ended September 30, 2017 and 2016 were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Liability, beginning of the period $ 1,990
$ 6,388
$ 4,328
$ 7,944
Restructuring expense 227
30
1,054
222
Cash payments (4,003 ) (5,340 ) (12,962 ) (13,104 )
Cash received from subleases 2,732
2,866
8,526
8,882
Liability, end of the period $ 946
$ 3,944
$ 946
$ 3,944

~~Fan Pier Move Restructuring~~

In connection with the relocation of its Massachusetts operations to Fan Pier in Boston, Massachusetts, which commenced in 2013, the Company is incurring restructuring charges related to its remaining lease obligations at its facilities in Cambridge, Massachusetts. The majority of these restructuring charges were recorded in the third quarter of 2014 upon decommissioning three facilities in Cambridge. During 2015, the Company terminated two of these lease agreements resulting in a credit to restructuring expense equal to the difference between the Company’s estimated future cash flows related to its lease obligations for these facilities and the termination payment paid to the Company’s landlord on the effective date of the termination. The third major facility included in this restructuring activity is 120,000 square feet of the Kendall Square Facility that the Company continued to use for its operations following its 2003 Kendall Restructuring. The rentable square footage in this portion of the Kendall Square Facility was subleased to a third party in February 2015. The Company will continue to incur charges through April 2018 related to the difference between the Company’s estimated future cash flows related to this portion of the Kendall Square Facility, which include an estimate for sublease income to be received from the Company’s sublessee and its actual cash flows. The Company discounted the estimated cash flows related to this restructuring activity at a discount rate of 9%.

~~The activities related to the restructuring liability for the three and nine months ended September 30, 2017 and 2016 were as follows:~~

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(in thousands)
Liability, beginning of the period $ 1,521
$ 4,863
$ 3,626
$ 5,964
Restructuring expense 235
90
490
472
Cash payments (3,262 ) (4,199 ) (10,578 ) (10,451 )
Cash received from subleases 2,279
2,539
7,235
7,308
Liability, end of the period $ 773
$ 3,293
$ 773
$ 3,293

~~Other Restructuring Activities~~

~~The Company has engaged in several other restructuring activities that are unrelated to its Research and Development Restructuring,~~ ~~2003 Kendall Restructuring~~ ~~and~~ ~~Fan Pier Move Restructuring~~. The most significant activity commenced in October 2013 when the Company adopted a restructuring plan that included (i) a workforce reduction primarily related to the commercial support of INCIVEK following the continued and rapid decline in the number of patients being treated with INCIVEK as new medicines for the treatment of HCV infection neared approval and (ii) the write-off of certain assets. This action resulted from the Company’s decision to focus its investment on future opportunities in CF and other research and development programs.

The remaining restructuring activities were completed in 2016. As such, there was no outstanding liability as of September 30, 2017. The activities related to the Company’s other restructuring liabilities for the three and nine months ended September 30, 2016 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2016 2016
(in thousands)
Liability, beginning of the period $ 1,233
$ 1,450
Restructuring expense (112 ) 344
Cash payments (1,121 ) (1,794 )
Liability, end of the period $ —
$ —

~~P. Commitments and Contingencies~~our financial statements.

Guaranties and Indemnifications

As permitted under Massachusetts law, ~~the Company’s~~our Articles of Organization and By-laws provide that ~~the Company~~we will indemnify certain of ~~its~~our officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that ~~the Company~~we could be required to make under these indemnification provisions is unlimited. However, ~~the Company has~~we have purchased directors’ and officers’ liability insurance policies that could reduce ~~its~~our monetary exposure and enable itus to recover a portion of any future amounts paid. No indemnification claims currently are outstanding, and ~~the Company believes~~we believe the estimated fair value of these indemnification arrangements is minimal.

~~The Company~~We customarily ~~agrees~~agree in the ordinary course of ~~its~~our business to indemnification provisions in agreements with clinical trial investigators and sites in ~~its drug~~our product development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreements involving parties performing services for ~~the Company~~us, and ~~its~~our real estate leases. ~~The Company~~ We

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

also customarily ~~agrees~~agree to certain indemnification provisions in ~~its~~our drug discovery, development and commercialization collaboration agreements. With respect to ~~the Company’s~~our clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal injury or property damage, violations of law or certain breaches of ~~the Company’s~~our contractual obligations arising out of the research or clinical testing of ~~the Company’s~~our compounds or ~~drug~~product candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by ~~the Company,~~us, to violations of law by ~~the Company~~us or to certain breaches of ~~the Company’s~~our contractual obligations. The indemnification provisions appearing in ~~the Company’s~~our collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited indemnification for ~~its~~our collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although ~~the Company believes~~we believe the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that ~~the Company~~we could be required to make under these provisions is generally unlimited. ~~The Company has~~We have purchased insurance policies covering personal injury, property damage and general liability that reduce ~~its~~our exposure for indemnification and would enable itus in many cases to recover all or a portion of any future amounts paid. ~~The Company has~~We have never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, ~~the Company believes~~we believe the estimated fair value of these indemnification arrangements is minimal.

Other Contingencies

~~The Company has~~We have certain contingent liabilities that arise in the ordinary course of ~~its~~our business activities. ~~The Company accrues a reserve~~We accrue for such contingent liabilities when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. ~~There~~Other than our contingent consideration liabilities discussed in Note E, “Fair Value Measurements,” there were no material contingent liabilities accrued as of September 30, ~~2017~~2023 or December 31, ~~2016.~~2022.

M.Additional Cash Flow Information

The cash, cash equivalents and restricted cash at the beginning and ending of each period presented in our condensed consolidated statements of cash flows consisted of the following:


	Nine Months Ended September 30,
	2023				2022
	Beginning of period		End of period		Beginning of period		End of period

	(in millions)
Cash and cash equivalents	$	10,504.0	$	11,110.2	$	6,795.0	$	9,171.5
Prepaid expenses and other current assets	8.0		6.4		5.1		5.5

Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flows	$	10,512.0	$	11,116.6	$	6,800.1	$	9,177.0

3122

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are a global biotechnology company that invests in ~~the business of discovering, developing, manufacturing and commercializing medicines for serious diseases. We use precision medicine approaches with the goal of creating~~scientific innovation to create transformative medicines for ~~patients in~~people with serious diseases, with a focus on specialty markets. ~~Our business is focused on developing and commercializing therapies for~~We have four approved medicines that treat the ~~treatment~~underlying cause of cystic fibrosis or(“CF”), a life-threatening genetic disease, and we continue to focus on developing additional treatments for CF. Beyond CF, we have a pipeline that includes mid- and ~~advancing our research and development~~late-stage clinical programs in ~~other indications.~~ sickle cell disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney disease, type 1 diabetes, and alpha-1 antitrypsin deficiency, and earlier-stage programs in diseases such as muscular dystrophies.

Our two marketed products are ORKAMBI (lumacaftor in combination with ivacaftor) and KALYDECO (ivacaftor) and we are currently seeking approval for tezacaftor in combination with ivacaftor, which is a two-drugtriple combination regimen, ~~for patients with CF. We currently are evaluating multiple triple combination regimens that include next-generation CFTR corrector compounds~~TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), was approved in ~~patients with CF in Phase 2 clinical trials and plan to initiate pivotal development of one or two triple-combination regimens~~2019 in the ~~first half of 2018.~~

~~Cystic Fibrosis~~

~~ORKAMBI~~United States (“U.S.”) and ~~KALYDECO~~in 2020 in the European Union (“E.U.”). Collectively, our four medicines are ~~collectively approved~~being used to treat ~~approximately 40%~~more than two-thirds of the ~~75,000~~approximately 88,000 people with CF ~~patients~~ in North America, Europe, and Australia. ~~ORKAMBI is approved as a treatment~~We are evaluating our medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for ~~approximately 25,000 patients~~all people who have ~~two copies of the F508del~~at least one mutation ~~or F508del homozygous,~~ in their cystic fibrosis transmembrane conductance regulator or (“CFTR”) gene that is responsive to our CFTR modulators. We also are pursuing messenger ribonucleic acid (“mRNA”) and genetic therapies for people with CF who do not make CFTR protein and, as a result, cannot benefit from our current CF medicines.

In addition, we are preparing for near-term launches of potential new products in sickle cell disease (“SCD”), ~~gene. KALYDECO is approved~~beta thalassemia, CF and acute pain. We completed regulatory submissions in the U.S., E.U. and the United Kingdom (“U.K.”) for exagamglogene autotemcel (“exa-cel”) for the treatment of ~~approximately 6,000~~SCD and transfusion-dependent beta thalassemia (“TDT”). The exa-cel regulatory submissions for SCD and TDT are under review by the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”) and the Medicines and Healthcare products Regulatory Agency (“MHRA”).

Financial Highlights


Revenues			In the third quarter of 2023, our net product revenues increased to $2.5 billion as compared to $2.3 billion in the third quarter of 2022. The increase was primarily due to the continued performance of TRIKAFTA in the U.S., following the launch of TRIKAFTA in children with CF 2 to 5 years of age and strong uptake of TRIKAFTA/KAFTRIO in ex-U.S. markets with recently achieved reimbursements and label extensions in younger age groups.
Expenses			Our total research and development (“R&D”), acquired in-process research and development (“AIPR&D”), and selling, general and administrative (“SG&A”) expenses increased to $1.1 billion in the third quarter of 2023 as compared to $920.8 million in the third quarter of 2022. The increase was primarily due to the progression of several product candidates in mid- to late-stage clinical development, increased AIPR&D and costs to support global launches. Cost of sales was 13% and 12% of our net product revenues in the third quarter of 2023 and 2022, respectively.
Cash			Our total cash, cash equivalents and marketable securities increased to $13.6 billion as of September 30, 2023 as compared to $10.9 billion as of December 31, 2022 primarily due to our net product revenues and operating cash flows partially offset by our upfront payments to Entrada Therapeutics, Inc. (“Entrada”) and CRISPR Therapeutics AG (“CRISPR”), repurchases of our common stock, and income tax payments.

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Note: Charts above may not add due to rounding.

Business Updates

Marketed Products

We expect to grow our CF business with (i) continued uptake by patients ~~who have~~in countries where we are early in our launch, such as those with recently achieved reimbursement agreements, (ii) label expansions, including into younger patient groups, (iii) the ~~G551D mutation or other specified mutations in their~~ ~~CFTR~~ ~~gene. Our goal is to develop treatment regimens that will provide benefits to as many patients~~development of mRNA therapies for people with CF ~~as possible and will enhance the benefits that currently are being provided to patients taking our medicines.~~

~~If tezacaftor in combination with ivacaftor is approved, we expect that it would provide an additional treatment option primarily to CF patients~~ who are ~~currently~~not eligible for ~~either ORKAMBI or KALYDECO. If we are able~~our approved CFTR modulators, and (iv) growth in the number of people living with CF. Recent progress in activities supporting continued uptake and label expansions is included below.

•Health Canada granted market authorization for the use of TRIKAFTA in children with CF 2 to successfully develop a triple combination regimen that includes a next-generation CFTR corrector compound, including VX-440, VX-152, VX-659 or VX-445, we believe such regimen could potentially provide benefit to all CF patients5 years of age who have at least one F508del mutation in ~~their~~ the CFTR ~~gene (approximately 90%~~ gene.

•The EMA’s Committee for Medicinal Products for Human Use adopted a positive opinion for the use of ~~all CF patients). This would include (i) the first treatment option that treats the underlying cause of CF for patients who have one copy of the F508del mutation~~KAFTRIO in ~~their~~ ~~CFTR~~ ~~gene and a second mutation in their~~ ~~CFTR~~ gene that results in minimal CFTR function, or F508del/Min patients, and (ii) an additional treatment option to CF patients who are eligible for either ORKAMBI, KALYDECO or, if approved, tezacaftor in combination with ivacaftor.

~~ORKAMBI~~

~~In October 2017, we obtained results from a 2-part open-label Phase 3 clinical trial of ORKAMBI in 60 patients~~children with CF ~~two~~2 to ~~five~~5 years of age who have at least one F508del mutation in the CFTR gene.

•The European Commission approved ORKAMBI in children with CF 1 year to less than 2 years of age with two copies of the F508del mutation in ~~their~~the CFTR gene.

Potential Near-Term Launch Opportunities

We are preparing for the following near-term launches of potential new products:

Exa-cel in SCD and TDT

•In the U.S., the FDA’s Cellular, Tissue and Gene Therapies Advisory Committee meeting to discuss exa-cel in people with SCD has completed. The ~~clinical trial met its primary endpoint~~FDA has assigned exa-cel Prescription Drug User Fee Act action dates of ~~safety, showing ORKAMBI was generally well tolerated~~December 8, 2023 for SCD and ~~that there were no new safety concerns compared to prior clinical trials of ORKAMBI~~March 30, 2024 for TDT. The FDA granted Priority Review for the BLA for exa-cel in ~~patients six through eleven years of age. Secondary endpoints showed decreases~~SCD. Exa-cel has been granted Fast Track, Regenerative Medicine Advanced Therapy, Orphan Drug and Rare Pediatric Disease designations in the ~~sweat chloride~~U.S.

•The EMA and ~~improvements~~MHRA are reviewing the marketing authorization applications (each, an “MAA”) for exa-cel in ~~nutritional status as measured by change~~SCD and TDT in ~~weight (weight-for-age z score)~~the E.U. and ~~body mass index (BMI-for-age z score). Based on these results,~~U.K, and we expect ~~to submit~~regulatory decisions in the coming months. In the E.U., exa-cel has been granted Priority Medicines (“PRIME”) and Orphan Drug designations. In the U.K., exa-cel has been granted an Innovation Passport under the Innovative Licensing and Access Pathway from the MHRA.

•We submitted a ~~New Drug Application, or NDA,~~MAA for exa-cel in SCD and TDT to the ~~U.S.~~Saudi Food and Drug ~~Administration, or FDA, and a Marketing Authorization Application, or MAA, line extension to~~Authority (the “SFDA”). Exa-cel has been granted Breakthrough designation by the ~~European Medicines Agency, or EMA,~~SFDA in the ~~first quarter~~Kingdom of ~~2018.~~Saudi Arabia.

~~KALYDECO~~

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Vanzacaftor/tezacaftor/deutivacaftor in CF

•We ~~are evaluating KALYDECO in a Phase 3~~expect to complete the pivotal SKYLINE 102 and SKYLINE 103 clinical ~~trial in patients with CF two years of age and younger with one of 10 gating and R117H mutations. The clinical trial will~~trials, which evaluate the efficacy and safety of ~~KALYDECO~~our new once-daily investigational triple combination vanzacaftor/tezacaftor/deutivacaftor relative to TRIKAFTA in ~~this age group. We have completed enrollment in patients aged 12 to 24 months.~~

~~Tezacaftor in combination with ivacaftor~~

In the first quarter of 2017, we obtained positive results from two Phase 3 clinical trials of tezacaftor, a corrector compound, in combination with ivacaftor. The clinical trials demonstrated that the tezacaftor/ivacaftor combination provided statistically significant improvements in lung function (percent predicted forced expiratory volume in one second, or ppFEV1) in patientspeople with CF 12 years of age and older, ~~who have certain mutations in their~~ ~~CFTR~~ ~~gene. The 24-week EVOLVE~~and the RIDGELINE clinical trial ~~evaluated tezacaftor~~of vanzacaftor/tezacaftor/deutivacaftor in ~~combination~~children with ~~ivacaftor~~CF 6 to 11 years of age, by the end of 2023.

•We expect to share the results of all three clinical trials in ~~F508del homozygous patients with CF. This~~early 2024.

VX-548 in Acute Pain

•We have completed the randomized controlled Phase 3 pivotal trial in abdominoplasty and we continue to enroll the randomized, controlled Phase 3 clinical trial ~~met its primary endpoint with~~in bunionectomy and a ~~mean absolute improvement in ppFEV1 through 24 weeks of 4.0 percentage points from baseline compared to placebo (p < 0.0001). The second~~single-arm safety and effectiveness clinical trial, ~~EXPAND, was an 8-week crossover~~evaluating our lead compound, VX-548, for the treatment of moderate to severe acute pain. We expect to complete the pivotal program for acute pain in late 2023. We expect to share results from the three clinical ~~trial that evaluated~~trials in early 2024.

•In the ~~combination~~U.S., VX-548 has been granted Breakthrough Therapy and Fast Track designations for moderate to severe acute pain.

Pipeline

We continue to advance a diversified pipeline of potentially transformative medicines for serious diseases utilizing a range of modalities. Recent and anticipated progress in activities supporting these efforts is included below.

Cystic Fibrosis

•In collaboration with Moderna, we are developing VX-522, a CFTR mRNA therapeutic for the treatment ~~in patients~~of people with CF who ~~have one mutation that results~~do not produce any CFTR protein. We are enrolling people with CF in ~~residual CFTR function and one F508del mutation. This~~a single-ascending dose clinical trial ~~met~~for VX-522. We expect to complete this single-ascending dose clinical trial and initiate a multiple-ascending dose clinical trial by the ~~primary endpoints~~end of ~~absolute change in ppFEV1 from baseline to~~2023. In the ~~average of~~U.S., the ~~Week~~

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4 and Week 8 measurements, with the tezacaftor/ivacaftor combination treatment demonstrating a mean absolute improvement of 6.8 percentage points compared to placebo (p < 0.0001) and the ivacaftor monotherapy group demonstrating a mean absolute improvement of 4.7 percentage points compared to placebo (p < 0.0001). Across both clinical trials, the tezacaftor/ivacaftor combination treatment was generally well tolerated.

Based on these results, we submitted a NDA to the FDA and an MAA to the EMA for tezacaftor in combination with ivacaftor in patients with CF 12 years of age and older who are F508del homozygous or who have one copy of the F508del mutation in their ~~CFTR~~ ~~gene and a second mutation in their~~ ~~CFTR~~ ~~gene that results in residual CFTR function. The~~ FDA has granted ~~us priority review~~Fast Track designation for VX-522.

•In addition, we are advancing additional CFTR potentiators and correctors through clinical development with the goal of ~~the NDA~~bringing more patients to carrier levels of CFTR function. We are also advancing additional research-stage CFTR modulators and ~~the target date~~genetic therapies for ~~the FDA~~CF.

Sickle Cell Disease and Beta Thalassemia

•We continue to ~~complete its review of the NDA under the Prescription Drug User Fee Act, or PDUFA, is February 28, 2018. We expect the EMA to complete its review~~enroll and dose patients in ~~the second half of 2018.~~

In October 2017, we announced top-line results from a Phase 3, randomized, double-blind, parallel group, clinical trial evaluating the combination of tezacaftor and ivacaftor in patients with CF 12 years of age and older who were already receiving ivacaftor monotherapy with one copy of the F508delmutation and one copy of a gating mutation. The clinical trial enrolled 151 patients with CF. The clinical trial did not meet its primary endpoint of absolute change in ppFEV1 from baseline through 8 weeks. For those receiving the combination of tezacaftor and ivacaftor, ppFEV1 improved by 0.5 percentage points compared to 0.2 percentage points in those receiving placebo in addition to ivacaftor (p=0.5846). Safety data from the clinical trial showed that the combination of tezacaftor and ivacaftor was generally well tolerated and were consistent with priortwo global Phase 3 clinical trials evaluating exa-cel in children with SCD or TDT 5 to 11 years of age.

•We continue to work on preclinical assets for gentler conditioning for exa-cel, which could broaden the ~~tezacaftor/ivacaftor combination. Secondary endpoints were changes in sweat chloride~~eligible patient population.

Acute and ~~change in CFQ-R. Sweat chloride decreased by 5.8 mmol/L in those who received tezacaftor in combination~~Neuropathic Pain

•We have discovered multiple selective small molecule inhibitors of NaV1.8, with ~~ivacaftor~~the objective of creating a new class of pain medicines that provide effective pain relief without the limitations of other pain medicines, such as ~~compared to those who received placebo in addition to ivacaftor (p=0.0216). There was no change in CFQ-R in~~ the ~~combination group compared to~~abuse potential of opioids.

•We have completed the ivacaftor monotherapy group. Based on these results, we do not plan to seek regulatory approval for tezacaftor in combination with ivacaftor for these patients, the vast majority of whom are eligible for KALYDECO monotherapy.

~~Next-generation CFTR corrector compounds~~

~~In July 2017, we obtained positive results from Phase 1 and~~ Phase 2 dose-ranging clinical ~~trials of three different triple combination regimens~~trial evaluating VX-548 in patients with ~~CF who have one copy~~diabetic peripheral neuropathy, a common form of ~~the F508del mutation in their~~ ~~CFTR~~ gene and a second mutation that results in minimal CFTR function. Initial data from the Phase 2 clinical trials showed mean absolute improvements in ppFEV1 of 9.7 and 12.0 percentage points for VX-152 (200mg q12h) and VX-440 (600mg q12h), respectively, in triple combination with tezacaftor and ivacaftor. Initial data from the Phase 1 clinical trial showed mean absolute improvement in ppFEV1 of 9.6 percentage points for VX-659 in triple combination with tezacaftor and ivacaftor. We amended our ongoing Phase 2 clinical trials of VX-445 and VX-659 to include additional cohorts of patients to evaluate these next-generation CFTR corrector compounds as part of a potential once-daily combination with tezacaftor and VX-561 (formerly CTP-656), the latter of which we acquired from Concert Pharmaceuticals, Inc., or Concert, in the third quarter of 2017.chronic peripheral neuropathic pain. We expect to ~~report additional data on our next-generation corrector program in early 2018. Pending data~~share results from ~~these clinical trials and discussions with regulatory agencies, we plan to initiate pivotal development of one or two triple combination regimens in the first half of 2018.~~

~~ENaC Inhibition~~

VX-371 is an investigational epithelial sodium channel, or ENaC, inhibitor, that we exclusively licensed from Parion Sciences, Inc., or Parion, in 2015. In October 2017, we announced the results of a Phase 2 28-day clinical trial evaluating VX-371 + hypertonic saline versus hypertonic saline alone in 142 patients with CF 12 years of age and older who are homozygous for the F508del mutation and were already receiving ORKAMBI and continued to receive ORKAMBI throughout the clinical trial. The clinical trial did not meet its primary efficacy endpoint. In patients being treated with ORKAMBI, the addition of hypertonic saline resulted in a decrease of 0.1 percentage points ppFEV1 at day 28. In patients being treated with ORKAMBI, the addition of VX-371 + hypertonic saline resulted in an increase of 0.1 percentage points ppFEV1 at day 28. Safety data from the clinical trial showed that the addition of VX-371, with or without hypertonic saline, was generally well tolerated in patients already receiving ORKAMBI, and the safety profile was consistent with that observed in prior clinical trials of VX-371 monotherapy. Based on the results of this clinical trial ~~we recognized an impairment charge related~~in late 2023.

•We expect to ~~Parion’s pulmonary ENaC platform in third quarter of 2017 and deconsolidated Parion as a VIE, effective September 30, 2017.~~

Ainitiate another Phase 2 clinical trial ~~of VX-371 monotherapy~~evaluating VX-548 in patients with ~~primary ciliary dyskinesia (PCD) is ongoing.~~peripheral neuropathic pain in late 2023. This clinical trial will evaluate VX-548 in patients with lumbosacral radiculopathy, a second type of peripheral neuropathic pain.

•We are advancing multiple NaV1.8 inhibitors and NaV1.7 inhibitors through research and earlier stages of development for pain.

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APOL1-Mediated Kidney Disease

~~Research~~•Inaxaplin is our small molecule for the treatment of APOL1-mediated kidney disease (“AMKD”), including APOL1-mediated focal segmental glomerulosclerosis (“FSGS”). We continue to enroll and ~~Development~~ dose patients in the pivotal program for inaxaplin, a single Phase 2/3 clinical trial in patients with AMKD, and we expect to complete enrollment in the Phase 2B dose-ranging portion of the trial in 2023.

•The FDA granted Breakthrough Therapy designation to inaxaplin for APOL1-mediated FSGS and the EMA granted Orphan Drug and PRIME designations to inaxaplin for AMKD.

Type 1 Diabetes

•VX-880 is a stem cell-derived, fully differentiated, insulin-producing islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. Proof-of-concept for VX-880 was achieved in 2022. We are ~~engaged~~evaluating VX-880 as a potential treatment for type 1 diabetes (“T1D”) in a sequential, three-part Phase 1/2 clinical trial. We have completed enrollment in Part C of the clinical trial.

•We continue to advance additional programs in T1D, in which these same stem cell-derived, fully differentiated, insulin-producing islet cells are encapsulated and implanted in an immunoprotective device or are modified to produce hypoimmune cells with the goal of eliminating the need for immunosuppression. We are evaluating VX-264, the cells and device program, in a sequential, multi-part Phase 1/2 clinical trial.

•Our hypoimmune cell program uses CRISPR/Cas9 technology to gene-edit the same stem cell-derived, fully differentiated islets used in the VX-880 and VX-264 programs. The goal is to cloak the cells from the immune system to explore another possible path to eliminate the need for immunosuppressive therapy. This program continues to progress through the research stage.

Alpha-1 Antitrypsin Deficiency

•We are working to address the underlying genetic cause of alpha-1 antitrypsin (“AAT”) deficiency (“AATD”). We are developing novel small molecule correctors of Z-AAT protein folding, with the goal of enabling the secretion of functional AAT into the blood and addressing both the lung and the liver aspects of AATD. We continue to enroll and dose healthy volunteers in Phase 1 clinical trials evaluating VX-634 and VX-668, our next-wave investigational molecule AAT correctors with significantly improved potency and drug-like properties as compared to the first-generation AATD correctors.

•We have discontinued development of VX-864, a first generation AATD corrector, due to non-serious rash events in some patients.

Duchenne Muscular Dystrophy

•We are pursuing preclinical research in Duchenne muscular dystrophy (“DMD”) using innovative approaches to target the underlying cause of disease, with the goal of restoring near-full-length dystrophin and muscle function.

•Based on pre-clinical data generated to date, we have determined that additional in vitro and animal studies of the delivery system for our gene editing components will be required prior to advancing the program into clinical development.

•We are using the learnings from our first-generation vectors to design next-generation delivery systems for in vivo gene editing in DMD.

Our Business Environment

Our net product revenues come from the sale of our medicines for the treatment of CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will provide benefits to all people with CF and increasing the number of ~~other research~~people with CF eligible and ~~mid-~~able to receive our medicines, including through label expansions, expanded reimbursement, and ~~early-stage~~the development ~~programs, including VX-150~~of new medicines. We are advancing our pipeline of product candidates for ~~pain~~the treatment of serious diseases outside of CF. Our strategy is to combine transformative advances in the understanding of causal human biology and ~~VX-210~~the science of therapeutics to discover and develop innovative medicines. This

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approach includes advancing multiple compounds from each program, spanning multiple modalities, into early clinical trials to obtain patient data that can inform selection of the most promising compounds for ~~acute spinal cord injury. We have also entered into third-party collaborations, pursuant~~later-stage development, and to ~~which we are engaged in the~~inform discovery and development of ~~nucleic acid-based~~additional compounds. We aim to rapidly follow our first-in-class therapies ~~for a variety~~that achieve proof-of-concept with potential best-in-class candidates to provide durable clinical and commercial success.

In pursuit of ~~diseases, including CF. We plan to continue investing~~new product candidates and therapies in ~~our~~specialty markets, we invest in research ~~programs~~ and fostering scientific innovation in order to identify and develop transformative medicines. Our current research programs include programs targeting cystic fibrosis, adrenoleukodystrophy, alpha-1 antritrypsin deficiency, sickle cell disease and polycystic kidney disease.development. We believe that pursuing research in diverse areas allows us to balance the risks inherent in ~~drug~~product development and may provide ~~drug~~product candidates that will form our pipeline in future years. To supplement our internal research programs, we acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy.

Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more. Potential drug candidates are subjected to rigorous evaluations, driven in part by stringent regulatory considerations, designed to generate information concerning efficacy, side-effects, proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product. Most chemical compounds that are investigated asexpertise. Across the industry, most potential drug ~~candidates~~or biological products never progress into development, and most ~~drug candidates~~products that do advance into development never receive marketing approval. ~~Because our~~Our investments in ~~drug~~product candidates are subject to considerable ~~risks, we~~risks. We closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our ~~drug~~product development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in ~~abrupt~~rapid changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

IfOur business also requires ensuring appropriate manufacturing and reimbursement of our products. As we ~~believe that data~~advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. The processes for cell and genetic therapies can be more complex than those required for small molecule drugs and require additional investments in different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We dedicate substantial management and other resources to obtain and maintain appropriate levels of reimbursement for our products from ~~a completed registration program support approval of a drug candidate, we submit an NDA to the FDA requesting approval to market the drug candidate~~third-party payors, including governmental organizations in the ~~United States~~U.S. and ~~seek analogous approvals from comparable regulatory~~ex-U.S. markets.

In the U.S., we have worked successfully with third-party payors to promptly obtain appropriate levels of reimbursement for our CF medicines. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in ~~foreign jurisdictions. To~~the individual states, to ensure that payors recognize the significant benefits that our medicines provide and provide patients with appropriate levels of access to our medicines now and in the future. We cannot, however, predict how recent changes in the law, including through the Inflation Reduction Act of 2022 and passage of state laws (e.g., transparency laws and prescription drug affordability boards), will affect our ability to negotiate successfully with third-party payors and distribute our products. In ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We expect to continue to focus significant resources to obtain ~~approval,~~expanded reimbursement for our CF medicines and, ultimately, pipeline therapies, in U.S. and ex-U.S. markets.

Strategic Transactions

Acquisitions

As part of our business strategy, we ~~must, among~~seek to acquire technologies, products, product candidates and other ~~things, demonstrate~~businesses that are aligned with ~~evidence gathered in nonclinical studies~~our corporate and ~~well-controlled clinical trials~~research and development strategies and complement and advance our ongoing research and development efforts. During 2022 and 2023, we have completed several acquisitions, including:

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•In the second quarter of 2022, we acquired Catalyst Biosciences, Inc.’s (“Catalyst”), portfolio of protease medicines that target the ~~drug candidate is safe~~complement system and ~~effective~~related intellectual property for $60.0 million.

•In the third quarter of 2022, we acquired ViaCyte, a privately held biotechnology company with intellectual property, tools, technologies and assets with potential to accelerate development of our T1D programs, for $315.0 million.

•In the third quarter of 2023, we acquired a novel G protein-coupled receptor (“GPCR”) program from Septerna, Inc. for $47.5 million.

We expect to continue to identify and evaluate potential acquisitions and may include larger transactions or later-stage assets.

Collaboration and In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the ~~disease it is intended to treat~~development, manufacture and ~~that the manufacturing facilities, processes~~commercialization of products, product candidates and controls for the manufacture of the drug candidate are adequate. The FDA and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease, and could delay, limit or deny regulatory approval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for the drug candidate involved will be harmed.

~~Collaboration Arrangements~~

~~We have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license drug candidates or~~other technologies that ~~enhance~~have the potential to complement our ~~pipeline and/or our~~ongoing research ~~capabilities.~~and development efforts. Over the last several years, we entered into collaboration agreements ~~with:~~

with a number of companies, including Arbor Biotechnologies, Inc., CRISPR, Therapeutics AG, or CRISPR, pursuant to which we are collaborating on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene editing technology;

~~Parion, pursuant to which we are developing ENaC inhibitors for the treatment of pulmonary diseases;~~

Entrada, ImmunoGen, Inc., Mammoth Biosciences, Inc., Moderna, Inc., Obsidian Therapeutics, Inc., ~~or Moderna, pursuant to which we are seeking to identify~~ and ~~develop mRNA therapeutics for the treatment of CF; and~~

~~BioAxone Biosciences,~~Verve Therapeutics, Inc.~~, or BioAxone, pursuant to which we are evaluating VX-210 as a potential treatment for patients who have spinal cord injuries.~~

Generally, when we in-license a technology or ~~drug~~product candidate, we make upfront payments to the collaborator, assume the costs of the program ~~and~~and/or agree to make contingent payments, which could consist of milestone, royalty and option payments. ~~Depending~~Most of these collaboration payments are expensed as AIPR&D; however, depending on many factors, including the structure of the collaboration, the stage of development of the acquired technology, the significance of the ~~drug~~in-licensed product candidate ~~that we license~~ to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. ~~For example,~~We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously.

In February 2023, we closed our strategic collaboration and licensing agreement with Entrada. Upon closing, we made an upfront ~~payments~~payment of $225.1 million to Entrada, and ~~expenses incurred~~purchased $24.9 million of Entrada’s common stock.

In March 2023, we entered into a non-exclusive license agreement for the use of CRISPR’s CRISPR-Cas9 gene-editing technology to accelerate the development of our hypoimmune cell therapies for T1D and made a $100.0 million upfront payment to CRISPR. In the second quarter of 2023, we achieved a research milestone that resulted in ~~connection with~~a $70.0 million payment to CRISPR in the third quarter of 2023.

Acquired In-Process Research and Development Expenses

In the nine months ended September 30, 2023 and 2022, our ~~CRISPR~~AIPR&D included $509.3 million and Moderna collaborations are being expensed as research expenses because (i) the collaboration represents a small portion of the overall business of these collaborators and (ii) the licenses associated with these collaborations do not represent a business$92.9 million, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including the ~~consolidation accounting guidance. CRISPR’s~~collaborations, licenses of third-party technologies, and Moderna’s activities unrelated to our collaborations have no effect on our consolidated financial statements. Parion and BioAxone have historically been accounted for as variable interest entities, or VIEs, that were included in our consolidated financial statements due to (i) the significanceasset acquisitions described above.

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of the respective licensed programs to Parion and BioAxone as a whole, (ii) our power to control the significant activities under each collaboration and (iii) our obligation to absorb losses and right to receive benefits that potentially could be significant. As of September 30, 2017, we determined that the above conditions were no longer satisfied with respect to Parion following a determination that the fair value of the ENaC inhibitors licensed from Parion had declined significantly based on the results of a Phase 2 clinical trial of VX-371 that did not meet its primary efficacy endpoint. As a result, we no longer account for Parion as a VIE and have deconsolidated Parion from our consolidated financial statements as of September 30, 2017. BioAxone continues to be accounted for as a VIE and remains included in our consolidated financial statements as of September 30, 2017.

Collaborators we account for as a VIE may engage in activities unrelated to our collaboration. The revenues and expenses unrelated to the programs we in-license from our VIEs have historically been immaterial to our consolidated financial statements. With respect to each of Parion, prior to its deconsolidation as of September 30, 2017, and BioAxone, the activities unrelated to our collaboration have represented approximately 2% of our total revenues and total expenses on an annual basis. As a result of the deconsolidation of Parion, we expect these amounts to decrease in future periods. For any consolidated VIEs, we evaluate the fair value of the contingent payments payable by us on a quarterly basis. Changes in the fair value of these contingent future payments affect net income attributable to Vertex on a dollar-for-dollar basis, with increases in the fair value of contingent payments payable by us to a VIE resulting in a decrease in net income attributable to Vertex (or an increase in net loss attributable to Vertex) and decreases in the fair value of contingent payments payable by us to a VIE resulting in an increase in net income attributable to Vertex (or decrease in net loss attributable to Vertex).Out-License Agreements

We also have out-licensed internally developed programs to collaborators who are leading the development of these programs. ~~These outlicense arrangements include our collaboration agreements with:~~

~~Merck KGaA, which is advancing four oncology research and development programs; and~~

~~Janssen Pharmaceuticals, Inc., which is developing JNJ-3872 (formerly VX-787) for the treatment of influenza.~~

Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development, and commercialization costs associated with these programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant expenses in connection with these programs and have the potential for future collaborative ~~and/or~~and royalty revenues resulting from these programs.

~~Regulatory Compliance~~

Our marketing of pharmaceutical products is subject to extensive and complex laws and regulations. We have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems, and through the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various U.S. federal and state laws, and comparable foreign laws pertaining to health care fraud and abuse, including anti-kickback and false claims statutes, and laws prohibiting the promotion of drugs for unapproved or off-label uses. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration to induce the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs globally.

~~Reimbursement~~

~~Sales~~ None of our products depend, to a large degree, on the extent to which our products are covered by third-party payors, such as government health programs, commercial insurance and managed health care organizations. We dedicate substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the United States and ex-U.S. markets. In the United States, we continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states. In Europe and other ex-U.S. markets, we are working to obtain government reimbursement for ORKAMBI on a country-by-country basis, because in many foreign countries patients are unable to access prescription pharmaceutical products that are not reimbursed by their governments. To date, we have reached a pricing and reimbursement agreement for ORKAMBI with several European countries, including Germany, Ireland and Italy, and remain in negotiations with several others. Consistent with our experience with KALYDECO when it was first approved, we expect reimbursement discussions in ex-U.S. markets may takeout-license agreements had a significant ~~period of time.~~

~~Table of Contents~~

~~Recent Transaction~~

~~Concert Pharmaceuticals~~

In July 2017, we acquired certain CF assets, including VX-561, from Concert, pursuant to an agreement that we entered into in March 2017. VX-561 is an investigational CFTR potentiator that has the potential to be used as part of future once-daily combination regimens of CFTR modulators that treat the underlying cause of CF. Pursuant to the agreement, in the third quarter of 2017, we paid Concert $160.0 million in cash for all worldwide development and commercialization rights to VX-561. If VX-561 is approved as part of a combination regimen to treat CF, Concert could receive up to an additional $90.0 million in milestones basedimpact on ~~regulatory approval in the U.S. and reimbursement in the UK, Germany or France. In the third quarter of 2017, we recorded the $160.0 million payment as a research and development expense.~~

~~Table of Contents~~

~~RESULTS OF OPERATIONS~~

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2017 2016 $ % 2017 2016 $ %
(in thousands) (in thousands)
Revenues $ 578,165
$ 413,783
$ 164,382
40 % $ 1,837,018
$ 1,243,471
$ 593,547
48 %
Operating costs and expenses 904,208
432,510
471,698
109 % 1,839,512
1,273,175
566,337
44 %
Other items, net 223,091
(20,114 ) 243,205
n/a
165,294
(115,293 ) 280,587
n/a
Net (loss) income attributable to Vertex $ (102,952 ) $ (38,841 ) $ (64,111 ) n/a
$ 162,800
$ (144,997 ) $ 307,797
n/a

~~Net Income (Loss) Attributable to Vertex~~

Net loss attributable to Vertex was $(103.0) million in the third quarter of 2017 as compared to a net loss attributable to Vertex of $(38.8) million in the third quarter of 2016. Our revenues increased in the third quarter of 2017 as compared to the third quarter of 2016 primarily due to increased ORKAMBI and KALYDECO net product revenues. Our operating costs and expenses in the third quarter of 2017 included a $255.3 million impairment charge related to Parion’s pulmonary ENaC platform and a $160.0 million payment to Concert in connection with the acquisition of VX-561, for which there were no comparable expenses in the third quarter of 2016. The increase in operating costs and expenses in the third quarter of 2017 as compared to the third quarter of 2016 also included increases in cost of product revenues, research and development expenses and sales, general and administrative expenses. Other items, net, in the third quarter of 2017 primarily reflects an income tax benefit and certain other benefits associated with the impairment of Parion’s pulmonary ENaC platform, for which there were no comparable benefits in the third quarter of 2016.

Net income attributable to Vertex was $162.8 million in the nine months ended September 30, 2017 as compared to a net loss attributable to Vertex of $(145.0) million in the nine months ended September 30, 2016. Our revenues increased significantly in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due to increased ORKAMBI and KALYDECO net product revenues and $230.0 million in one-time collaborative revenues related to the strategic collaboration and license agreement we established with Merck KGaA in the first quarter of 2017. Our operating costs and expenses in the nine months ended September 30, 2017 included a $255.3 million impairment charge related to Parion’s pulmonary ENaC platform and a $160.0 million payment to Concert in connection with the acquisition of VX-561, for which there were no comparable expenses in the nine months ended September 30, 2016. The increase in operating costs and expenses in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 also included increases in cost of product revenues, research and development expenses, sales, general and administrative expenses and restructuring expenses. Other items, net, in the nine months ended September 30, 2017 primarily reflects an income tax benefit and certain other benefits associated with the impairment of Parion’s pulmonary ENaC platform, for which there were no comparable benefits in the nine months ended September 30, 2016.

~~Diluted Net Income (Loss) Per Share Attributable to Vertex Common Shareholders~~

Diluted net loss per share attributable to Vertex common shareholders was $(0.41) in the third quarter of 2017 as compared to a diluted net loss per share attributable to Vertex common shareholders of $(0.16) in the third quarter of 2016. Diluted net income per share attributable to Vertex common shareholders was $0.64 in the nine months ended September 30, 2017 as compared to a diluted net loss per share attributable to Vertex common shareholders of $(0.59) in the nine months ended September 30, 2016.

~~Table of Contents~~

~~Revenues~~

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2017 2016 $ % 2017 2016 $ %
(in thousands) (in thousands)
Product revenues, net $ 549,642
$ 409,689
$ 139,953
34 % $ 1,544,252
$ 1,229,750
$ 314,502
26 %
Royalty revenues 2,231
3,835
(1,604 ) (42 )% 6,643
12,713
(6,070 ) (48 )%
Collaborative revenues 26,292
259
26,033
n/a
286,123
1,008
285,115
n/a
Total revenues $ 578,165
$ 413,783
$ 164,382
40 % $ 1,837,018
$ 1,243,471
$ 593,547
48 %

~~Product Revenues, Net~~

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2017 2016 $ % 2017 2016 $ %
(in thousands) (in thousands)
ORKAMBI $ 336,183
$ 234,046
$ 102,137
44 % $ 955,451
$ 702,670
$ 252,781
36 %
KALYDECO 213,461
175,608
37,853
22 % $ 588,809
$ 526,352
$ 62,457
12 %
INCIVEK (2 ) 35
(37 ) n/a
(8 ) 728
(736 ) n/a
Total product revenues, net $ 549,642
$ 409,689
$ 139,953
34 % $ 1,544,252
$ 1,229,750
$ 314,502
26 %

In the third quarter and the nine months ended September 30, 2017, we recognized approximately $43.1 million and $110.9 million, respectively, in ex-U.S. ORKAMBI net product revenues, as compared to $22.8 million and $47.5 million in the third quarter and the nine months ended September 30, 2016, respectively. We believe that the level of our ORKAMBI revenues for the remainder of 2017 will be dependent upon whether, when and on what terms we are able to obtain reimbursement in additional ex-U.S. markets, the number and rate at which additional patients begin treatment with ORKAMBI, the proportion of initiated patients who remain on treatment and the compliance rates for patients who remain on treatment.

Under the current revenue recognition guidance applicable for the year ending December 31, 2017, we do not recognize any net product revenues on sales of products unless the price is fixed or determinable. Pursuant to new revenue recognition guidance that will become effective January 1, 2018 and is described in Note A, “Basis of Presentation and Accounting Policies” to our condensed consolidated ~~financial statements, we will be required to make estimates~~statement of the amount of consideration that will be retained by us that will not be subject to a significant reversal in amounts recognized as net product revenues. Our condensed consolidated balance sheet includes $190.3 million collected as of September 30, 2017 in France related to ORKAMBI supplied under early access programs at the invoiced price, which has not resulted in any net product revenues because the final price is not fixed or determinable under the current guidance.

If we conclude as of December 31, 2017, that the price of the ORKAMBI supplied under the French early access programs is fixed or determinable, we would record net product revenues for all sales since the inception of these programs based on the fixed or determinable price in the fourth quarter of 2017. If the price is not fixed and determinable as of December 31, 2017, these amounts will be subject to the new guidance. In this case, amounts for prior periods will be recognized in the first quarter of 2018 as a cumulative effect adjustment to our accumulated deficit based on an estimate of the amount of consideration that we would retain that would not be subject to a significant reversal in amounts recognized.

KALYDECO net product revenues increased in the third quarter of 2017 as compared to the third quarter of 2016 primarily due to additional patients being treated with KALYDECO as a result of label expansions. The increase in KALYDECO net product revenues in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 included approximately $9 million in one-time revenue credits in the first quarter of 2017 related to the finalization of reimbursement agreements in certain European countries. In the third quarter and the nine months ended September 30, 2017, we recognized approximately $80.3 million and $242.5 million, respectively, in ex-U.S. KALYDECO net product revenues, as compared to $75.1 million and $227.6 million in the third quarter and the nine months ended September 30, 2016, respectively.

~~We have withdrawn INCIVEK, which we previously marketed as a treatment for hepatitis C virus infection, from the market in the United States.~~

~~Table of Contents~~

~~Royalty Revenues~~

Our royalty revenues were $2.2 million and $6.6 million in the third quarter and the nine months ended September 30, 2017, respectively, as compared to $3.8 million and $12.7 million in the third quarter and the nine months ended September 30, 2016, respectively. Our royalty revenues primarily consist of revenues related to a cash payment we received in 2008 when we sold our rights to certain HIV royalties.

~~Collaborative Revenues~~

Our collaborative revenues were $26.3 million and $286.1 million in the third quarter and the nine months ended September 30, 2017, respectively, as compared to $0.3 million and $1.0 million in the third quarter and the nine months ended September 30, 2016, respectively. The increase in our collaborative revenues during the third quarter of 2017 as compared to the third quarter of 2016 was primarily related to amounts received from Merck for transition activities we received pursuant to our collaboration with Merck KGaA and a $20.0 million milestone payment received by Parion in the third quarter of 2017 pursuant to a license agreement it entered into with a third party. We are not a party to such license agreement and have no economic interest in either the license or the milestone payment. Parion was deconsolidated as a VIE as of September 30, 2017 and future payments received by Parion pursuant to this license agreement will no longer be recognized by us as collaborative revenue. The increase in our collaborative revenuesincome during the nine months ended September 30, ~~2017 as compared~~2023 and 2022.

Strategic Equity Investments

In connection with our business development activities, we have periodically made equity investments in our collaborators. As of September 30, 2023, we held strategic equity investments in certain public and private companies, and we expect to make additional strategic equity investments in the future. We invest the majority of our cash, cash equivalents and marketable securities in instruments that meet specific credit quality standards and limit our exposure to any one issue or

Table of Contents

type of instrument. Our strategic equity investments are maintained and managed separately from our other cash, cash equivalents and marketable securities. As discussed below in “Other Income (Expense), Net” in our Results of Operations, any changes in the fair value of equity investments with readily determinable fair values (including publicly traded securities) are recorded to other income (expense), net in our condensed consolidated statements of income.

Table of Contents

RESULTS OF OPERATIONS


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		Change	2023		2022		Change

	(in millions, except percentages and per share amounts)
Product revenues, net	$	2,483.5	$	2,334.3	6%	$	7,351.5	$	6,628.0	11%
Operating costs and expenses	1,445.4		1,207.6		20%	4,508.0		3,354.1		34%
Income from operations	1,038.1		1,126.7		(8)%	2,843.5		3,273.9		(13)%
Other non-operating income (expense), net	141.1		49.7		184%	388.7		(118.3)		**
Provision for income taxes	143.9		245.9		(41)%	581.4		652.5		(11)%
Net income	$	1,035.3	$	930.5	11%	$	2,650.8	$	2,503.1	6%

Net income per diluted common share	$	3.97	$	3.59		$	10.18	$	9.68
Diluted shares used in per share calculations	260.6		259.5			260.4		258.7
						** Not meaningful

Product Revenues, net


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		Change	2023		2022		Change

	(in millions, except percentages)
TRIKAFTA/KAFTRIO	$	2,274.3	$	2,010.5	13%	$	6,611.4	$	5,665.3	17%
KALYDECO	112.8		139.4		(19)%	363.1		417.1		(13)%
ORKAMBI	63.0		146.2		(57)%	281.8		399.9		(30)%
SYMDEKO/SYMKEVI	33.4		38.2		(13)%	95.2		145.7		(35)%
Product revenues, net	$	2,483.5	$	2,334.3	6%	$	7,351.5	$	6,628.0	11%

In the third quarter and nine months ended September 30, ~~2016 was~~2023, our net product revenues increased by $149.2 million and $723.5 million, or 6% and 11%, as compared to the third quarter and nine months ended September 30, 2022, respectively. These increases were primarily due to ~~revenue recognized related to~~ the ~~one-time upfront payment Merck KGaA paid~~continued strong uptake of TRIKAFTA/KAFTRIO in ex-U.S. markets with recently achieved reimbursements and label extensions in younger age groups and the performance of TRIKAFTA in the ~~first quarter~~U.S., following the launch of ~~2017~~TRIKAFTA in children with CF 2 to 5 years of age. Decreases in revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO.

Our net product revenues from the U.S. and ~~$40 million in upfront and milestone payments received by Parion in 2017 pursuant to its license agreement with a third party. Our collaborative revenues have historically fluctuated significantly~~ from ~~one period to another and may continue to fluctuate in the future.~~ex-U.S. markets were as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		Change	2023		2022		Change

	(in millions, except percentages)
United States	$	1,554.2	$	1,455.6	7%	$	4,465.8	$	4,238.9	5%
ex-U.S.	929.3		878.7		6%	2,885.7		2,389.1		21%
Product revenues, net	$	2,483.5	$	2,334.3	6%	$	7,351.5	$	6,628.0	11%

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Operating Costs and Expenses

` Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2017 2016 $ % 2017 2016 $ %
(in thousands) (in thousands)
Cost of product revenues $ 72,186
$ 53,222
$ 18,964
36 % $ 188,963
$ 147,165
$ 41,798
28 %
Royalty expenses 688
855
(167 ) (20 )% 2,104
2,813
(709 ) (25 )%
Research and development expenses 454,947
272,370
182,577
67 % 1,017,961
799,238
218,723
27 %
Sales, general and administrative expenses 120,710
106,055
14,655
14 % 361,285
322,921
38,364
12 %
Restructuring expenses, net 337
8
329
n/a
13,859
1,038
12,821
n/a
Intangible asset impairment charge 255,340
—
255,340
n/a
255,340
—
255,340
n/a
Total costs and expenses $ 904,208
$ 432,510
$ 471,698
109 % $ 1,839,512
$ 1,273,175
$ 566,337
44 %


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		Change	2023		2022		Change

	(in millions, except percentages)
Cost of sales	$	318.7	$	289.4	10%	$	894.2	$	797.0	12%
Research and development expenses	810.0		645.0		26%	2,338.3		1,846.2		27%
Acquired in-process research and development expenses	51.7		29.0		78%	509.3		92.9		448%
Selling, general and administrative expenses	263.8		246.8		7%	767.5		677.3		13%
Change in fair value of contingent consideration	1.2		(2.6)		**	(1.3)		(59.3)		**
Total costs and expenses	$	1,445.4	$	1,207.6	20%	$	4,508.0	$	3,354.1	34%

						** Not meaningful

Cost of ~~Product Revenues~~Sales

Our cost of ~~product revenues includes~~sales primarily consists of third-party royalties payable on net sales of our products as well as the cost of producing ~~inventories that corresponded to product revenues for the reporting period, plus the third-party royalties payable on our net sales of our products.~~inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation ~~Therapeutics Incorporated, or CFFT,~~ our tiered third-party royalties on sales of TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the ~~sub-teens. As a result~~sub-teens, with lower royalties on sales of TRIKAFTA/KAFTRIO than for our other products. Over the ~~tiered royalty rate,~~last several years, our cost of sales has been increasing due to increased net product ~~revenues~~revenues. Our cost of sales as a percentage of CFour net product revenues ~~is lower at the beginning of each calendar year.~~

In the third quarter of 2017, our cost of product revenues increased as compared to the third quarter of 2016 primarily due to the increased CF net product revenues. In the fourth quarter of 2017, we expect our cost of product revenues as a percentage of total CF product revenues to be similar to the cost of product revenues as a percentage of total CF product revenueswas 13% and 12% in the third quarter of ~~2017.~~

In2023 and 2022, respectively, and 12% in each of the nine months ended September 30, ~~2016, our cost of product revenues included a $13.9 million commercial milestone that was earned by CFFT related to sales of ORKAMBI. There are no further commercial milestones payable to CFFT.~~

~~Table of Contents~~

~~Royalty Expenses~~

Royalty expenses primarily consist of expenses related to a subroyalty payable to a third party on net sales of an HIV protease inhibitor sold by GlaxoSmithKline. Royalty expenses do not include royalties we pay to CFFT on sales of KALYDECO2023 and ~~ORKAMBI, which instead are included in cost of product revenues.~~2022.

Research and Development Expenses


																				Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended September 30,				Increase/(Decrease)					Nine Months Ended September 30,				Increase/(Decrease)						2023		2022		Change	2023		2022		Change
	2017		2016		$			%		2017		2016		$			%
	(in thousands)									(in thousands)										(in millions, except percentages)
Research expenses	$	76,131	$	99,162	$	(23,031	)	(23	)%	$	226,409	$	242,058	$	(15,649	)	(6	)%	Research expenses	$	173.9	$	160.2	9%	$	511.4	$	464.9	10%
Development expenses	378,816		173,208		205,608			119	%	791,552		557,180		234,372			42	%	Development expenses	636.1		484.8		31%	1,826.9		1,381.3		32%
Total research and development expenses	$	454,947	$	272,370	$	182,577		67	%	$	1,017,961	$	799,238	$	218,723		27	%	Total research and development expenses	$	810.0	$	645.0	26%	$	2,338.3	$	1,846.2	27%

Our research and development expenses include internal and external costs incurred for research and development of our ~~drugs~~products and ~~drug~~product candidates. We do not assign our internal costs, such as salary and benefits, stock-based compensation expense, laboratory supplies and other direct expenses and infrastructure costs, to individual ~~drugs~~products or ~~drug~~product candidates, because the employees within our research and development groups typically are deployed across multiple research and development programs. ~~These internal costs are significantly greater than our~~We assign external ~~costs, such as the~~ costs of services provided to us by clinical research organizations and other outsourced research ~~which we allocate~~ by individual program. Our internal costs are greater than our external costs. All research and development costs for our ~~drugs~~products and ~~drug~~product candidates are expensed as incurred.



x	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
~~FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017~~
or
o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
~~FOR THE TRANSITION PERIOD FROM~~ TO



~~Massachusetts~~	~~04-3039129~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~	~~(I.R.S. Employer~~ ~~Identification No.)~~
~~50 Northern Avenue, Boston, Massachusetts~~	~~02210~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~



		Page
Part I. Financial Information
Item 1.			Financial Statements	2
			Condensed Consolidated Financial Statements (unaudited)	2
			Condensed Consolidated Statements of ~~Operations~~Income -Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022	2
			Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~ - Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022	3
			Condensed Consolidated Balance Sheets -September 30, ~~2017~~2023 and December 31, ~~2016~~2022	4
			Condensed Consolidated Statements of Shareholders' Equity - Three and ~~Noncontrolling Interest -~~ Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022	5
			Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022	6
			Notes to Condensed Consolidated Financial Statements	7
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations	3223
Item 3.			Quantitative and Qualitative Disclosures About Market Risk	4437
Item 4.			Controls and Procedures	4437
Part II. Other Information
~~Item 1.~~	~~Legal Proceedings~~	44
Item ~~1A.~~1.			Legal Proceedings	38
Item 1A.			Risk Factors	4438
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds	4739
Item 6.5.			~~Exhibits~~Other Information	4740
Item 6.			Exhibits	40
Signatures				4841


	September 30,			December 31,
	2017			2016				September 30, 2023		December 31, 2022
Assets							Assets
Current assets:							Current assets:
Cash and cash equivalents	$	1,384,966		$	1,183,945		Cash and cash equivalents	$	11,110.2	$	10,504.0
Marketable securities, available for sale	427,282			250,612
Restricted cash and cash equivalents (VIE)	1,803			47,762
Marketable securities							Marketable securities	818.0		274.5
Accounts receivable, net	263,493			201,083			Accounts receivable, net	1,538.7		1,442.2
Inventories	98,192			77,604			Inventories	688.7		460.6
Prepaid expenses and other current assets	152,238			70,534			Prepaid expenses and other current assets	540.2		553.5
Total current assets	2,327,974			1,831,540			Total current assets	14,695.8		13,234.8
Property and equipment, net	759,978			698,362			Property and equipment, net	1,124.0		1,108.4
Goodwill							Goodwill	1,088.0		1,088.0
Intangible assets	29,000			284,340			Intangible assets	603.6		603.6
Goodwill	50,384			50,384
Cost method investments	20,447			20,276
Deferred tax assets							Deferred tax assets	1,729.1		1,246.9
Operating lease assets							Operating lease assets	310.5		347.4
Long-term marketable securities							Long-term marketable securities	1,700.0		112.2
Other assets	10,542			11,885			Other assets	475.2		409.6
Total assets	$	3,198,325		$	2,896,787		Total assets	$	21,726.2	$	18,150.9
Liabilities and Shareholders’ Equity							Liabilities and Shareholders’ Equity
Current liabilities:							Current liabilities:
Accounts payable	$	77,138		$	61,451		Accounts payable	$	375.9	$	303.9
Accrued expenses	378,554			315,249			Accrued expenses	2,907.3		2,126.7
Deferred revenues, current portion	13,003			6,005
Accrued restructuring expenses, current portion	4,205			6,047
Capital lease obligations, current portion	19,881			19,426
Customer deposits	190,272			73,416
Credit facility	—			300,000
Other liabilities, current portion	27,686			10,943
Other current liabilities							Other current liabilities	316.2		311.5
Total current liabilities	710,739			792,537			Total current liabilities	3,599.4		2,742.1
Deferred revenues, excluding current portion	2,917			6,632
Accrued restructuring expenses, excluding current portion	146			1,907
Capital lease obligations, excluding current portion	20,259			34,976
Deferred tax liability	10,682			134,063
Construction financing lease obligation, excluding current portion	547,051			486,359
Advance from collaborator	77,258			73,423
Other liabilities, excluding current portion	26,029			28,699
Long-term finance lease liabilities							Long-term finance lease liabilities	390.3		430.8
Long-term operating lease liabilities							Long-term operating lease liabilities	354.4		379.5
Other long-term liabilities							Other long-term liabilities	869.3		685.8
Total liabilities	1,395,081			1,558,596			Total liabilities	5,213.4		4,238.2
Commitments and contingencies							Commitments and contingencies	—		—
Shareholders’ equity:							Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding	—			—			Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 500,000,000 shares authorized; 252,683,346 and 248,300,517 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	2,500			2,450
Common stock, $0.01 par value; 500,000,000 shares authorized, 257,828,508 and 257,011,628 shares issued and outstanding, respectively							Common stock, $0.01 par value; 500,000,000 shares authorized, 257,828,508 and 257,011,628 shares issued and outstanding, respectively	2.6		2.6
Additional paid-in capital	7,034,113			6,506,795			Additional paid-in capital	7,339.6		7,386.5
Accumulated other comprehensive (loss) income	(25,129		)	21,173			Accumulated other comprehensive (loss) income	(3.0)		0.8
Accumulated deficit	(5,220,407		)	(5,373,836		)
Total Vertex shareholders’ equity	1,791,077			1,156,582
Noncontrolling interest	12,167			181,609
Retained earnings							Retained earnings	9,173.6		6,522.8
Total shareholders’ equity	1,803,244			1,338,191			Total shareholders’ equity	16,512.8		13,912.7
Total liabilities and shareholders’ equity	$	3,198,325		$	2,896,787		Total liabilities and shareholders’ equity	$	21,726.2	$	18,150.9



	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Vertex Shareholders’ Equity			Noncontrolling Interest			Total Shareholders’ Equity
	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive (Loss) Income			Accumulated Deficit			Total Vertex Shareholders’ Equity			Noncontrolling Interest			Total Shareholders’ Equity
Balance at December 31, 2015	246,307	$	2,427	$	6,197,500	$	1,824		$	(5,261,784	)	$	939,967		$	153,661		$	1,093,628
Other comprehensive loss, net of tax	—	—		—		(5,669		)	—			(5,669		)	—			(5,669		)
Net (loss) income	—	—		—		—			(144,997		)	(144,997		)	33,207			(111,790		)
Issuance of common stock under benefit plans	1,722	19		50,875		—			—			50,894			—			50,894
Stock-based compensation expense	—	—		181,351		—			—			181,351			(73		)	181,278
Balance at September 30, 2016	248,029	$	2,446	$	6,429,726	$	(3,845	)	$	(5,406,781	)	$	1,021,546		$	186,795		$	1,208,341

Balance at December 31, 2016	248,301	$	2,450	$	6,506,795	$	21,173		$	(5,373,836	)	$	1,156,582		$	181,609		$	1,338,191
Cumulative effect adjustment for adoption of new accounting guidance	—	—		9,371					(9,371		)	—			—			—
Other comprehensive loss, net of tax	—	—		—		(46,302		)	—			(46,302		)	—			(46,302		)
Net income (loss)	—	—		—		—			162,800			162,800			(173,350		)	(10,550		)
Issuance of common stock under benefit plans	4,382	50		298,956		—			—			299,006			33			299,039
Stock-based compensation expense	—	—		218,991		—			—			218,991			—			218,991
VIE noncontrolling interest upon deconsolidation	—	—		—		—			—			—			3,910			3,910
Other	—	—		—		—			—			—			(35		)	(35		)
Balance at September 30, 2017	252,683	$	2,500	$	7,034,113	$	(25,129	)	$	(5,220,407	)	$	1,791,077		$	12,167		$	1,803,244



	Trade Allowances			Rebates, Chargebacks and Discounts			Product Returns			Other Incentives			Total
	(in thousands)
Balance at December 31, 2016	$	2,568		$	81,927		$	3,492		$	1,214		$	89,201
Provision related to current period sales	18,776			118,592			3,603			12,238			153,209
Adjustments related to prior period sales	(188		)	(4,327		)	(13		)	(355		)	(4,883		)
Credits/payments made	(18,409		)	(97,393		)	(1,809		)	(10,021		)	(127,632		)
Balance at September 30, 2017	$	2,747		$	98,799		$	5,273		$	3,076		$	109,895



	September 30, 2017		December 31, 2016
	(in thousands)
Parion	$	—	$	238,800
BioAxone	18,900		18,000



	Fair Value Measurements as of September 30, 2017
				Fair Value Hierarchy
	Total			Level 1		Level 2			Level 3
	(in thousands)
Financial instruments carried at fair value (asset position):
Cash equivalents:
Money market funds	$	466,702		$	466,702	$	—		$	—
Government-sponsored enterprise securities	14,979			14,979		—			—
Corporate debt securities	4,488			—		4,488			—
Commercial paper	14,608			—		14,608			—
Marketable securities:
Corporate equity securities	56,944			56,944		—			—
Corporate debt securities	295,171			—		295,171			—
Commercial paper	75,167			—		75,167			—
Prepaid and other current assets:
Foreign currency forward contracts	42			—		42			—
Other assets:
Foreign currency forward contracts	8			—		8			—
Total financial assets	$	928,109		$	538,625	$	389,484		$	—
Financial instruments carried at fair value (liability position):
Other liabilities, current portion:
Foreign currency forward contracts	$	(13,897	)	$	—	$	(13,897	)	$	—
Other liabilities, excluding current portion:
Foreign currency forward contracts	(977		)	—		(977		)	—
Total financial liabilities	$	(14,874	)	$	—	$	(14,874	)	$	—



	Foreign Currency Translation Adjustment			Unrealized Holding Gains (Losses) on Marketable Securities, Net of Tax			Unrealized Gains (Losses) on Foreign Currency Forward Contracts, Net of Tax			Total
	(in thousands)
Balance at December 31, 2016	$	(7,862	)	$	17,521		$	11,514		$	21,173
Other comprehensive loss before reclassifications	(11,137		)	(7,786		)	(25,981		)	(44,904		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(1,398		)	(1,398		)
Net current period other comprehensive (loss) income	$	(11,137	)	$	(7,786	)	$	(27,379	)	$	(46,302	)
Balance at September 30, 2017	$	(18,999	)	$	9,735		$	(15,865	)	$	(25,129	)



	Foreign Currency Translation Adjustment			Unrealized Holding Gains on Marketable Securities		Unrealized Gains (Losses) on Foreign Currency Forward Contracts, Net of Tax			Total
	(in thousands)
Balance at December 31, 2015	$	(2,080	)	$	126	$	3,778		$	1,824
Other comprehensive (loss) income before reclassifications	(7,709		)	104		6,715			(890		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—		(4,779		)	(4,779		)
Net current period other comprehensive (loss) income	$	(7,709	)	$	104	$	1,936		$	(5,669	)
Balance at September 30, 2016	$	(9,789	)	$	230	$	5,714		$	(3,845	)



	As of September 30, 2017		As of December 31, 2016
Foreign Currency	(in thousands)
Euro	$	234,477	$	164,368
British pound sterling	77,387		65,237
Australian dollar	31,283		23,776
Total foreign currency forward contracts	$	343,147	$	253,381



	As of September 30, 2017
	Unrecognized Expense		Weighted-average Recognition Period
	(in thousands)		(in years)
Type of award:
Stock options	$	175,298	2.60
Restricted stock and restricted stock units	$	289,008	2.64
ESPP share issuances	$	2,636	0.46



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-average Remaining Contractual Life	Weighted-average Exercise Price		Number Exercisable	Weighted-average Exercise Price
	(in thousands)	(in years)	(per share)		(in thousands)	(per share)
$18.93–$20.00	128	0.35	$	18.93	128	$	18.93
$20.01–$40.00	834	2.21	$	34.51	834	$	34.51
$40.01–$60.00	877	4.83	$	49.17	877	$	49.17
$60.01–$80.00	821	6.46	$	75.62	649	$	75.44
$80.01–$100.00	4,587	8.33	$	89.37	1,397	$	89.47
$100.01–$120.00	1,137	7.36	$	109.34	586	$	109.24
$120.01–$140.00	1,260	7.88	$	130.24	688	$	129.86
$140.01–$160.00	—	0.00	$	—	—	$	—
$160.01–$163.74	634	9.80	$	162.94	3	$	162.94
Total	10,278	7.22	$	91.28	5,162	$	77.92


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1)
July 1, 2023 to July 31, 2023	—	$	—	—	$	2,838,895,548
August 1, 2023 to August 31, 2023	179,355	$	347.96	179,355	$	2,776,487,068
September 1, 2023 to September 30, 2023	173,200	$	349.65	173,200	$	2,715,927,898
Total	352,555	$	348.79	352,555	$	2,715,927,898


D.	~~Earnings Per Share~~


E.	~~Fair Value Measurements~~



Exhibit Number		Exhibit Description
~~10.1~~31.1		Employment Agreement, dated as of September 6, 2017, between Vertex Pharmaceuticals Incorporated and Tom Graney.*
~~10.2~~	Change of Control Agreement, dated as of September 6, 2017, between Vertex Pharmaceuticals Incorporated and Tom Graney.*
~~31.1~~	Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer and the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.LAB		XBRL Taxonomy Extension Labels
101.PRE		XBRL Taxonomy Extension Presentation
101.DEF		XBRL Taxonomy Extension Definition
104		Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.


		Vertex Pharmaceuticals Incorporated

		~~Vertex Pharmaceuticals Incorporated~~

~~October 30, 2017~~November 7, 2023	By:		/s/ ~~Thomas Graney~~Charles F. Wagner, Jr.
				~~Thomas Graney~~Charles F. Wagner, Jr.
				~~Senior~~Executive Vice President, ~~and~~ Chief Financial Officer (principal financial officer and duly authorized officer)