UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number 000-19319

Vertex Pharmaceuticals Incorporated

(Exact name of registrant as specified in its charter)

Massachusetts

(State or other jurisdiction of incorporation or organization)

50 Northern Avenue, Boston, Massachusetts

(Address of principal executive offices)

04-3039129

(I.R.S. Employer Identification No.)

02210

(Zip Code)

Registrant’s telephone number, including area code (617) 341-6100

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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 ☐

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. ☐

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

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			~~254,251,938~~256,459,482			Outstanding at ~~October~~July 29, ~~2021~~2022

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER~~JUNE 30, ~~2021~~2022

TABLE OF CONTENTS


		Page
Part I. Financial Information
Item 1.	Financial Statements	2
	Condensed Consolidated Financial Statements (unaudited)	2
	Condensed Consolidated Statements of Operations -Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	2
	Condensed Consolidated Statements of Comprehensive Income - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	3
	Condensed Consolidated Balance Sheets -~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	4
	Condensed Consolidated Statements of Shareholders' Equity - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	5
	Condensed Consolidated Statements of Cash Flows - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2322
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3534
Item 4.	Controls and Procedures	3634
Part II. Other Information
Item 1.	Legal Proceedings	3634
Item 1A.	Risk Factors	3634
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3735

Item 6.	Exhibits	3836
Signatures		3937

“~~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 ~~“TRIKAFTA~~“KAFTRIO®” are registered trademarks of Vertex. ~~The trademark for “KAFTRIO~~TM~~” is pending in the United States and registered in the European Union.~~ 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 cystic fibrosis development programs, we refer to our compounds by their scientific (or generic) name or VX developmental designation.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Operations

(unaudited)

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues:	Revenues:									Revenues:
Product revenues, net	Product revenues, net	$	1,984,164	$	1,536,271	$	5,500,839	$	4,575,863	Product revenues, net	$	2,196.2	$	1,793.4	$	4,293.7	$	3,516.7
Other revenues	Other revenues	—		2,000		1,000		2,000		Other revenues	—		—		—		1.0
Total revenues	Total revenues	1,984,164		1,538,271		5,501,839		4,577,863		Total revenues	2,196.2		1,793.4		4,293.7		3,517.7
Costs and expenses:	Costs and expenses:									Costs and expenses:
Cost of sales	Cost of sales	236,512		186,182		656,813		533,199		Cost of sales	261.8		228.0		507.6		420.3
Research and development expenses	Research and development expenses	493,751		493,497		2,356,814		1,362,953		Research and development expenses	600.1		448.7		1,201.2		903.0
Acquired in-process research and development expenses										Acquired in-process research and development expenses	61.9		958.4		63.9		960.1
Selling, general and administrative expenses	Selling, general and administrative expenses	198,189		184,551		584,935		558,613		Selling, general and administrative expenses	215.3		194.6		430.5		386.7
Change in fair value of contingent consideration	Change in fair value of contingent consideration	1,200		1,800		(1,100)		12,600		Change in fair value of contingent consideration	(49.2)		1.6		(56.7)		(2.3)
Total costs and expenses	Total costs and expenses	929,652		866,030		3,597,462		2,467,365		Total costs and expenses	1,089.9		1,831.3		2,146.5		2,667.8
Income from operations		1,054,512		672,241		1,904,377		2,110,498
Income (loss) from operations										Income (loss) from operations	1,106.3		(37.9)		2,147.2		849.9
Interest income	Interest income	1,116		3,100		3,714		19,919		Interest income	10.8		1.1		12.4		2.6
Interest expense	Interest expense	(15,255)		(13,856)		(46,411)		(41,863)		Interest expense	(14.6)		(15.5)		(29.5)		(31.2)
Other income (expense), net		42,368		84,386		(2,234)		139,621
Income before provision for income taxes		1,082,741		745,871		1,859,446		2,228,175
Provision for income taxes		230,813		78,437		287,456		120,718
Other (expense) income, net										Other (expense) income, net	(78.1)		8.1		(150.9)		(44.6)
Income (loss) before provision for (benefit from) income taxes										Income (loss) before provision for (benefit from) income taxes	1,024.4		(44.2)		1,979.2		776.7
Provision for (benefit from) income taxes										Provision for (benefit from) income taxes	213.9		(111.2)		406.6		56.6
Net income	Net income	$	851,928	$	667,434	$	1,571,990	$	2,107,457	Net income	$	810.5	$	67.0	$	1,572.6	$	720.1

Net income per common share:	Net income per common share:									Net income per common share:
Basic	Basic	$	3.30	$	2.56	$	6.08	$	8.10	Basic	$	3.17	$	0.26	$	6.15	$	2.78
Diluted	Diluted	$	3.28	$	2.53	$	6.03	$	7.98	Diluted	$	3.13	$	0.26	$	6.09	$	2.75
Shares used in per share calculations:	Shares used in per share calculations:									Shares used in per share calculations:
Basic	Basic	257,876		260,392		258,740		260,313		Basic	255.9		259.0		255.5		259.2
Diluted	Diluted	259,707		264,079		260,877		264,031		Diluted	258.7		261.0		258.3		261.5

Please refer to Note A, “Basis of Presentation and Accounting Policies,” for an explanation of amounts reclassified from “Research and development expenses” to “Acquired in-process research and development expenses” for the three and six months ended June 30, 2021.

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

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in ~~thousands)~~millions)

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 851,928 $ 667,434 $ 1,571,990 $ 2,107,457
Other comprehensive income (loss):
Unrealized holding (losses) gains on marketable securities, net (56) (1,132) (329) 818
Unrealized gains (losses) on foreign currency forward contracts, net of tax of $(9.6) million, $7.6 million, $(21.2) million and $7.3 million, respectively 34,766 (26,313) 77,011 (27,211)
Foreign currency translation adjustment 1,986 584 3,335 (12,616)
Total other comprehensive income (loss) 36,696 (26,861) 80,017 (39,009)
Comprehensive income $ 888,624 $ 640,573 $ 1,652,007 $ 2,068,448


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	810.5	$	67.0	$	1,572.6	$	720.1
Other comprehensive income:
Unrealized holding losses on marketable securities, net	(0.7)		(0.1)		(3.0)		(0.3)
Unrealized gains on foreign currency forward contracts, net of tax of $(16.1), $(2.3), $(18.3) and $(11.6), respectively	59.2		8.3		69.3		42.3
Foreign currency translation adjustment	(12.3)		(0.1)		(24.7)		1.3
Total other comprehensive income	46.2		8.1		41.6		43.3
Comprehensive income	$	856.7	$	75.1	$	1,614.2	$	763.4

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

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Balance Sheets

(unaudited)

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


		September 30,		December 31,			June 30,		December 31,
		2021		2020			2022		2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	6,275,698	$	5,988,187	Cash and cash equivalents	$	8,702.2	$	6,795.0
Marketable securities	Marketable securities	685,187		670,710		Marketable securities	551.2		729.9
Accounts receivable, net	Accounts receivable, net	1,100,372		885,352		Accounts receivable, net	1,332.9		1,136.8
Inventories	Inventories	333,456		280,777		Inventories	367.7		353.1
Prepaid expenses and other current assets	Prepaid expenses and other current assets	457,827		308,353		Prepaid expenses and other current assets	549.5		545.8
Total current assets	Total current assets	8,852,540		8,133,379		Total current assets	11,503.5		9,560.6
Property and equipment, net	Property and equipment, net	1,042,347		958,534		Property and equipment, net	1,100.1		1,094.1
Goodwill	Goodwill	1,002,158		1,002,158		Goodwill	1,002.2		1,002.2
Intangible assets	Intangible assets	400,000		400,000		Intangible assets	387.0		400.0
Deferred tax assets	Deferred tax assets	933,839		882,779		Deferred tax assets	1,143.8		934.5
Operating lease assets	Operating lease assets	312,343		325,564		Operating lease assets	318.3		330.3
Other assets	Other assets	75,518		49,394		Other assets	127.3		110.8
Total assets	Total assets	$	12,618,745	$	11,751,808	Total assets	$	15,582.2	$	13,432.5
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	127,863	$	155,139	Accounts payable	$	198.0	$	195.0
Accrued expenses	Accrued expenses	1,584,992		1,404,971		Accrued expenses	2,119.5		1,678.6
Other current liabilities	Other current liabilities	201,409		317,423		Other current liabilities	238.7		268.4
Total current liabilities	Total current liabilities	1,914,264		1,877,533		Total current liabilities	2,556.2		2,142.0
Long-term finance lease liabilities	Long-term finance lease liabilities	513,255		539,042		Long-term finance lease liabilities	482.3		509.8
Long-term operating lease liabilities	Long-term operating lease liabilities	363,545		350,463		Long-term operating lease liabilities	365.0		377.4
Long-term contingent consideration	Long-term contingent consideration	188,500		189,600		Long-term contingent consideration	129.8		186.5
Other long-term liabilities	Other long-term liabilities	108,473		108,355		Other long-term liabilities	115.4		116.8
Total liabilities	Total liabilities	3,088,037		3,064,993		Total liabilities	3,648.7		3,332.5
Commitments and contingencies	Commitments and contingencies	—		—		Commitments and contingencies	—		—
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000 shares authorized; none issued and outstanding		—		—
Common stock, $0.01 par value; 500,000 shares authorized, 256,206 and 259,890 shares issued and outstanding, respectively		2,562		2,599
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, 256,026,201 and 254,479,046 shares issued and outstanding, respectively						Common stock, $0.01 par value; 500,000,000 shares authorized, 256,026,201 and 254,479,046 shares issued and outstanding, respectively	2.6		2.5
Additional paid-in capital	Additional paid-in capital	7,085,950		7,894,027		Additional paid-in capital	7,100.0		6,880.8
Accumulated other comprehensive income (loss)		11,537		(68,480)
Accumulated other comprehensive income						Accumulated other comprehensive income	57.5		15.9
Retained earnings	Retained earnings	2,430,659		858,669		Retained earnings	4,773.4		3,200.8
Total shareholders’ equity	Total shareholders’ equity	9,530,708		8,686,815		Total shareholders’ equity	11,933.5		10,100.0
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	12,618,745	$	11,751,808	Total liabilities and shareholders’ equity	$	15,582.2	$	13,432.5

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

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in ~~thousands)~~millions)


		Three Months Ended																			Three Months Ended
		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)					Total Shareholders’ Equity				Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Shareholders’ Equity
		Shares	Amount								Shares									Amount
Balance at June 30, 2020		260,124	$	2,601			$	7,943,717						$	(14,121)				$	(412,955)				$	7,519,242
Other comprehensive loss, net of tax		—	—		—				(26,861)			—					(26,861)
Net income		—	—		—				—			667,434					667,434
Repurchase of common stock		(403)	(4)		(108,003)				—			—					(108,007)
Common stock withheld for employee tax obligations		(141)	(1)		(40,527)				—			—					(40,528)
Issuance of common stock under benefit plans		594	5		21,699				—			—					21,704
Stock-based compensation expense		—	—		100,489				—			—					100,489
Balance at September 30, 2020		260,174	$	2,601	$	7,917,375			$	(40,982)		$	254,479				$	8,133,473

Balance at June 30, 2021		259,114	$	2,591	$	7,640,233			$	(25,159)		$	1,578,731				$	9,196,396
Balance at March 31, 2021																				Balance at March 31, 2021	258.8					$	2.6			$	7,499.2			$	(33.3)		$	1,511.8		$	8,980.3
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				36,696			—					36,696			Other comprehensive income, net of tax	—					—			—				8.1			—			8.1
Net income	Net income	—	—		—				—			851,928					851,928			Net income	—					—			—				—			67.0			67.0
Repurchase of common stock	Repurchase of common stock	(3,293)	(33)		(642,240)				—			—					(642,273)			Repurchase of common stock	—					—			—				—			—			—
Common stock withheld for employee tax obligations	Common stock withheld for employee tax obligations	(144)	(1)		(28,558)				—			—					(28,559)			Common stock withheld for employee tax obligations	(0.0)					(0.0)			(3.5)				—			—			(3.5)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans	529	5		12,862				—			—					12,867			Issuance of common stock under benefit plans	0.3					0.0			38.6				—			—			38.6
Stock-based compensation expense	Stock-based compensation expense	—	—		103,653				—			—					103,653			Stock-based compensation expense	—					—			105.9				—			—			105.9
Balance at September 30, 2021		256,206	$	2,562	$	7,085,950			$	11,537		$	2,430,659				$	9,530,708
Balance at June 30, 2021																				Balance at June 30, 2021	259.1					$	2.6		$	7,640.2			$	(25.2)		$	1,578.8		$	9,196.4

Balance at March 31, 2022																				Balance at March 31, 2022	255.6					$	2.6		$	6,930.2			$	11.3		$	3,962.9		$	10,907.0
Other comprehensive income, net of tax																				Other comprehensive income, net of tax	—					—			—				46.2			—			46.2
Net income																				Net income	—					—			—				—			810.5			810.5

Common stock withheld for employee tax obligations																				Common stock withheld for employee tax obligations	(0.0)					(0.0)			(4.4)				—			—			(4.4)
Issuance of common stock under benefit plans																				Issuance of common stock under benefit plans	0.4					0.0			60.6				—			—			60.6
Stock-based compensation expense																				Stock-based compensation expense	—					—			113.6				—			—			113.6
Balance at June 30, 2022																				Balance at June 30, 2022	256.0					$	2.6		$	7,100.0			$	57.5		$	4,773.4		$	11,933.5

		Nine Months Ended																			Six Months Ended
		Common Stock			Additional Paid-in Capital				Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)					Total Shareholders’ Equity				Common Stock								Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Shareholders’ Equity
		Shares	Amount
Balance at December 31, 2019		258,993	$	2,589			$	7,937,606							$	(1,973)						$	(1,852,978)				$	6,085,244
Other comprehensive loss, net of tax		—	—		—				(39,009)			—					(39,009)
Net income		—	—		—				—			2,107,457					2,107,457
Repurchase of common stock		(1,807)	(18)		(408,015)				—			—					(408,033)
Common stock withheld for employee tax obligations		(727)	(7)		(179,768)				—			—					(179,775)
Issuance of common stock under benefit plans		3,715	37		232,042				—			—					232,079
Stock-based compensation expense		—	—		335,510				—			—					335,510
Balance at September 30, 2020		260,174	$	2,601	$	7,917,375			$	(40,982)		$	254,479				$	8,133,473
																					Shares					Amount			Additional Paid-in Capital				Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total Shareholders’ Equity
Balance at December 31, 2020	Balance at December 31, 2020	259,890	$	2,599	$	7,894,027			$	(68,480)		$	858,669				$	8,686,815		Balance at December 31, 2020	259.9					$	2.6
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—				80,017			—					80,017			Other comprehensive income, net of tax	—					—						—				43.3			—			43.3
Net income	Net income	—	—		—				—			1,571,990					1,571,990			Net income	—					—			—				—			720.1			720.1
Repurchase of common stock	Repurchase of common stock	(5,282)	(53)		(1,067,172)				—			—					(1,067,225)			Repurchase of common stock	(2.0)					(0.0)			(424.9)				—			—			(424.9)
Common stock withheld for employee tax obligations	Common stock withheld for employee tax obligations	(633)	(6)		(134,217)				—			—					(134,223)			Common stock withheld for employee tax obligations	(0.5)					(0.0)			(105.7)				—			—			(105.7)
Issuance of common stock under benefit plans	Issuance of common stock under benefit plans	2,231	22		66,707				—			—					66,729			Issuance of common stock under benefit plans	1.7					0.0			53.8				—			—			53.8
Stock-based compensation expense	Stock-based compensation expense	—	—		326,605				—			—					326,605			Stock-based compensation expense	—					—			223.0				—			—			223.0
Balance at September 30, 2021		256,206	$	2,562	$	7,085,950			$	11,537		$	2,430,659				$	9,530,708
Balance at June 30, 2021																				Balance at June 30, 2021	259.1					$	2.6		$	7,640.2			$	(25.2)		$	1,578.8		$	9,196.4

Balance at December 31, 2021																				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																				Other comprehensive income, net of tax	—					—			—				41.6			—			41.6
Net income																				Net income	—					—			—				—			1,572.6			1,572.6

Common stock withheld for employee tax obligations																				Common stock withheld for employee tax obligations	(0.5)					(0.0)			(121.9)				—			—			(121.9)
Issuance of common stock under benefit plans																				Issuance of common stock under benefit plans	2.0					0.1			97.0				—			—			97.1
Stock-based compensation expense																				Stock-based compensation expense	—					—			244.1				—			—			244.1
Balance at June 30, 2022																				Balance at June 30, 2022	256.0					$	2.6		$	7,100.0			$	57.5		$	4,773.4		$	11,933.5

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

Table of Contents

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in ~~thousands)~~millions)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	1,571,990	$	2,107,457	Net income	$	1,572.6	$	720.1
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	Stock-based compensation expense	322,792		332,434		Stock-based compensation expense	244.2		219.8
Depreciation expense	Depreciation expense	91,768		80,160		Depreciation expense	73.2		60.1
(Decrease) increase in fair value of contingent consideration		(1,100)		12,600
Decrease in fair value of contingent consideration						Decrease in fair value of contingent consideration	(56.7)		(2.3)
Deferred income taxes	Deferred income taxes	(112,654)		65,110		Deferred income taxes	(241.7)		(180.9)
Gains on equity securities		(4,993)		(140,866)
Losses on equity securities						Losses on equity securities	159.8		41.7
Other non-cash items, net	Other non-cash items, net	20,588		52,371		Other non-cash items, net	(6.3)		11.2
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(231,166)		(151,191)		Accounts receivable, net	(249.3)		(45.9)
Inventories	Inventories	(65,827)		(94,907)		Inventories	(31.3)		(47.5)
Prepaid expenses and other assets	Prepaid expenses and other assets	(107,672)		(264,909)		Prepaid expenses and other assets	85.3		(92.2)
Accounts payable	Accounts payable	(22,043)		16,153		Accounts payable	30.8		(24.3)
Accrued expenses	Accrued expenses	254,157		451,084		Accrued expenses	547.1		107.5
Other liabilities	Other liabilities	(67,333)		296,477		Other liabilities	(31.7)		(46.0)
Net cash provided by operating activities	Net cash provided by operating activities	1,648,507		2,761,973		Net cash provided by operating activities	2,096.0		721.3
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of available-for-sale debt securities	Purchases of available-for-sale debt securities	(447,759)		(246,937)		Purchases of available-for-sale debt securities	(227.9)		(239.5)
Maturities of available-for-sale debt securities	Maturities of available-for-sale debt securities	452,133		184,419		Maturities of available-for-sale debt securities	242.3		221.3
Purchases of property and equipment	Purchases of property and equipment	(173,285)		(212,109)		Purchases of property and equipment	(116.9)		(120.8)
Investment in equity securities and notes receivable	Investment in equity securities and notes receivable	(37,991)		(19,327)		Investment in equity securities and notes receivable	(10.0)		(15.0)
Sale of equity securities		—		149,595

Net cash used in investing activities	Net cash used in investing activities	(206,902)		(144,359)		Net cash used in investing activities	(112.5)		(154.0)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Issuances of common stock under benefit plans	Issuances of common stock under benefit plans	67,289		234,854		Issuances of common stock under benefit plans	98.1		53.5
Repurchases of common stock	Repurchases of common stock	(1,057,225)		(408,033)		Repurchases of common stock	—		(424.9)
Payments in connection with common stock withheld for employee tax obligations	Payments in connection with common stock withheld for employee tax obligations	(134,223)		(179,775)		Payments in connection with common stock withheld for employee tax obligations	(121.9)		(105.7)
Payments on finance leases	Payments on finance leases	(34,592)		(31,378)		Payments on finance leases	(25.6)		(22.5)
Proceeds from finance leases	Proceeds from finance leases	12,647		8,642		Proceeds from finance leases	—		11.6
Other financing activities	Other financing activities	4,339		(4,399)		Other financing activities	1.7		2.9
Net cash used in financing activities	Net cash used in financing activities	(1,141,765)		(380,089)		Net cash used in financing activities	(47.7)		(485.1)
Effect of changes in exchange rates on cash	Effect of changes in exchange rates on cash	(8,472)		2,779		Effect of changes in exchange rates on cash	(31.8)		0.0
Net increase in cash, cash equivalents and restricted cash	Net increase in cash, cash equivalents and restricted cash	291,368		2,240,304		Net increase in cash, cash equivalents and restricted cash	1,904.0		82.2
Cash, cash equivalents and restricted cash—beginning of period	Cash, cash equivalents and restricted cash—beginning of period	5,988,845		3,120,681		Cash, cash equivalents and restricted cash—beginning of period	6,800.1		5,988.9
Cash, cash equivalents and restricted cash—end of period	Cash, cash equivalents and restricted cash—end of period	$	6,280,213	$	5,360,985	Cash, cash equivalents and restricted cash—end of period	$	8,704.1	$	6,071.1

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest	Cash paid for interest	$	42,698	$	40,769	Cash paid for interest	$	27.1	$	30.1
Cash paid for income taxes	Cash paid for income taxes	$	381,533	$	81,684	Cash paid for income taxes	$	478.3	$	234.4

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

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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 ~~the Company~~Vertex and ~~its~~our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. ~~The Company operates~~We operate in 1 segment, pharmaceuticals. ~~The Company has reclassified certain items from~~

Beginning with the ~~prior year’s~~second quarter of 2022, we are separately classifying upfront, contingent milestone, and other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development expenses” in our condensed consolidated ~~financial~~ statements of operations. To conform prior periods to ~~conform~~current presentation, we reclassified $958.4 million and $960.1 million from “Research and development expenses” to “Acquired in-process research and development expenses” for the ~~current year’s presentation.~~three and six months ended June 30, 2021, respectively. Please refer to Note C, “Acquired In-Process Research and Development and Other Arrangements,” for further information on these transactions.

Certain information and footnote disclosures normally included in ~~the Company’s~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 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 for the interim periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

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, ~~2020,~~2021, which are contained in ~~the Company’s 2020~~our 2021 Annual Report on Form 10-K.

Use of Estimates

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. ~~The Company bases its~~We 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.

Recently Adopted and Issued Accounting Standards

~~Income Taxes~~

~~In 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740)~~ (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 became effective on January 1, 2021. The adoption of ASU 2019-12 did not have a significant impact on the Company’s condensed consolidated financial statements.

For a discussion of ~~other recent~~recently adopted accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies,” in ~~the Company’s 2020~~our 2021 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

~~The Company’s~~Our significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in ~~its 2020~~our 2021 Annual Report on Form 10-K.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

B.Revenue Recognition

Disaggregation of Revenue

Revenues by Product

Product revenues, net consisted of the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in millions)
TRIKAFTA/KAFTRIO	TRIKAFTA/KAFTRIO	$	1,555,772	$	960,308	$	4,004,600	$	2,773,256	TRIKAFTA/KAFTRIO	$	1,893.2	$	1,255.6	$	3,654.8	$	2,448.8
SYMDEKO/SYMKEVI	SYMDEKO/SYMKEVI	81,415		156,178		339,969		501,066		SYMDEKO/SYMKEVI	42.7		133.5		107.5		258.6
ORKAMBI	ORKAMBI	184,561		225,919		624,224		692,038		ORKAMBI	121.6		221.0		253.7		439.7
KALYDECO	KALYDECO	162,416		193,866		532,046		609,503		KALYDECO	138.7		183.3		277.7		369.6
Total product revenues, net	Total product revenues, net	$	1,984,164	$	1,536,271	$	5,500,839	$	4,575,863	Total product revenues, net	$	2,196.2	$	1,793.4	$	4,293.7	$	3,516.7

Product Revenues by Geographic Location

Total net product revenues by geographic region, based on the location of the customer, consisted of the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in millions)
United States	United States	$	1,382,892	$	1,222,565	$	3,893,245	$	3,620,467	United States	$	1,415.1	$	1,256.9	$	2,783.3	$	2,510.4
Outside of the United States	Outside of the United States									Outside of the United States
Europe	Europe	518,826		251,366		1,382,701		766,438		Europe	655.5		458.9		1,287.8		863.9
Other	Other	82,446		62,340		224,893		188,958		Other	125.6		77.6		222.6		142.4
Total product revenues outside of the United States	Total product revenues outside of the United States	601,272		313,706		1,607,594		955,396		Total product revenues outside of the United States	781.1		536.5		1,510.4		1,006.3
Total product revenues, net	Total product revenues, net	$	1,984,164	$	1,536,271	$	5,500,839	$	4,575,863	Total product revenues, net	$	2,196.2	$	1,793.4	$	4,293.7	$	3,516.7

Contract Liabilities

~~The Company~~We had contract liabilities of ~~$104.1~~$134.8 million and ~~$191.5~~$171.7 million as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement ~~the Company~~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. ~~The Company defers~~We defer a portion of the consideration received for shipments made up to the annual reimbursement limit as a portion of “Other current liabilities.” The deferred amount is recognized as revenue when the free products are shipped. ~~The Company’s~~Our product revenue contracts include performance obligations that are one year or less.

~~The Company’s~~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 ~~the Company’s~~our fiscal year. In these markets, ~~the Company recognizes~~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 current year.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

~~The Company has~~We have entered into numerous agreements ~~pursuant to which it collaborates~~ 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 $61.9 million and $63.9 million for the three and six months ended June 30, 2022, respectively, and $958.4 million and $960.1 million, for the three and six months ended June 30, 2021, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including ~~in-license~~collaborations, licenses of third-party technologies, and ~~out-license agreements.~~asset acquisitions.

~~The Company’s in-license~~Our collaboration, licensing and ~~out-license~~asset acquisition agreements that had a significant impact on ~~its~~our financial statements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, or were new or materially revised during the ~~nine~~three and six months ended ~~September~~June 30, ~~2021,~~2022, are described below. Additional ~~in-license and out-license~~ agreements were described in Note B, “Collaborative and Other Arrangements,” of ~~the Company’s 2020~~our 2021 Annual Report on Form 10-K.

In-license Agreements

~~The Company has~~We have entered into a number of in-license agreements in order to advance and obtain access to technologies and services related to ~~its~~our research and early-development activities. ~~The Company is~~We are generally required to make an upfront payment upon execution of ~~the~~our license ~~agreement;~~agreements; development, regulatory and commercialization milestones payments upon the achievement of certain product research, development and commercialization objectives; and royalty payments on future sales, if any, of commercial products resulting from ~~the collaboration.~~our collaborations.

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

~~The Company~~We typically can terminate ~~its~~our in-license agreements by providing advance notice to ~~its~~our collaborators; the required length of notice is dependent on whether any product developed under the license agreement has received marketing approval. ~~The Company’s~~Our license agreements may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, these license agreements generally remain in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.

The Company’s “Research and development expenses” included $26.8 million and $986.8 million for the three and nine months ended September 30, 2021, respectively, and $80.1 million and $143.3 million for the three and nine months ended September 30, 2020, respectively, related to upfront and milestone payments pursuant to its in-license agreements.

CRISPR Therapeutics AG - CRISPR-Cas9 Gene-editing Therapies

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 technology. ~~The Company~~We had the exclusive right to license certain targets. In 2019, ~~the Company~~we elected to exclusively license 3 targets, including cystic fibrosis, pursuant to the CRISPR Agreement. For each of the 3 targets that ~~the Company~~we elected to license, CRISPR has the potential to receive up to an additional $410.0 million in development, regulatory and commercial milestones as well as royalties on net product sales.

In 2017, ~~the Company~~we entered into a joint development and commercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement (the “Original CTX001 JDCA”), under which ~~the Company~~we and CRISPR were co-developing and preparing to co-commercialize exagamglogene autotemcel (“exa-cel”), formerly known as CTX001, for the treatment of hemoglobinopathies, including treatments for sickle cell disease and transfusion-dependent beta thalassemia.

In the second quarter of 2021, ~~the Company~~we and CRISPR amended and restated the Original CTX001 JDCA (the “A&R JDCA”), pursuant to which the parties agreed to, among other things, (a) adjust the governance structure for the collaboration and adjust the responsibilities of each party thereunder; (b) adjust the allocation of net profits and net losses between the parties; and (c) exclusively license (subject to CRISPR’s reserved rights to conduct certain activities) certain intellectual property rights to ~~the Company~~us relating to the products that may be researched, developed, manufactured and commercialized under such agreement.

Pursuant to the A&R JDCA, ~~the Company is now leading~~we lead global development, manufacturing and commercialization of ~~CTX001,~~exa-cel, with support from CRISPR. Subject to the terms and conditions of the A&R JDCA, we conduct all research, development, manufacturing and commercialization activities relating to the ~~Company also has~~product candidates and products under the A&R JDCA (including exa-cel) throughout the world subject to CRISPR’s reserved right to conduct certain activities.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

~~to conduct all research, development, manufacturing and commercialization activities relating to the product candidates and products under~~In connection with the A&R JDCA, ~~(including CTX001) throughout the world subject to CRISPR’s reserved right to conduct certain activities.~~

~~In connection with the amendment and restatement of this agreement, the Company~~we made a $900.0 million upfront payment to CRISPR in the second quarter of 2021. ~~The Company~~We concluded that itwe did not have any alternative future use for the acquired in-process research and development and recorded this upfront payment to ~~“Research~~“Acquired in-process research and development expenses.” CRISPR has the potential to receive an additional one-time $200.0 million milestone payment upon receipt of the first marketing approval of ~~CTX001~~exa-cel from the U.S. Food orand Drug Administration or the European Commission.

~~The Company~~We and CRISPR shared equally all expenses incurred under the Original CTX001 JDCA. On July 1, 2021, ~~with respect to CTX001,~~ the net profits and net losses incurred with respect to exa-cel pursuant to the A&R JDCA began to be allocated 60% to ~~the Company~~us and 40% to CRISPR, while all other product candidates and products ~~continued~~continue to have net profits and net losses shared equally between the parties. ~~The Company~~We concluded that the Original CTX001 JDCA and the A&R JDCA are cost-sharing arrangements, which result in the net impact of the arrangements being recorded in ~~“Research~~“Total costs and ~~development~~ expenses” ~~in its~~within our condensed consolidated statements of operations. During the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020, the Company~~we recognized the following amounts in total, not including amounts recorded to “Acquired in-process research and development expenses,” related to these agreements:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands)
Total research and development expenses incurred under the Original CTX001 JDCA and A&R JDCA $ 58,659 $ 28,623 $ 147,448 $ 66,720
Vertex’s share recognized in research and development expenses in condensed consolidated statement of operations 35,195 14,311 79,590 33,360


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Total expenses incurred under the Original CTX001 JDCA and A&R JDCA	$	85.0	$	55.0	$	161.6	$	95.0
Vertex’s share recognized in “Total costs and expenses” in our condensed consolidated statements of operations	50.9		27.5		96.9		47.5

~~Moderna,~~Asset Acquisition

Catalyst Biosciences, Inc. - Complement 3 Degrader Program

In ~~2016, the Company entered into a strategic collaboration and licensing agreement with Moderna, Inc. (“Moderna”),~~May 2022, pursuant to an asset purchase agreement, we acquired Catalyst Biosciences, Inc.’s portfolio of protease medicines that target the complement system (the “complement portfolio”) and related intellectual property, including CB 2782-PEG, which ~~the parties are seeking to identify and develop messenger ribonucleic acid (“mRNA”) therapeutics~~is a pre-clinical complement component 3 degrader program for ~~the treatment of CF.~~

In September 2020, the Company entered into a new strategic collaboration and licensing agreement with Moderna (the “2020 Moderna Agreement”) aimed at the discovery and development of lipid nanoparticles and mRNAs that can deliver gene-editing therapies to lung cells for the treatment of CF. Pursuant to the 2020 Moderna Agreement, Moderna received an upfront payment of $75.0 million and is eligible to receive up to $380.0 milliongeographic atrophy in ~~development, regulatory and commercial milestones as well as royalties on net product sales. The Company~~dry age-related macular degeneration. We determined that substantially all of the fair value ofacquired is concentrated in the ~~2020 Moderna Agreement was attributable to~~CB-2782 PEG in-process research and development ~~and no substantive processes were acquired that would~~assets, which do not constitute a ~~business. The Company concluded that it did not have any~~business, and for which we determined there is no alternative future ~~use for the acquired in-process research and development and~~use. As a result, we recorded ~~the~~our $60.0 million upfront payment to ~~“Research~~“Acquired in-process research and development expenses” in the ~~third quarter of 2020.~~

~~Out-license Agreements~~

The Company has entered into licensing agreements pursuant to which it has out-licensed rights to certain drug candidates to third-party collaborators. Pursuant to these out-license agreements, the Company’s collaborators become responsible for all costs related to the continued development of such drug candidates and obtain development and commercialization rights to these drug candidates. Depending on the terms of the agreements, the Company’s collaborators may be required to make upfront payments, milestone payments upon the achievement of certain product research and development objectives and may also be required to pay royalties on future sales, if any, of commercial products resulting from the collaboration. The termination provisions associated with these collaborations are generally the same as those described above related to the Company’s in-license agreements. None of the Company’s out-license agreements had a significant impact on the Company’s condensed consolidated statement of operations during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020.~~

~~Table of Contents~~

~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

2022.

Cystic Fibrosis Foundation

~~The Company has~~We have a research, development and commercialization agreement that was originally entered into in 2004 with the Cystic Fibrosis Foundation, as successor in interest to the Cystic Fibrosis Foundation Therapeutics, Inc. This agreement was most recently amended in 2016. Pursuant to the agreement, as amended, ~~the Company~~we agreed to pay royalties ranging from low-single digits to mid-single digits on potential sales of certain compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016, including elexacaftor, and tiered royalties ranging from single digits to sub-teens on covered compounds first synthesized and/or tested during a research term on or before February 28, 2014, including KALYDECO (ivacaftor), ORKAMBI (lumacaftor in combination with ivacaftor) and SYMDEKO/SYMKEVI (tezacaftor in combination with ivacaftor). For combination products, such as ORKAMBI, SYMDEKO/SYMKEVI and TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), sales are allocated equally to each of the active pharmaceutical ingredients in the combination product. We record our royalties payable to the Cystic Fibrosis Foundation to “Cost of sales.”

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

D.Earnings Per Share

Basic net income per common share is based upon the weighted-average number of common shares outstanding during the period. Diluted net income per common share utilizing the treasury-stock method 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.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands, except per share amounts)									(in millions, except per share amounts)
Net income	Net income	$	851,928	$	667,434	$	1,571,990	$	2,107,457	Net income	$	810.5	$	67.0	$	1,572.6	$	720.1

Basic weighted-average common shares outstanding	Basic weighted-average common shares outstanding	257,876		260,392		258,740		260,313		Basic weighted-average common shares outstanding	255.9		259.0		255.5		259.2
Effect of potentially dilutive securities:	Effect of potentially dilutive securities:									Effect of potentially dilutive securities:
Stock options	Stock options	971		1,887		1,124		1,936		Stock options	1.4		1.1		1.4		1.2
Restricted stock units (including PSUs)	Restricted stock units (including PSUs)	841		1,788		1,003		1,765		Restricted stock units (including PSUs)	1.4		0.9		1.4		1.1
Employee stock purchase program	Employee stock purchase program	19		12		10		17		Employee stock purchase program	0.0		0.0		0.0		0.0
Diluted weighted-average common shares outstanding	Diluted weighted-average common shares outstanding	259,707		264,079		260,877		264,031		Diluted weighted-average common shares outstanding	258.7		261.0		258.3		261.5

Basic net income per common share	Basic net income per common share	$	3.30	$	2.56	$	6.08	$	8.10	Basic net income per common share	$	3.17	$	0.26	$	6.15	$	2.78
Diluted net income per common share	Diluted net income per common share	$	3.28	$	2.53	$	6.03	$	7.98	Diluted net income per common share	$	3.13	$	0.26	$	6.09	$	2.75

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


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2021	2020	2021	2020		2022	2021	2022	2021
		(in thousands)					(in millions)
Stock options	Stock options	1,060	23	711	303	Stock options	0.0	0.7	0.0	0.5
Unvested restricted stock units (including PSUs)	Unvested restricted stock units (including PSUs)	204	252	440	229	Unvested restricted stock units (including PSUs)	0.0	0.4	0.3	0.6

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

E.Fair Value Measurements

The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used in order to determine the fair value of ~~the Company’s~~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. ~~The Company maintains~~We maintain strategic investments separately from the investment policy that governs ~~its~~our other cash, cash equivalents and marketable securities as described in Note F, “Marketable Securities and 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.

~~During the three and nine months ended September 30, 2021 and 2020, the Company did not record any other-than-temporary impairment charges related to its financial assets.~~

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Notes to Condensed Consolidated Financial Statements (unaudited)

The following tables set forth ~~the Company’s~~our financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include ~~$2.7~~$3.5 billion and ~~$2.8~~$3.3 billion of cash as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively):


		As of September 30, 2021								As of December 31, 2020									As of June 30, 2022									As of December 31, 2021
		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2			Level 3		Total		Level 1		Level 2		Level 3
		(in thousands)																	(in millions)
Financial instruments carried at fair value (asset positions):
Cash equivalents:	Cash equivalents:																	Cash equivalents:
Money market funds	Money market funds	$	3,578,764	$	3,578,764	$	—	$	—	$	3,141,053	$	3,141,053	$	—	$	—	Money market funds	$	5,186.8	$	5,186.8	$	—		$	—	$	3,478.1	$	3,478.1	$	—	$	—
Commercial paper	Commercial paper	31,998		—		31,998		—		—		—		—		—		Commercial paper	16.2		—		16.2			—		—		—		—		—
Marketable securities:	Marketable securities:																	Marketable securities:
Corporate equity securities	Corporate equity securities	218,764		218,764		—		—		195,781		15,650		180,131		—		Corporate equity securities	71.1		71.1		—			—		230.9		230.9		—		—
U.S. Treasury securities	U.S. Treasury securities	46,539		46,539		—		—		—		—		—		—		U.S. Treasury securities	153.5		153.5		—			—		86.4		86.4		—		—
Government-sponsored enterprise securities	Government-sponsored enterprise securities	69,002		69,002		—		—		80,063		80,063		—		—		Government-sponsored enterprise securities	10.5		10.5		—			—		69.0		69.0		—		—
Corporate debt securities	Corporate debt securities	95,359		—		95,359		—		231,598		—		231,598		—		Corporate debt securities	75.0		—		75.0			—		90.9		—		90.9		—
Commercial paper	Commercial paper	255,523		—		255,523		—		163,268		—		163,268		—		Commercial paper	241.1		—		241.1			—		252.7		—		252.7		—
Prepaid expenses and other current assets:	Prepaid expenses and other current assets:																	Prepaid expenses and other current assets:
Foreign currency forward contracts	Foreign currency forward contracts	34,300		—		34,300		—		—		—		—		—		Foreign currency forward contracts	118.9		—		118.9			—		44.5		—		44.5		—
Other assets:	Other assets:																	Other assets:
Foreign currency forward contracts	Foreign currency forward contracts	4,781		—		4,781		—		—		—		—		—		Foreign currency forward contracts	6.9		—		6.9			—		2.0		—		2.0		—
Total financial assets	Total financial assets	$	4,335,030	$	3,913,069	$	421,961	$	—	$	3,811,763	$	3,236,766	$	574,997	$	—	Total financial assets	$	5,880.0	$	5,421.9	$	458.1		$	—	$	4,254.5	$	3,864.4	$	390.1	$	—
																									Financial instruments carried at fair value (liability positions):
Other current liabilities:	Other current liabilities:																	Other current liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	(4,356)	$	—	$	(4,356)	$	—	$	(59,184)	$	—	$	(59,184)	$	—	Foreign currency forward contracts	$	(0.1)	$	—	$	(0.1)		$	—	$	(5.6)	$	—	$	(5.6)	$	—
Long-term contingent consideration	Long-term contingent consideration	(188,500)		—		—		(188,500)		(189,600)		—		—		(189,600)		Long-term contingent consideration	(129.8)		—		—			(129.8)		(186.5)		—		—		(186.5)
Other long-term liabilities:	Other long-term liabilities:																	Other long-term liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	(29)		—		(29)		—		(4,283)		—		(4,283)		—		Foreign currency forward contracts	(0.0)		—		(0.0)			—		(2.7)		—		(2.7)		—
Total financial liabilities	Total financial liabilities	$	(192,885)	$	—	$	(4,385)	$	(188,500)	$	(253,067)	$	—	$	(63,467)	$	(189,600)	Total financial liabilities	$	(129.9)	$	—	$	(0.1)		$	(129.8)	$	(194.8)	$	—	$	(8.3)	$	(186.5)

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

~~The Company classifies its~~We classify our investments in publicly traded corporate equity securities as “Marketable securities” on ~~its~~our condensed consolidated balance sheets. Generally, ~~the Company’s~~our investments in the common stock of ~~these~~ publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of ~~the Company’s~~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. Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.

Fair Value of Contingent Consideration

In 2019, ~~the Company~~we acquired Exonics Therapeutics, Inc. (“Exonics”), a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause ~~DMD~~duchenne muscular dystrophy and other severe neuromuscular diseases, including ~~DM1. The Company’s~~myotonic dystrophy type 1. Our Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to ~~Exonics’~~ former Exonics equity holders. ~~The Company bases its~~We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data attributable to rare ~~diseases.~~diseases and our knowledge of the progress and viability of the programs. The discount rates used in the valuation model for contingent payments, which were between ~~0.3%~~3.9% and ~~2.2%~~4.2% as of ~~September~~June 30, ~~2021,~~2022, 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. Due to the uncertainties associated with development and commercialization of product candidates in the pharmaceutical industry and the effects of changes in other assumptions

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

including discount rates, we expect our estimates regarding the fair value of contingent consideration to change in the future, resulting in adjustments to the fair value of our contingent consideration liabilities, and the effect of any such adjustments could be material.

The following table represents a rollforward of the fair value of our contingent consideration liabilities:


	Six Months Ended June 30, 2022
	(in millions)
Balance at December 31, 2021	$	186.5
Decrease in fair value of contingent payments	(56.7)
Balance at June 30, 2022	$	129.8

The decrease in fair value of contingent consideration during the six months ended June 30, 2022 was primarily due to a revision to the scope of certain acquired gene-editing programs in the second quarter of 2022.

Fair Value of Intangible Assets

As of June 30, 2022 and December 31, 2021, we had $387.0 million and $400.0 million, respectively, of in-process research and development intangible assets classified as “Intangible assets” on our condensed consolidated balance sheets associated with our 2019 acquisitions of Semma Therapeutics, Inc and Exonics. In the three and six months ended June 30, 2022, we recorded a $13.0 million impairment of an in-process research and development intangible asset to “Research and development expenses,” due to a decision to revise the scope of certain acquired gene-editing programs.

F.Marketable Securities and Equity Investments

A summary of our cash equivalents and marketable securities, which are recorded at fair value (and do not include $3.5 billion and $3.3 billion of cash as of June 30, 2022 and December 31, 2021, respectively), is shown below:


	As of June 30, 2022								As of December 31, 2021
	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	$	5,186.8	$	—	$	—	$	5,186.8	$	3,478.1	$	—	$	—	$	3,478.1
Commercial paper	16.2		—		—		16.2		—		—		—		—
Total cash equivalents	$	5,203.0	$	—	$	—	$	5,203.0	$	3,478.1	$	—	$	—	$	3,478.1
Marketable securities:
U.S. Treasury securities	$	155.4	$	—	$	(1.9)	$	153.5	$	86.6	$	—	$	(0.2)	$	86.4
Government-sponsored enterprise securities	10.6		—		(0.1)		10.5		69.0		—		—		69.0
Corporate debt securities	75.7		—		(0.7)		75.0		91.1		—		(0.2)		90.9
Commercial paper	241.9		—		(0.8)		241.1		252.8		—		(0.1)		252.7
Total marketable debt securities	483.6		—		(3.5)		480.1		499.5		—		(0.5)		499.0
Corporate equity securities	69.4		12.3		(10.6)		71.1		69.4		167.1		(5.6)		230.9
Total marketable securities	$	553.0	$	12.3	$	(14.1)	$	551.2	$	568.9	$	167.1	$	(6.1)	$	729.9

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

judgment is used in determining the appropriateness of these assumptions at each reporting period. Due to the uncertainties associated with development and commercialization of drug candidates in the pharmaceutical industry and the effects of changes in other assumptions including discount rates, the Company expects its estimates regarding the fair value of contingent consideration to change in the future, resulting in adjustments to the fair value of the Company’s contingent consideration liabilities, and the effect of any such adjustments could be material.

~~The following table represents a rollforward of the fair value of the Company’s contingent consideration liabilities:~~

~~Nine Months Ended September 30, 2021~~

~~(in thousands)~~

~~Balance at December 31, 2020~~

~~189,600~~

~~Decrease in fair value of contingent payments~~

~~(1,100)~~

~~Balance at September 30, 2021~~

~~188,500~~

F.~~Marketable Securities and Equity Investments~~

A summary of the Company’s cash equivalents and marketable securities, which are recorded at fair value (and do not include $2.7 billion and $2.8 billion of cash as of September 30, 2021 and December 31, 2020, respectively), is shown below:

As of September 30, 2021 As of December 31, 2020
Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses
Fair
Value
Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses
Fair
Value
(in thousands)
Cash equivalents:
Money market funds $ 3,578,764 $ — $ — $ 3,578,764 $ 3,141,053 $ — $ — $ 3,141,053
Commercial paper 31,997 1 — 31,998 — — — —
Total cash equivalents $ 3,610,761 $ 1 $ — $ 3,610,762 $ 3,141,053 $ — $ — $ 3,141,053
Marketable securities:
U.S. Treasury securities $ 46,536 $ 4 $ (1) $ 46,539 $ — $ — $ — $ —
Government-sponsored enterprise securities 68,996 8 (2) 69,002 80,046 17 — 80,063
Corporate debt securities 95,385 26 (52) 95,359 231,263 377 (42) 231,598
Commercial paper 255,501 40 (18) 255,523 163,286 19 (37) 163,268
Total marketable debt securities 466,418 78 (73) 466,423 474,595 413 (79) 474,929
Corporate equity securities 69,418 150,263 (917) 218,764 51,427 144,354 — 195,781
Total marketable securities $ 535,836 $ 150,341 $ (990) $ 685,187 $ 526,022 $ 144,767 $ (79) $ 670,710

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

As of September 30, 2021 As of December 31, 2020
(in thousands)
Cash and cash equivalents $ 3,610,762 $ 3,141,053
Marketable securities 466,423 474,929
Total $ 4,077,185 $ 3,615,982

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~


	As of June 30, 2022		As of December 31, 2021
	(in millions)
Cash and cash equivalents	$	5,203.0	$	3,478.1
Marketable securities	480.1		499.0
Total	$	5,683.1	$	3,977.1

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


		As of September 30, 2021		As of December 31, 2020			As of June 30, 2022		As of December 31, 2021
		(in thousands)					(in millions)
Matures within one year	Matures within one year	$	4,014,441	$	3,526,185	Matures within one year	$	5,678.6	$	3,912.3
Matures after one year through five years	Matures after one year through five years	62,744		89,797		Matures after one year through five years	4.5		64.8
Total	Total	$	4,077,185	$	3,615,982	Total	$	5,683.1	$	3,977.1

~~The Company has~~We have a limited number of available-for-sale debt securities in insignificant loss positions as of ~~September~~June 30, ~~2021,~~2022, which ~~it does~~we do not intend to sell and ~~has~~have concluded itwe will not be required to sell before recovery of the amortized costs for the investments at maturity. ~~The Company~~We did not record any ~~charges~~allowances for ~~other-than-temporary declines in~~credit losses to adjust the fair value of available-for-sale debt securities or gross realized gains or losses in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

~~The Company records~~We record changes in the fair value of ~~its~~our investments in corporate equity securities to “Other (expense) income, ~~(expense),~~ net” ~~on its~~in our condensed consolidated statements of operations. During the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020, the Company’s~~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,
2021 2020 2021 2020
(in thousands)
Net unrealized gains $ 46,679 $ 69,834 $ 4,993 $ 102,317

During the nine months ended September 30, 2020, the Company received proceeds of $149.6 million related to the sale of the common stock of publicly traded companies, which had a total original weighted-average cost basis of $51.3 million. There were no sales of the common stock of publicly traded companies during the nine months ended September 30, 2021.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions)
Net unrealized (losses) gains	$	(84.2)	$	10.6	$	(159.8)	$	(41.7)

As of ~~September~~June 30, ~~2021,~~2022, the carrying value of ~~the Company’s~~our equity investments without readily determinable fair values, which are recorded in “Other assets” on ~~its~~our condensed consolidated balance sheets, was ~~$35.9~~$95.8 million.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

G.Accumulated Other Comprehensive Income (Loss)

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


		Foreign Currency Translation Adjustment			Unrealized Holding Gains (Losses), Net of Tax						Total								Unrealized Holding Gains (Losses), Net of Tax
				On Available-For-Sale Debt Securities			On Foreign Currency Forward Contracts			Foreign Currency Translation Adjustment						On Available-For-Sale Debt Securities				On Foreign Currency Forward Contracts				Total
				(in thousands)														(in millions)
Balance at December 31, 2021														Balance at December 31, 2021	$	(13.6)			$	(0.5)			$	30.0			$	15.9
Other comprehensive (loss) income before reclassifications														Other comprehensive (loss) income before reclassifications	(24.7)				(3.0)				120.3				92.6
Amounts reclassified from accumulated other comprehensive income (loss)														Amounts reclassified from accumulated other comprehensive income (loss)	—				—				(51.0)				(51.0)
Net current period other comprehensive (loss) income														Net current period other comprehensive (loss) income	(24.7)				(3.0)				69.3				41.6
Balance at June 30, 2022														Balance at June 30, 2022	$	(38.3)			$	(3.5)			$	99.3			$	57.5

Balance at December 31, 2020	Balance at December 31, 2020	$	(15,678)		$	334		$	(53,136)				$	(68,480)	Balance at December 31, 2020		$	(15.6)			$	0.3			$	(53.2)			$	(68.5)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	3,335			(329)			46,175			49,181			Other comprehensive income (loss) before reclassifications	1.3				(0.3)				15.6				16.6
Amounts reclassified from accumulated other comprehensive (loss) income		—			—			30,836			30,836
Amounts reclassified from accumulated other comprehensive income (loss)														Amounts reclassified from accumulated other comprehensive income (loss)	—				—				26.7				26.7
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	3,335			(329)			77,011			80,017			Net current period other comprehensive income (loss)	1.3				(0.3)				42.3				43.3
Balance at September 30, 2021		$	(12,343)		$	5		$	23,875		$	11,537

Balance at December 31, 2019		$	(895)		$	503		$	(1,581)		$	(1,973)
Other comprehensive (loss) income before reclassifications		(12,616)			818			(20,913)			(32,711)
Amounts reclassified from accumulated other comprehensive loss		—			—			(6,298)			(6,298)
Net current period other comprehensive (loss) income		(12,616)			818			(27,211)			(39,009)
Balance at September 30, 2020		$	(13,511)		$	1,321		$	(28,792)		$	(40,982)
Balance at June 30, 2021														Balance at June 30, 2021	$	(14.3)			$	—			$	(10.9)			$	(25.2)

H.Hedging

Foreign currency forward contracts - Designated as hedging instruments

~~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. ~~The Company recognizes~~We recognize realized gains and losses for the effective portion of such contracts in “Product revenues, net” in ~~its~~our condensed consolidated statements of operations in the same period that ~~it recognizes~~we recognize the product revenues that were impacted by the hedged foreign exchange rate changes.

~~The Company~~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~~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~~June 30, ~~2021,~~2022, all hedges were determined to be highly effective.

~~The Company considers~~We consider the impact of ~~its~~our counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, credit risk did not change the fair value of ~~the Company’s~~our foreign currency forward contracts.

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Notes to Condensed Consolidated Financial Statements (unaudited)

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, 2021		As of December 31, 2020			As of June 30, 2022		As of December 31, 2021
Foreign Currency	Foreign Currency	(in thousands)				Foreign Currency	(in millions)
Euro	Euro	$	1,194,338	$	745,099	Euro	$	1,506.0	$	1,364.5
British pound sterling	British pound sterling	277,815		160,427		British pound sterling	263.0		287.7
Canadian dollar						Canadian dollar	174.7		89.9
Australian dollar	Australian dollar	95,970		99,922		Australian dollar	127.3		96.3
Canadian dollar		87,259		86,468
Swiss Franc	Swiss Franc	41,335		—		Swiss Franc	59.6		54.1
Total foreign currency forward contracts	Total foreign currency forward contracts	$	1,696,717	$	1,091,916	Total foreign currency forward contracts	$	2,130.6	$	1,892.5

Foreign currency forward contracts - Not designated as hedging instruments

~~The Company~~We also ~~enters~~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. ~~The Company recognizes~~We recognize realized gains and losses for such contracts in “Other (expense) income, ~~(expense),~~ net” in ~~its~~our condensed consolidated statements of operations each period. As of ~~September~~June 30, ~~2021,~~2022, the notional amount of ~~the Company’s~~our outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP is not applied was ~~$306.2~~$628.1 million.

During the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020, the Company~~we recognized the following related to foreign currency forward contracts in ~~its~~our condensed consolidated statements of operations:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in millions)
Designated as hedging instruments - Reclassified from AOCI	Designated as hedging instruments - Reclassified from AOCI									Designated as hedging instruments - Reclassified from AOCI
Product revenues, net	Product revenues, net	$	(5,224)	$	(7,249)	$	(39,342)	$	8,039	Product revenues, net	$	45.0	$	(17.6)	$	65.1	$	(34.1)
Not designated as hedging instruments	Not designated as hedging instruments									Not designated as hedging instruments
Other income (expense), net		$	(400)	$	25,897	$	(9,350)	$	15,724
Other (expense) income, net										Other (expense) income, net	$	(8.4)	$	(1.0)	$	(16.8)	$	(9.0)

Total reported in the Condensed Consolidated Statement of Operations	Total reported in the Condensed Consolidated Statement of Operations									Total reported in the Condensed Consolidated Statement of Operations
Product revenues, net	Product revenues, net	$	1,984,164	$	1,536,271	$	5,500,839	$	4,575,863	Product revenues, net	$	2,196.2	$	1,793.4	$	4,293.7	$	3,516.7
Other income (expense), net		$	42,368	$	84,386	$	(2,234)	$	139,621
Other (expense) income, net										Other (expense) income, net	$	(78.1)	$	8.1	$	(150.9)	$	(44.6)

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 ~~its~~our condensed consolidated balance sheets:

As of September 30, 2021

As of June 30, 2022

Assets

Liabilities

Assets

Liabilities

Classification

Fair Value

Classification

Fair Value

Classification

Fair Value

Classification

Fair Value

(in thousands)

(in millions)

Prepaid expenses and other current assets

34,300

Other current liabilities

(4,356)

Prepaid expenses and other current assets

118.9

Other current liabilities

(0.1)

Other assets

4,781

Other long-term liabilities

(29)

Other assets

6.9

Other long-term liabilities

(0.0)

Total assets

39,081

Total liabilities

(4,385)

Total assets

125.8

Total liabilities

(0.1)

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

~~As of December 31, 2020~~

~~Assets~~

~~Liabilities~~

~~Classification~~

~~Fair Value~~

~~Classification~~

~~Fair Value~~

~~(in thousands)~~

~~Prepaid expenses and other current assets~~

—

~~Other current liabilities~~

~~(59,184)~~

~~Other assets~~

—

~~Other long-term liabilities~~

~~(4,283)~~

~~Total assets~~

—

~~Total liabilities~~

~~(63,467)~~


As of December 31, 2021
Assets			Liabilities
Classification	Fair Value		Classification	Fair Value
(in millions)
Prepaid expenses and other current assets	$	44.5	Other current liabilities	$	(5.6)
Other assets	2.0		Other long-term liabilities	(2.7)
Total assets	$	46.5	Total liabilities	$	(8.3)

As of ~~September~~June 30, ~~2021, the Company expects~~2022, we expect the amounts that are related to foreign exchange forward contracts designated as cash flow hedges under U.S. GAAP recorded in “Prepaid expenses and other current assets” and “Other current liabilities” to be reclassified to earnings within twelve months.

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, 2021											As of June 30, 2022
		Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset			Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset
Foreign currency forward contracts	Foreign currency forward contracts	(in thousands)										Foreign currency forward contracts	(in millions)
Total assets	Total assets	$	39,081	$	—	$	39,081	$	(4,385)	$	34,696	Total assets	$	125.8	$	—	$	125.8	$	(0.1)	$	125.7
Total liabilities	Total liabilities	(4,385)		—		(4,385)		4,385		—		Total liabilities	(0.1)		—		(0.1)		0.1		—


		As of December 31, 2020											As of December 31, 2021
		Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset			Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset
Foreign currency forward contracts	Foreign currency forward contracts	(in thousands)										Foreign currency forward contracts	(in millions)
Total assets	Total assets	$	—	$	—	$	—	$	—	$	—	Total assets	$	46.5	$	—	$	46.5	$	(8.3)	$	38.2
Total liabilities	Total liabilities	(63,467)		—		(63,467)		—		(63,467)		Total liabilities	(8.3)		—		(8.3)		8.3		—

I.Inventories

Inventories consisted of the following:


		As of September 30, 2021		As of December 31, 2020			As of June 30, 2022		As of December 31, 2021
		(in thousands)					(in millions)
Raw materials	Raw materials	$	45,990	$	46,232	Raw materials	$	30.4	$	42.4
Work-in-process	Work-in-process	192,650		161,324		Work-in-process	236.6		224.0
Finished goods	Finished goods	94,816		73,221		Finished goods	100.7		86.7
Total	Total	$	333,456	$	280,777	Total	$	367.7	$	353.1

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

J.Stock-based Compensation Expense and Share Repurchase Programs

Stock-based compensation expense

During the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020, the Company~~we recognized the following stock-based compensation expense:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(in thousands)									(in millions)
Stock-based compensation expense by type of award:	Stock-based compensation expense by type of award:									Stock-based compensation expense by type of award:
Restricted stock units (including PSUs) and restricted stock		$	89,458	$	84,043	$	279,131	$	279,611
Restricted stock units (including PSUs)										Restricted stock units (including PSUs)	$	103.0	$	88.8	$	221.2	$	189.7
Stock options	Stock options	7,875		13,221		29,580		47,334		Stock options	6.3		11.1		11.8		21.7
ESPP share issuances	ESPP share issuances	6,321		3,225		17,895		8,565		ESPP share issuances	4.3		6.0		11.1		11.6
Stock-based compensation expense related to inventories	Stock-based compensation expense related to inventories	(658)		(950)		(3,814)		(3,076)		Stock-based compensation expense related to inventories	0.3		(1.3)		0.1		(3.2)
Total stock-based compensation expense included in costs and expenses		$	102,996	$	99,539	$	322,792	$	332,434
Total stock-based compensation expense included in “Total costs and expenses”										Total stock-based compensation expense included in “Total costs and expenses”	$	113.9	$	104.6	$	244.2	$	219.8

Stock-based compensation expense by line item:	Stock-based compensation expense by line item:									Stock-based compensation expense by line item:
Cost of sales	Cost of sales	$	1,599	$	1,250	$	4,570	$	3,998	Cost of sales	$	2.4	$	1.6	$	4.6	$	3.0
Research and development expenses	Research and development expenses	60,995		60,770		196,412		203,732		Research and development expenses	69.5		62.6		149.9		135.4
Selling, general and administrative expenses	Selling, general and administrative expenses	40,402		37,519		121,810		124,704		Selling, general and administrative expenses	42.0		40.4		89.7		81.4
Total stock-based compensation expense included in costs and expenses	Total stock-based compensation expense included in costs and expenses	102,996		99,539		322,792		332,434		Total stock-based compensation expense included in costs and expenses	113.9		104.6		244.2		219.8
Income tax effect	Income tax effect	(21,556)		(35,295)		(73,663)		(130,692)		Income tax effect	(26.5)		(20.9)		(62.5)		(52.1)
Total stock-based compensation expense, net of tax	Total stock-based compensation expense, net of tax	$	81,440	$	64,244	$	249,129	$	201,742	Total stock-based compensation expense, net of tax	$	87.4	$	83.7	$	181.7	$	167.7

Share repurchase programs

In 2019, the Company’s Board of Directors approved a share repurchase program (the “2019 Share Repurchase Program”), pursuant to which the Company repurchased $500.0 million of its common stock in 2019 and 2020. During the nine months ended September 30, 2020, the Company repurchased 1,806,587 shares of its common stock under the 2019 Share Repurchase Program for an aggregate of $408.0 million.

In November 2020, ~~the Company’s~~our Board of Directors approved a share repurchase program (the “2020 Share Repurchase Program”), pursuant to which ~~the Company~~we repurchased $500.0 million of ~~its~~our common stock in 2020 and the first quarter of 2021. During the three months ended March 31, 2021, ~~the Company~~we repurchased ~~1,988,941~~2.0 million shares of ~~its~~our common stock under the 2020 Share Repurchase Program for an aggregate of $424.9 million.

OnIn June ~~23,~~ 2021, ~~the Company’s~~our Board of Directors approved a ~~new~~ share repurchase program (the “2021 Share Repurchase Program”), pursuant to which ~~the Company is~~we are authorized to repurchase up to $1.5 billion of ~~its~~our common stock by December 31, 2022. During the ~~three~~six months ended ~~September~~June 30, ~~2021, the Company repurchased 3,293,161~~2022, we did not repurchase any shares of ~~its~~our common stock under the 2021 Share Repurchase ~~Program for an aggregate of $642.2 million.~~Program. As of ~~September~~June 30, ~~2021,~~2022, a total of ~~$857.8~~$499.7 million remained ~~available~~authorized for repurchases of common stock under ~~this program.~~the 2021 Share Repurchase Program.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

K.Income Taxes

~~The Company is~~We are subject to U.S. federal, state, and foreign income taxes. During the three and ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020, the Company~~we recorded the following provisions for (benefits from) income taxes and effective tax rates as compared to ~~its~~our income (loss) before provision for (benefit from) income taxes:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(in thousands, except percentages)
Income before provision for income taxes $ 1,082,741 $ 745,871 $ 1,859,446 $ 2,228,175
Provision for income taxes 230,813 78,437 287,456 120,718
Effective tax rate 21 % 11 % 15 % 5 %


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(in millions, except percentages)
Income (loss) before provision for (benefit from) income taxes	$	1,024.4	$	(44.2)	$	1,979.2	$	776.7
Provision for (benefit from) income taxes	213.9		(111.2)		406.6		56.6


Effective tax rate			21		%				251		%				21		%				7		%

~~The Company’s~~Our effective tax rate for the three and six months ended ~~September~~June 30, ~~2021~~2022 was similar to the U.S. statutory rate. ~~The Company’s~~

Our effective tax rate for the ~~nine~~three and six months ended ~~September~~June 30, 2021 was ~~lower~~different than the U.S. statutory rate primarily due to a $99.7 million discrete tax benefit associated with an increase in the U.K.’s corporate tax rate from 19% to 25%, which was enacted in June 2021 and will become effective in April 2023.

The Company’s effective tax rate for the three months ended September 30, 2020 was lower than the U.S. statutory rate primarily due to a discrete tax benefit associated with an increase in the U.K.’s corporate tax rate from 17% to 19%, which was enacted and became effective in July 2020. The Company’s effective tax rate for the nine months ended September 30, 2020 was lower than the U.S. statutory rate due to a discrete tax benefit of $209.0 million associated with an intra-entity transfer of intellectual property rights to the U.K., a discrete benefit related to the write-off of a long-term intercompany receivable, the increase in the U.K.’s corporate tax rate from 17% to 19% noted above and excess tax benefits related to stock-based compensation.

As part of the U.S. Tax Cut and Jobs Act of 2017, the Company is subject to a territorial tax system, under which it must establish an accounting policy to provide for tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The Company has elected to treat the impact of GILTI as a current tax expense in its provision for income taxes.

~~The Company has~~We have reviewed the tax positions taken, or to be taken, in ~~its~~our tax returns for all tax years currently open to examination by a taxing authority. ~~Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the benefits recognized in the consolidated financial statements.~~ As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, the Company~~2021, we had ~~$89.0~~$145.2 million and ~~$75.8~~$129.5 million, respectively, of net unrecognized tax benefits, which would affect ~~the Company’s~~our tax rate if recognized. ~~The Company does not expect that its unrecognized tax benefits will materially change within~~

Starting in 2022, our cash paid for income taxes is substantially increasing due to the ~~next twelve months.~~

Aselimination of ~~September 30, 2021, foreign earnings have been retained by foreign subsidiaries for indefinite reinvestment. Upon repatriation of those earnings,~~the option in the ~~form~~U.S. to deduct research and development expenses in the period they are incurred and instead, as required by the Tax Cuts and Jobs Act of ~~dividends or otherwise,~~2017, amortize them over a five year period if they are from the ~~Company could be subject to withholding taxes payable to the various~~U.S. and fifteen years if they are from foreign ~~countries.~~jurisdictions.

~~The Company files~~We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. ~~The Company has~~We have various income tax audits ongoing at any time throughout the world. ~~The Company is~~Except for jurisdictions where we have net operating losses or tax credit carryforwards, we are no longer subject to any tax assessment from ~~an income~~ tax ~~examination in the U.S. or any other major taxing jurisdiction before 2011, except where the Company has net operating losses or tax credit carryforwards that originate before 2011.~~authorities for years prior to 2018.

L.Commitments and Contingencies

Revolving Credit Facilities

~~The Company~~Vertex and certain of its subsidiaries have entered into 2several credit agreements (the “Credit Agreements”) with Bank of America, N.A., as administrative agent and the lenders referred to therein (the “Lenders”). The Credit Agreements

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

were not drawn upon at closing and ~~the Company has~~we have not drawn upon them to date. Amounts drawn pursuant to the Credit Agreements, if any, will be used for general corporate purposes. Any amounts borrowed under the Credit Agreements will bear interest, at ~~the Company’s~~our option, at either a base rate or ~~a Eurocurrency~~an alternative rate described below, in each case plus an applicable margin based on ~~the Company’s~~our consolidated leverage ratio (the ratio of ~~the Company’s~~our total consolidated funded indebtedness to ~~the Company’s~~our consolidated EBITDA for the most recently completed four fiscal quarter period).

In September 2019, ~~the Company~~Vertex and certain of its subsidiaries entered into a $500.0 million unsecured revolving facility (the “2019 Credit Agreement”) with the Lenders, which ~~matures~~was scheduled to mature on September 17, 2024. Under the 2019 Credit Agreement, the applicable margins on base rate loans ~~range~~ranged from 0.125% to 0.500% and the applicable margins on Eurocurrency loans ~~range~~ranged from 1.125% to 1.500%. The 2019 Credit Agreement ~~provides~~provided a sublimit of $50.0 million for letters of credit.

In September 2020, ~~the Company~~Vertex and certain of its subsidiaries entered into a $2.0 billion unsecured revolving facility (the “2020 Credit Agreement”) with the Lenders, which matures on September 18, 2022. Under the 2020 Credit Agreement, the applicable margins on base rate loans range from 0.500% to 0.875% and the applicable margins on Eurocurrency loans range from 1.500% to 1.875%. The 2020 Credit Agreement does not support letters of credit.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

In July 2022, Vertex and certain of its subsidiaries terminated the 2019 Credit Agreement and entered into a $500.0 million unsecured revolving facility (the “2022 Credit Agreement”) with the Lenders, which matures on July 1, 2027. Under the 2022 Credit Agreement, the applicable margins on base rate loans range from 0.000% to 0.500% and the applicable margins on SOFR loans range from 1.000% to 1.500%. The 2022 Credit Agreement provides a sublimit of $100.0 million for letters of credit.

Subject to satisfaction of certain conditions, ~~the Company~~we may request that the borrowing capacity for each of the 2020 Credit ~~Agreements~~Agreement and the 2022 Credit Agreement be increased by an additional $500.0 million. Any amounts borrowed pursuant to the 2020 Credit ~~Agreements~~Agreement and the 2022 Credit Agreement are guaranteed by certain of ~~the Company’s~~our existing and future domestic subsidiaries, subject to certain exceptions.

~~The~~Each of the 2020 Credit ~~Agreements~~Agreement and the 2022 Credit Agreement contain customary representations and warranties and affirmative and negative covenants, including a financial ~~covenants~~covenant to maintain ~~(x)~~ subject to certain limited exceptions, a consolidated leverage ratio of 3.50 to 1.00, subject to an increase to 4.00 to 1.00 following a material ~~acquisition and (y)~~acquisition. The 2020 Credit Agreement also includes a financial covenant to maintain subject to certain limited exceptions, a consolidated interest coverage ratio of 2.50 to ~~1.00, in each case~~1.00. These financial covenants are measured on a quarterly basis. As of ~~September~~June 30, ~~2021, the Company was~~2022, we were in compliance with the covenants described above. The Credit Agreements also contain 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.

Direct costs related to the Credit Agreements are recorded over the term of the respective Credit Agreements and were not material to ~~the Company’s~~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 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

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~~VERTEX PHARMACEUTICALS INCORPORATED~~

~~Notes to Condensed Consolidated Financial Statements (unaudited)~~

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~~We accrue a reserve for contingent liabilities when it is probable that future expenditures will be made, and such expenditures can be reasonably

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

estimated. Other than ~~the Company’s~~our contingent consideration liabilities discussed in Note E, “Fair Value Measurements,” there were no material contingent liabilities accrued as of ~~September~~June 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

M.Additional Cash Flow Information

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


		Nine Months Ended September 30,									Six Months Ended June 30,
		2021				2020					2022				2021
		Beginning of period		End of period		Beginning of period		End of period			Beginning of period		End of period		Beginning of period		End of period
		(in thousands)									(in millions)
Cash and cash equivalents	Cash and cash equivalents	$	5,988,187	$	6,275,698	$	3,109,322	$	5,358,087	Cash and cash equivalents	$	6,795.0	$	8,702.2	$	5,988.2	$	6,063.7
Prepaid expenses and other current assets	Prepaid expenses and other current assets	658		4,515		8,004		2,898		Prepaid expenses and other current assets	5.1		1.9		0.7		7.4
Other assets		—		—		3,355		—

Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flows	Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flows	$	5,988,845	$	6,280,213	$	3,120,681	$	5,360,985	Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flows	$	6,800.1	$	8,704.1	$	5,988.9	$	6,071.1

N.Subsequent Event

In July 2022, we entered into an agreement to acquire ViaCyte, Inc. (“ViaCyte”), a privately held biotechnology company primarily focused on delivering novel stem cell-derived cell replacement therapies as a functional cure for type 1 diabetes. At closing, we will acquire all outstanding shares of ViaCyte in exchange for approximately $320.0 million in cash. The acquisition is subject to, among other things, the satisfaction of customary closing conditions and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. We will account for the acquisition in the period that it closes.

Also in July 2022, Vertex entered into a research collaboration with Verve Therapeutics, Inc. (“Verve”) focused on discovering and developing an in vivo gene editing program for a liver disease. Under the terms of the agreement, Vertex made a $25.0 million upfront payment to Verve and purchased $35.0 million of Verve’s common stock.

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

OVERVIEW

We invest in scientific innovation to create transformative medicines for people with serious diseases with a focus on specialty markets. We have four approved medicines to treat cystic fibrosis, or CF, a life-threatening genetic disease, and are focused on increasing the number of people with CF eligible and able to receive our medicines through label expansions, approval of new medicines, and expanded reimbursement. We are broadening our pipeline into additional disease areas through internal research efforts and accessing external innovation through business development transactions.

Our triple combination regimen, TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), was approved in 2019 in the United States, or U.S., and in 2020 in the European Union, or E.U. Collectively, our four medicines are ~~approved to treat~~being used by the majority of the approximately 83,000 people with CF in North America, Europe, and Australia. We are evaluating our medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for ~~up to~~approximately 90% of people with CF. We also are ~~also~~ pursuing genetic therapies ~~to address~~for the remaining ~~10% of~~ people with CF who ~~are~~may not ~~eligible for~~be helped by our ~~small molecule correctors.~~current CF medicines.

Beyond CF, we continue to research and develop ~~small molecule drug~~product candidates for the treatment of serious diseases, including ~~alpha-1 antitrypsin, or AAT, deficiency, APOL1-mediated kidney diseases, and pain. We are also focused on developing cell and genetic therapies for various diseases in our pipeline, including~~ sickle cell disease, ~~or SCD,~~ beta thalassemia, APOL1-mediated kidney disease, type 1 diabetes, ~~or T1D,~~pain, alpha-1 antitrypsin deficiency, Duchenne muscular dystrophy, ~~or DMD,~~and myotonic dystrophy or DM1, and CF. We are evaluating CTX001, a genetic therapy, as a potential treatment for SCD and transfusion-dependent beta thalassemia, or TDT, the most severe form of beta thalassemia, in collaboration with CRISPR Therapeutics AG, or CRISPR. In T1D, we are pursuing two programs for the transplant of functional islets into patients: transplantation of islet cells alone, using immunosuppression to protect the implanted cells, and implantation of the islet cells inside a novel immunoprotective device.type 1.

Financial Highlights


Revenues			In the ~~third~~second quarter of ~~2021,~~2022, our net product revenues continued to increase due to the ~~uptake~~strong launches of TRIKAFTA/KAFTRIO in ~~Europe~~multiple countries internationally and ~~continued~~the strong performance of TRIKAFTA in the U.S., including the June 2021 launch of TRIKAFTA for children with CF 6 through 11 years of age.
Expenses			Our total research and development, or R&D, acquired in-process research and development, or AIPR&D, and selling, general and administrative, or SG&A, expenses decreased to $877.3 million in the second quarter of 2022 as compared to $1.6 billion in the second quarter of 2021. The decrease was primarily due to a $900.0 million upfront payment we made in the second quarter of 2021 to CRISPR in connection with an amendment to our exa-cel collaboration partially offset by the progression of several product candidates into mid- to late-stage clinical development. Cost of sales was 12% and 13% of our net product revenues in the second quarter of 2022 and 2021, respectively.
Cash			~~Cash~~ Our cash, cash equivalent and marketable securities increased to ~~$6.96~~$9.3 billion as of ~~September~~June 30, ~~2021~~2022 as compared to ~~$6.66~~$7.5 billion as of December 31, ~~2020~~2021 primarily due to our net product revenues and ~~profitability, offset by repurchases of our common stock, and a $900.0 million payment we made to CRISPR in connection with an amendment to our CTX001 collaboration.~~

~~Expenses~~ Our total R&D and SG&A expenses increased to $691.9 million in the third quarter of 2021 as compared to $678.0 million in the third quarter of 2020. In the third quarter of 2021, cost of sales was 12% of our net product revenues. profitability.

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Business Updates

~~Cystic Fibrosis~~ Marketed Products

We expect to continue to grow our CF business by increasing the number of people with CF eligible and able to receive our medicines and providing improved treatment options for people who are already eligible for one of our medicines. Recent and anticipated progress in ~~our CF business~~activities supporting these efforts is included below.

•We have ~~signed~~completed the Phase 3 study of TRIKAFTA/KAFTRIO in children 2 to 5 years old. We expect to present results from this trial at a letter of intent with the pan-Canadian Pharmaceutical Alliance regarding the public reimbursement of TRIKAFTA for eligible people with CF. We have reached multiple provincial reimbursement agreements across Canada providing approximately 90% of Canadian patients 12 years of agemedical forum later in 2022 and ~~older and covered by government insurance with reimbursed access~~ to ~~TRIKAFTA.~~submit global regulatory filings later this year.

•~~Our application~~In April, Health Canada granted marketing authorization for ~~approval of~~ TRIKAFTA in children 6 ~~through~~to 11 years of ~~age~~age.

•We have filed a supplemental New Drug Application with the U.S. Food and Drug Administration, or FDA, and a marketing authorization application with the European Medicines Agency, or EMA, for the use of ORKAMBI in children 12 months to less than 24 months old. The FDA has ~~been accepted for priority review by Health Canada.~~assigned a Prescription Drug User Fee Act (PDUFA) target date of September 4, 2022.

•TRIKAFTA/KAFTRIO is now approved and reimbursed or accessible in more than ~~20 countries outside the U.S., including Italy, France and Canada.~~25 countries.

Pipeline

We continue to advance a pipeline of potentially transformative small molecule and cell and genetic therapies aimed at treating serious diseases. Recent and anticipated progress in activities supporting these efforts is included below.

Cystic Fibrosis

•We ~~recently initiated our~~are conducting two Phase 3 global, randomized, double-blind, active-controlled clinical trials evaluating ~~the~~our new once-daily investigational triple combination of VX-121/tezacaftor/VX-561 ~~(deutivacaftor).~~in people with CF 12 years of age and older. Sites across both studies are open and enrolling, and enrollment in both trials is expected to be completed in late 2022 or early 2023. We also initiated a study of VX-121/tezacaftor/VX-561 in children with CF 6 to 11 years of age.

•In collaboration with Moderna, ~~Inc.,~~ we are ~~seeking to discover and develop~~developing CF mRNA therapeutics ~~designed to treat the underlying cause of CF by enabling cells in the lungs to produce functional CF transmembrane conductance regulator, or CFTR, protein~~ for the treatment of ~~the 10% of patients~~people with CF who do not produce any CFTR protein. We ~~are conducting enabling studies~~have completed IND-enabling studies and expect to submit an Investigational New Drug Application, or IND, for this program in the second half of 2022.

Beta Thalassemia and Sickle Cell Disease

•We ~~and our collaborator, CRISPR,~~ are evaluating the use of a non-viral ex vivo CRISPR gene-editing therapy, ~~CTX001,~~exa-cel (formerly known as CTX001), for the treatment of sickle cell disease, or SCD, and transfusion-dependent beta thalassemia, or TDT. Enrollment is complete in the ongoing clinical trials evaluating exa-cel in SCD and TDT, and ~~severe~~two additional Phase 3 studies of exa-cel have been initiated in pediatric patients, one in TDT and a second in SCD. ~~This approach aims~~In June 2022, data from 75 people with follow-up ranging from 1.2 to ~~edit a person’s hematopoietic stem cells~~37.2 months after exa-cel infusion were presented at the European Hematology Association Congress and continued to ~~produce fetal hemoglobin in red blood cells, which has the potential to reduce or eliminate symptoms associated with the diseases.~~

•~~Data presented to date~~ support the ~~potential~~ profile of ~~CTX001~~exa-cel as a one-time functional cure for people with TDT and ~~severe~~ SCD, showing consistent and durable benefit ~~across all treated patients. CTX001 safety data to date is generally consistent~~ with ~~an autologous stem cell transplant and myeloablative conditioning.~~longer term data.

•~~Target enrollment has been achieved in the ongoing clinical trials evaluating CTX001 in TDT and severe SCD. We anticipate submissions for regulatory approval of CTX001 in late 2022.~~

~~Type 1 Diabetes~~

•We ~~are developing cell therapies designed to replace insulin-producing islet cells that are destroyed in people with T1D,~~have completed discussions with the ~~goal~~EMA and the United Kingdom’s Medicines and Healthcare products Regulatory Agency on the submission package for exa-cel and are on track to submit for regulatory approvals of ~~delivering a potential functional cure.~~exa-cel for SCD and TDT in Europe and the United Kingdom by the end of 2022. Discussions with the FDA are ongoing.

APOL1-Mediated Kidney Disease

•~~VX-880 is a stem cell-derived, allogeneic, fully differentiated, insulin-secreting islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. Our~~Based on positive Phase 1/2 clinical trial evaluating VX-880 as a potential treatment for T1D is ongoing at multiple clinical sites in the U.S. and the Clinical Trial Application has been approved in Canada. In October 2021, we announced positive Day 90 data for inaxaplin (formerly known as VX-147), our small molecule for the ~~first T1D patient~~treatment of APOL1-mediated focal segmental glomerulosclerosis, or FSGS, we initiated pivotal development of inaxaplin in ~~the~~a single Phase ~~1/2 clinical trial of VX-880.~~2/3 study in patients with two APOL1 mutations and proteinuric kidney disease.

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•~~We are pursuing a second program in which these stem cell-derived, fully differentiated, insulin-secreting islet cells are encapsulated~~The FDA grantedinaxaplin Breakthrough Therapy designation for APOL1-mediated FSGS and ~~implanted in an immunoprotective device. We are conducting IND-enabling studies, and we expect to submit an IND~~the EMA granted inaxaplin Priority Medicines, or PRIME, designation for ~~this cells and device program in 2022.~~

~~APOL1-Mediated Kidney Diseases~~

•~~We are evaluating the potential of oral, small molecule inhibitors of APOL1 function to treat people with~~ APOL1-mediated kidney ~~diseases.~~

•Enrollment is complete in the Phase 2 proof-of-concept clinical trial evaluating VX-147 for treatment of people with APOL1-mediated focal segmental glomerulosclerosis with reduction of proteinuria as the primary endpoint. We expect results from this clinical trial in the fourth quarter of 2021 and expect that these results will inform the potential progression of VX-147 into pivotal clinical trials in the broader population of people with APOL1-mediated non-diabetic proteinuric kidney diseases.disease, or AMKD.

Pain

•NaV1.8 is a genetically and pharmacologically validated novel target for the treatment of pain. We previously have demonstrated clinical proof-of-concept with a small molecule investigational treatment targeting NaV1.8 in multiple pain indications including acute pain, neuropathic pain and musculoskeletal pain. We have discovered multiple selective small molecule inhibitors of NaV1.8 with the objective of creating a new class of pain medicines that have the potential to ~~be highly~~provide effective pain relief. In March, we announced positive Phase 2 data for ~~both~~VX-548, a NaV 1.8 inhibitor, for the non-opioid treatment of acute ~~and chronic~~pain. We expect to initiate Phase 3 development of VX-548 for the treatment of acute pain ~~without~~in the ~~limitations~~fourth quarter of ~~opioids and other existing pain medications.~~2022.

•~~Two~~The FDA granted VX-548 Breakthrough Therapy designation for the treatment of moderate to severe acute pain.

•We intend to initiate a Phase 2 ~~dose ranging acute~~study of VX-548 in neuropathic pain by the end of 2022.

Type 1 Diabetes

•VX-880 is a stem cell-derived, allogeneic, fully differentiated, insulin-secreting islet cell replacement therapy, used in combination with immunosuppression to protect the implanted cells. VX-880 is being evaluated in a Phase 1/2 clinical ~~trials evaluating VX-548 are underway; one~~trial as a potential treatment for type 1 diabetes, or T1D. The VX-880 Phase 1/2 clinical trial has resumed enrollment in the U.S. following ~~bunionectomy surgery~~a clinical hold imposed by the FDA.

•Earlier this year, we provided data on the first two T1D patients dosed in this clinical trial, including that both patients had achieved glucose-responsive insulin production, improvements in glycemic control, and reductions in exogenous insulin requirements. Additional data presented at American Diabetes Association Scientific Sessions Conference also demonstrated significant increases in the blood-glucose time-in-range compared to the baseline, following treatment with VX-880. VX-880 safety data to date is generally consistent with the immunosuppressive regimen used in the study and the ~~other following abdominoplasty surgery.~~ perioperative period.

•We continue to advance additional programs in T1D, in which these same stem cell-derived, fully differentiated, insulin-secreting islet cells are encapsulated and implanted in an immunoprotective device or modified to produce hypoimmune stem cells islets with the goal of eliminating the need for immunosuppression. We are conducting IND-enabling studies for the cells and device program, and we expect to ~~have data from the clinical trials evaluating VX-548 following bunionectomy and abdominoplasty surgeries~~submit an IND for this program in ~~the first quarter of~~ 2022.

Alpha-1 Antitrypsin Deficiency

•We are ~~evaluating multiple preclinical compounds with~~working to address the ~~potential to correct the misfolding~~underlying genetic cause of alpha-1 antitrypsin, or AAT, deficiency by developing novel small molecule correctors of Z-AAT protein infolding, with the goal of enabling the secretion of functional AAT into the blood and addressing both the lung and the liver ~~in order to increase the systemic levels of functional AAT. Misfolded Z-AAT protein is the root cause~~aspects of AAT ~~deficiency and our small molecule corrector program targets both the liver and lung manifestations of the disease.~~

•deficiency. We plan to advance one or more ~~novel~~ small molecule Z-AAT correctors into the clinic in 2022.

~~Investments in External Innovation~~Duchenne Muscular Dystrophy

•InWe are investigating a novel approach to treating Duchenne muscular dystrophy, or DMD, which delivers CRISPR/Cas9 gene-editing technology to muscle cells, with the ~~third quarter~~goal of ~~2021, we entered~~restoring near-full length dystrophin protein expression by targeting specific mutations in the dystrophin gene that cause the disease. We have advanced our first in vivo gene-editing therapy for DMD into IND-enabling studies. We expect to submit an IND for this program in 2023.

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 people with CF eligible and able to receive our medicines, including through label expansions, expanded reimbursement, and the development of new medicines. We are actively pursuing a ~~new collaboration with Arbor Biotechnologies, Inc., or Arbor, to enhance efforts in developing exvivo engineered cell therapies~~pipeline of product candidates for ~~multiple~~the treatment of serious diseases ~~using Arbor’s proprietary CRISPR gene-editing technology.~~

•In October 2021, we entered into a collaboration with Mammoth Biosciences, Inc., or Mammoth, to develop in vivo gene-editing therapies for two diseases using Mammoth’s next-generation CRISPR systems.

~~COVID-19~~

~~We continue to monitor the impacts~~outside of the COVID-19 global pandemic on our business. COVID-19 has not affected our supply chain or the demand for our medicines, and we believe that we will be able to continue to supply all of our approved medicines to patients globally. We adjusted our business operations in response to COVID-19 and have continued to monitor local COVID-19 trends and government guidance for each of our site locations. We are utilizing a phased, site-specific approach to assess and permit employee access to our sites. Currently, our sites are open to certain employees where appropriate and permitted by local laws and guidelines.

~~Research~~

~~We continue to invest in our research programs and foster scientific innovation in order to identify and develop transformative medicines.~~CF. Our strategy is to combine transformative advances in the understanding of human disease biology and the science of therapeutics in order to discover and develop new medicines. This approach includes advancing multiple compounds from each program, spanning multiple modalities, into early clinical trials and evaluating patient data to inform discovery and development of additional compounds, with the goal of bringing first-in-class and best-in-class therapies to patients, and to provide durable clinical and commercial success.

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~~science~~In pursuit of ~~therapeutics~~new product candidates and therapies in ~~order to identify~~specialty markets, we invest in research and ~~develop new medicines.~~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.

~~Drug Discovery and Development~~

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. 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 as~~ potential drug ~~candidates~~or biological products never progress into development, and most ~~drug candidates~~products that do advance into development never receive marketing approval. Our investments in ~~drug~~product candidates are subject to considerable 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 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. ~~For example, in June 2021,~~

Our business also requires ensuring appropriate manufacturing and reimbursement of our products. As we ~~decided not~~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 ~~progress VX-864, a drug candidate~~manufacture and distribute our products for ~~the treatment of AAT deficiency, into late-stage development based on data obtained from a Phase 2 clinical trial.~~

If we believe that data from a completed registration program support approval of a drug candidate, we submit an New Drug Application or Biologics License Application to the FDA requesting approval to market the drug candidate in the U.S.commercial sale and seek analogous approvals from comparable regulatory authorities in jurisdictions outside the U.S. To obtain approval, we must, among other things, demonstrate with evidence gathered in nonclinical studies and well-controlledpost-approval clinical trials ~~that~~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 different systems, equipment, facilities and expertise. We are focused on ensuring the ~~drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities, processes and controls for the manufacture~~stability of the drug candidate are adequate. The FDA and ex-U.S. 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,supply chains for our ~~financial results and the commercial prospects for the drug candidate involved will be harmed.~~

~~Regulatory Compliance~~

~~Our marketing of pharmaceutical~~current 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 laws in other jurisdictions, pertaining to health care fraud and abuse, including anti-kickback and false claims laws, and laws prohibiting the promotion of drugs for unapproved or off-label uses. Anti-kickback laws generally make it illegal for a prescription drug manufacturer to knowingly and willfully solicit, offer, receive or pay any remuneration in return for or to induce the referral of business, including the purchase or prescription of a particular drug that is reimbursed by a state or federal health care program. False claims laws prohibit anyone from knowingly or willfully 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 are subject to laws and regulations that regulate the sales and marketing practices of pharmaceutical manufacturers, as well as ~~laws such as the U.S. Foreign Corrupt Practices Act, which govern~~for our international business practices with respect to payments to government officials. In addition, we are subject to various data protection and privacy laws and regulations in the U.S., E.U., U.K., Canada, Australia and other jurisdictions.

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~~We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs globally.~~

~~Reimbursement~~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 in order to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets.

In the U.S., we have worked successfully with ~~third party~~third-party payors in order 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 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.~~

~~In Europe~~medicines now and ~~other~~in the future. In ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country ~~basis.~~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 have obtained broad reimbursement for our CF medicines in ex-U.S. markets. TRIKAFTA/KAFTRIO is reimbursed or accessible in more than 20 countries outside the U.S., including England, Ireland, Italy, France and Canada. We expect to continue to focus significant resources to obtain expanded reimbursement for our CF medicines and, ultimately, pipeline therapies in U.S. and ex-U.S. markets.

COVID-19

We continue to monitor the impacts of the COVID-19 global pandemic on our business, including in our clinical trials, manufacturing facilities and capabilities, and ability to access necessary resources. COVID-19 has not materially affected our supply chain or the demand for our medicines, and we believe that we will be able to continue to supply all of our approved medicines to patients globally. We adjusted our business operations in response to COVID-19 and have continued to monitor local COVID-19 trends and government guidance for each of our site locations. We are utilizing a site-specific approach to assess and permit employee access to our sites. Currently, our sites are open to certain employees where appropriate and permitted by local laws and guidelines.

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Strategic Transactions

Acquisitions

As part of our business strategy, we seek to acquire ~~drugs, drug~~products, product candidates and other technologies and businesses that ~~have the potential to~~are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts.

In ~~2019,~~the second quarter of 2022, we ~~invested significantly in business development transactions designed to augment our pipeline, including~~acquired Catalyst Biosciences, Inc.’s, or Catalyst’s, portfolio of protease medicines that target the ~~acquisition of Semma Therapeutics,~~complement system and related intellectual property. In July 2022, we announced that we had entered into a definitive agreement under which we will acquire ViaCyte Inc., ~~or Semma,~~ a ~~privately-held~~privately held biotechnology company ~~focused on the use~~with tools, technologies and assets with potential to accelerate development of ~~stem cell-derived human islets as a treatment for~~our T1D and Exonics Therapeutics, Inc., or Exonics, a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including DM1. programs.

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

Collaboration and ~~Licensing~~In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of ~~drugs, drug~~products, product candidates and other technologies that have the potential to complement our ongoing research and development efforts. ~~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-License Agreements~~

We have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license drug candidates or technologies that enhance our pipeline and/or our research capabilities. Over the last several years, we entered into collaboration agreements with a number of companies, including Arbor Biotechnologies, Inc., CRISPR Therapeutics AG, Kymera Therapeutics, Inc., Mammoth Biosciences, Inc., Moderna, Inc., Obsidian Therapeutics, Inc., and ~~Obsidian~~Verve Therapeutics, Inc. 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/or agree to make contingent payments, which could consist of milestone, royalty and option payments. Most of these collaboration payments are expensed as acquired in-process research and development expenses; however, depending on many factors, including the structure of the collaboration, the significance of the in-licensed ~~drug~~product candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. 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.

Acquired In-Process Research and Development

In the ~~nine months ended September 30,~~first half of 2022 and 2021, ~~and 2020,~~ our ~~research and development expenses~~AIPR&D included ~~$986.8~~$63.9 million and ~~$143.3~~$960.1 million, respectively, related to upfront, ~~and milestones~~contingent milestone, or other payments pursuant to our ~~collaboration agreements. In~~business development transactions, including the ~~nine months ended September 30, 2021, these payments were primarily related to the $900.0 million upfront payment we made to CRISPR in the second quarter~~collaborations, licenses of ~~2021.~~

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~~Joint Development~~third-party technologies, and ~~Commercialization Agreement with CRISPR~~

In 2017, we entered into a joint development and commercialization agreement, or JDCA, with CRISPR pursuant to which we are developing and preparing to commercialize CTX001 for TDT and SCD. This JDCA was entered into following our exercise of an option ~~to co-develop and co-commercialize the hemoglobinopathies program that was contained in the collaboration agreement that we entered into with CRISPR in 2015.~~

In April 2021, we and CRISPR entered into an amended and restated joint development and commercialization agreement, or the A&R JDCA. In June 2021, we made a $900.0 million upfront payment to CRISPR in connection with the closing of the transactions contemplated by the A&R JDCA, which we recorded to research and development expenses. Under the terms of the A&R JDCA, we are leading worldwide development, manufacturing and commercialization of CTX001. Additionally, 60% of the net profits and net losses for CTX001 are allocated to us and 40% of the net profits and net losses for CTX001 are allocated to CRISPR. CRISPR may earn an additional one-time $200.0 million milestone payment upon regulatory approval of CTX001.asset acquisitions described above.

Out-License Agreements

We also have out-licensed internally developed programs to collaborators who are leading the development of these programs. ~~These out-license arrangements include our agreement with Merck KGaA, Darmstadt, Germany, which licensed oncology research and development programs from us in early 2017.~~ 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 royalty revenues resulting from these programs.

~~Please refer to Note C, “Collaborative Arrangements,” for further information regarding~~ None of our ~~in-license~~out-license agreements had a significant impact on our condensed consolidated statement of operations during the first half of 2022 and ~~out-license agreements.~~2021.

Strategic Investments

In connection with our business development activities, we have periodically made equity investments in our collaborators. As of ~~September~~June 30, ~~2021,~~2022, we held strategic equity investments in certain public ~~companies~~ and ~~certain~~ private companies, and we ~~plan~~expect to make additional strategic equity investments in the future. While 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 type of instrument, our strategic investments are maintained and managed separately from our other cash, cash equivalents and marketable securities. ~~Any~~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 statement of operations.

In the nine months ended September 30, 2021 and 2020, we recorded within other income (expense), gains of $5.0 million and $140.9 million, respectively, related to changes in the fair value of our strategic investments, and from sales of certain equity investments. As of September 30, 2021, the fair value of our investments in publicly traded companies was $218.8 million. To the extent that we continue to hold strategic investments, particularly strategic investments in publicly traded companies, we will record other income (expense) related to these strategic investments on a quarterly basis. Due to the volatility of the global markets, including as a result of COVID-19, and the high volatility of stocks in the biotechnology industry, we expect the value of these strategic investments to fluctuate and that the increases or decreases in the fair value of these strategic investments will continue to have material impacts on our net income (expense) and our profitability on a quarterly and/or annual basis.

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RESULTS OF OPERATIONS

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2021 2020 $ % 2021 2020 $ %
(in thousands, except percentages and per share amounts)
Revenues $ 1,984,164 $ 1,538,271 $ 445,893 29% $ 5,501,839 $ 4,577,863 $ 923,976 20%
Operating costs and expenses 929,652 866,030 63,622 7% 3,597,462 2,467,365 1,130,097 46%
Income from operations 1,054,512 672,241 382,271 57% 1,904,377 2,110,498 (206,121) (10)%
Other non-operating income (expense), net 28,229 73,630 (45,401) (62)% (44,931) 117,677 (162,608) **
Provision for income taxes 230,813 78,437 152,376 194% 287,456 120,718 166,738 138%
Net income $ 851,928 $ 667,434 $ 184,494 28% $ 1,571,990 $ 2,107,457 $ (535,467) (25)%
Net income per diluted common share $ 3.28 $ 2.53 $ 6.03 $ 7.98
Diluted shares used in per share calculations 259,707 264,079 260,877 264,031
** Not meaningful

~~Net Income~~

Our net income increased in the third quarter of 2021 as compared to the third quarter of 2020 primarily due to increased revenues resulting from the continued uptake of KAFTRIO in Europe and strong performance of TRIKAFTA in the U.S., including the launch of TRIKAFTA in children with CF 6 through 11 years of age. Our increased revenues were partially offset by increased cost of sales consistent with increased product revenues, changes in the fair value of our strategic investments and an increased provision for income taxes.

Our net income decreased in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily due to the $900.0 million upfront payment we made to CRISPR in the second quarter of 2021 in connection with the amendment of our CTX001 collaboration. Changes in the fair value of our strategic investments, increased cost of sales consistent with increased product revenues and an increased provision for income taxes also decreased our net income. These decreases to our net income were partially offset by increased revenues resulting from the uptake of KAFTRIO in Europe and strong performance of TRIKAFTA in the U.S.

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	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		Change	2022		2021		Change
	(in millions, except percentages and per share amounts)
Revenues	$	2,196.2	$	1,793.4	22%	$	4,293.7	$	3,517.7	22%
Operating costs and expenses	1,089.9		1,831.3		(40)%	2,146.5		2,667.8		(20)%
Income (loss) from operations	1,106.3		(37.9)		**	2,147.2		849.9		153%
Other non-operating expense, net	(81.9)		(6.3)		**	(168.0)		(73.2)		130%
Provision for (benefit from) income taxes	213.9		(111.2)		**	406.6		56.6		**
Net income	$	810.5	$	67.0	**	$	1,572.6	$	720.1	118%

Net income per diluted common share	$	3.13	$	0.26		$	6.09	$	2.75
Diluted shares used in per share calculations	258.7		261.0			258.3		261.5
						** Not meaningful

Revenues


		Three Months Ended September 30,				Increase/(Decrease)			Nine Months Ended September 30,				Increase/(Decrease)				Three Months Ended June 30,					Six Months Ended June 30,
		2021		2020		$		%	2021		2020		$		%		2022		2021		Change	2022		2021		Change
		(in thousands, except percentages)															(in millions, except percentages)
TRIKAFTA/KAFTRIO																TRIKAFTA/KAFTRIO	$	1,893.2	$	1,255.6	51%	$	3,654.8	$	2,448.8	49%
SYMDEKO/SYMKEVI																SYMDEKO/SYMKEVI	42.7		133.5		(68)%	107.5		258.6		(58)%
ORKAMBI																ORKAMBI	121.6		221.0		(45)%	253.7		439.7		(42)%
KALYDECO																KALYDECO	138.7		183.3		(24)%	277.7		369.6		(25)%
Product revenues, net	Product revenues, net	$	1,984,164	$	1,536,271	$	447,893	29%	$	5,500,839	$	4,575,863	$	924,976	20%	Product revenues, net	2,196.2		1,793.4		22%	4,293.7		3,516.7		22%
Other revenues	Other revenues	—		2,000		(2,000)		N/A	1,000		2,000		(1,000)		(50)%	Other revenues	—		—		**	—		1.0		**
Total revenues	Total revenues	$	1,984,164	$	1,538,271	$	445,893	29%	$	5,501,839	$	4,577,863	$	923,976	20%	Total revenues	$	2,196.2	$	1,793.4	22%	$	4,293.7	$	3,517.7	22%
																						** Not meaningful

Product Revenues, Net

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2021 2020 $ % 2021 2020 $ %
(in thousands, except percentages)
TRIKAFTA/KAFTRIO $ 1,555,772 $ 960,308 $ 595,464 62% $ 4,004,600 $ 2,773,256 $ 1,231,344 44%
SYMDEKO/SYMKEVI 81,415 156,178 (74,763) (48)% 339,969 501,066 (161,097) (32)%
ORKAMBI 184,561 225,919 (41,358) (18)% 624,224 692,038 (67,814) (10)%
KALYDECO 162,416 193,866 (31,450) (16)% 532,046 609,503 (77,457) (13)%
Total product revenues, net $ 1,984,164 $ 1,536,271 $ 447,893 29% $ 5,500,839 $ 4,575,863 $ 924,976 20%

In the ~~third~~second quarter and ~~nine months ended September 30, 2021,~~first half of 2022, our net product revenues increased by ~~$447.9~~$402.8 million and ~~$925.0~~$777.0 million, ~~respectively,~~or 22% as compared to the ~~third~~second quarter and ~~nine months ended September 30, 2020. The increase in our net product revenues in the third quarter and nine months ended September 30,~~first half of 2021, ~~was~~respectively, primarily due to the ~~continued uptake~~strong launches of TRIKAFTA/KAFTRIO ~~which was approved~~ in ~~the E.U. in the third quarter of 2020,~~multiple countries internationally and the strong performance of TRIKAFTA in the U.S., including the June 2021 launch of TRIKAFTA ~~in June 2021 in~~for children with CF 6 through 11 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 from ex-U.S. markets were as follows:

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2021 2020 % 2021 2020 %
(in thousands, except percentages)
U.S. markets $ 1,382,892 $ 1,222,565 13% $ 3,893,245 $ 3,620,467 8%
Ex-U.S. markets 601,272 313,706 92% 1,607,594 955,396 68%
Total product revenues, net $ 1,984,164 $ 1,536,271 29% $ 5,500,839 $ 4,575,863 20%


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		Change	2022		2021		Change
	(in millions, except percentages)
United States	$	1,415.1	$	1,256.9	13%	$	2,783.3	$	2,510.4	11%
ex-U.S.	781.1		536.5		46%	1,510.4		1,006.3		50%
Product revenues, net	$	2,196.2	$	1,793.4	22%	$	4,293.7	$	3,516.7	22%

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Other Revenues

~~Our other revenues were~~We earned a collaborative milestone of $1.0 million ~~and $2.0 million related to collaborative milestones that we earned~~ in the ~~nine months ended September 30,~~first half of 2021 and ~~2020, respectively.~~did not have any “Other revenues” in the first half of 2022. Our ~~other revenues~~“Other revenues” have historically fluctuated significantly from one period to another based on our collaborative out-license activities and may continue to fluctuate in the future. ~~Our future royalty revenues will be dependent on if, and when, our collaborators are able to successfully develop drug candidates that we have out-licensed to them.~~

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Operating Costs and Expenses


`	`	Three Months Ended September 30,				Increase/(Decrease)			Nine Months Ended September 30,				Increase/(Decrease)			`	Three Months Ended June 30,					Six Months Ended June 30,
		2021		2020		$		%	2021		2020		$		%		2022		2021		Change	2022		2021		Change
		(in thousands, except percentages)															(in millions, except percentages)
Cost of sales	Cost of sales	$	236,512	$	186,182	$	50,330	27%	$	656,813	$	533,199	$	123,614	23%	Cost of sales	$	261.8	$	228.0	15%	$	507.6	$	420.3	21%
Research and development expenses	Research and development expenses	493,751		493,497		254		—%	2,356,814		1,362,953		993,861		73%	Research and development expenses	600.1		448.7		34%	1,201.2		903.0		33%
Acquired in-process research and development expenses																Acquired in-process research and development expenses	61.9		958.4		(94)%	63.9		960.1		(93)%
Selling, general and administrative expenses	Selling, general and administrative expenses	198,189		184,551		13,638		7%	584,935		558,613		26,322		5%	Selling, general and administrative expenses	215.3		194.6		11%	430.5		386.7		11%
Change in fair value of contingent consideration	Change in fair value of contingent consideration	1,200		1,800		(600)		(33)%	(1,100)		12,600		(13,700)		**	Change in fair value of contingent consideration	(49.2)		1.6		**	(56.7)		(2.3)		**
Total costs and expenses	Total costs and expenses	$	929,652	$	866,030	$	63,622	7%	$	3,597,462	$	2,467,365	$	1,130,097	46%	Total costs and expenses	$	1,089.9	$	1,831.3	(40)%	$	2,146.5	$	2,667.8	(20)%
																						** Not meaningful
													** Not meaningful

Beginning with the second quarter of 2022, we are classifying upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development expenses,” or “AIPR&D,” in our condensed consolidated statements of operations. To conform prior periods to our current presentation, we have reclassified $958.4 million and $960.1 million from “Research and development expenses” to “AIPR&D” for the three and six months ended June 30, 2021, respectively.

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on ~~our~~ net sales of our products as well as the cost of producing ~~inventories that corresponded to product revenues for the reporting period.~~inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation 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, with royalties on sales of TRIKAFTA/KAFTRIO slightly lower than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was 12% and 13% in the second quarter of 2022 and 2021, respectively. Our cost of sales as a percentage of our net product revenues was 12% in each of the ~~third quarter~~first half of 2022 and 2021, ~~and 2020 and nine months ended September 30, 2021 and 2020.~~respectively.

Research and Development Expenses


		Three Months Ended September 30,				Increase/(Decrease)			Nine Months Ended September 30,				Increase/(Decrease)				Three Months Ended June 30,					Six Months Ended June 30,
		2021		2020		$		%	2021		2020		$		%		2022		2021		Change	2022		2021		Change
		(in thousands, except percentages)															(in millions, except percentages)
Research expenses	Research expenses	$	148,620	$	186,152	$	(37,532)	(20)%	$	426,352	$	477,560	$	(51,208)	(11)%	Research expenses	$	160.9	$	122.3	32%	$	304.7	$	250.4	22%
Development expenses	Development expenses	345,131		307,345		37,786		12%	1,930,462		885,393		1,045,069		118%	Development expenses	439.2		326.4		35%	896.5		652.6		37%
Total research and development expenses	Total research and development expenses	$	493,751	$	493,497	$	254	—%	$	2,356,814	$	1,362,953	$	993,861	73%	Total research and development expenses	$	600.1	$	448.7	34%	$	1,201.2	$	903.0	33%

Our research and development expenses include internal and external costs incurred for research and development of our ~~drugs~~products and ~~drug candidates and expenses related to certain technologies that we acquire or license through business development transactions.~~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 excluding collaborative upfront and milestone payments, such as the~~ costs of services provided to us by clinical research organizations and other

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outsourced research ~~which we allocate~~ by individual program. Our internal costs are significantly greater than our external costs. All research and development costs for our ~~drugs~~products and ~~drug~~product candidates are expensed as incurred.

Since January ~~2019,~~2020, we have incurred approximately ~~$5.9~~$6.1 billion in total research and development and AIPR&D expenses associated with ~~drug~~product discovery and development. The successful development of our ~~drug~~product candidates is highly uncertain and subject to a number of risks. In addition, the duration of clinical trials may vary substantially according to the type, complexity and novelty of the ~~drug~~product candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical

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studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our ~~drug~~product candidates to market are not available.

~~In 2020 and the nine months ended September 30, 2021, costs related to our CF programs represented the largest portion of our development costs, excluding the $900.0 million upfront payment to CRISPR.~~ Any estimates regarding development and regulatory timelines for our ~~drug~~product candidates are highly subjective and subject to change. Until we have data from Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or if, a clinical development program will generate revenues and cash flows.

Research Expenses


		Three Months Ended September 30,				Increase/(Decrease)			Nine Months Ended September 30,				Increase/(Decrease)				Three Months Ended June 30,					Six Months Ended June 30,
		2021		2020		$		%	2021		2020		$		%		2022		2021		Change	2022		2021		Change
		(in thousands, except percentages)															(in millions, except percentages)
Research Expenses:	Research Expenses:															Research Expenses:
Salary and benefits	Salary and benefits	$	34,635	$	32,145	$	2,490	8%	$	102,529	$	97,513	$	5,016	5%	Salary and benefits	$	38.1	$	33.2	15%	$	78.3	$	67.9	15%
Stock-based compensation expense	Stock-based compensation expense	17,388		15,301		2,087		14%	56,361		68,206		(11,845)		(17)%	Stock-based compensation expense	19.5		18.0		8%	42.4		39.0		9%
Outsourced services and other direct expenses	Outsourced services and other direct expenses	35,798		27,911		7,887		28%	114,920		79,837		35,083		44%	Outsourced services and other direct expenses	44.0		39.0		13%	83.5		79.1		6%
Collaborative payments		26,750		80,050		(53,300)		(67)%	54,150		143,300		(89,150)		(62)%
Intangible asset impairment charge																Intangible asset impairment charge	13.0		—		**	13.0		—		**
Infrastructure costs	Infrastructure costs	34,049		30,745		3,304		11%	98,392		88,704		9,688		11%	Infrastructure costs	46.3		32.1		44%	87.5		64.4		36%
Total research expenses	Total research expenses	$	148,620	$	186,152	$	(37,532)	(20)%	$	426,352	$	477,560	$	(51,208)	(11)%	Total research expenses	$	160.9	$	122.3	32%	$	304.7	$	250.4	22%
																						** Not meaningful

~~We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.~~ Our research expenses have historically fluctuated, and are expected to continue to fluctuate, from one period to another due to upfront and milestone payments related to our business development activities that are reflected in the preceding table as collaborative payments. Our research expenses, excluding these collaborative payments, have been increasing over the last several years as we have invested in our pipeline and expanded our cell and genetic therapy ~~capabilities.~~capabilities, resulting in increased headcount and infrastructure. We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.

Development Expenses

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2021 2020 $ % 2021 2020 $ %
(in thousands, except percentages)
Development Expenses:
Salary and benefits $ 88,568 $ 73,698 $ 14,870 20% $ 252,173 $ 221,828 $ 30,345 14%
Stock-based compensation expense 43,607 45,469 (1,862) (4)% 140,051 135,526 4,525 3%
Outsourced services and other direct expenses 149,627 133,595 16,032 12% 426,441 374,926 51,515 14%
Collaborative payments — — — N/A 932,650 — 932,650 **
Infrastructure costs 63,329 54,583 8,746 16% 179,147 153,113 26,034 17%
Total development expenses $ 345,131 $ 307,345 $ 37,786 12% $ 1,930,462 $ 885,393 $ 1,045,069 118%
** Not meaningful

Our development expenses increased by $37.8 million in the third quarter of 2021 as compared to third quarter of 2020, primarily due to increased expenses related to our diversifying pipeline, including clinical trials, headcount and infrastructure costs. Our development expenses increased by $1.05 billion in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to the $900.0 million upfront payment to CRISPR in the second quarter of 2021, that is included in the preceding table under collaborative payments, and increased expenses related to our diversifying pipeline, including clinical trials, headcount and infrastructure costs.


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		Change	2022		2021		Change
	(in millions, except percentages)
Development Expenses:
Salary and benefits	$	101.0	$	79.1	28%	$	210.9	$	163.6	29%
Stock-based compensation expense	50.0		44.6		12%	107.5		96.4		12%
Outsourced services and other direct expenses	210.6		144.0		46%	423.3		276.8		53%
Infrastructure costs	77.6		58.7		32%	154.8		115.8		34%
Total development expenses	$	439.2	$	326.4	35%	$	896.5	$	652.6	37%

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Our development expenses increased by $112.8 million and $243.9 million, or 35% and 37%, in the second quarter and first half of 2022 as compared to the second quarter and first half of 2021, respectively, primarily due to increased costs to support clinical trials associated with our advancing pipeline programs, including our CF triple combination of VX-121/tezacaftor/VX-561, pain and T1D. We are investing in both our internal headcount and infrastructure and also leveraging outsourced services to support these programs. In the first half of 2022 and 2021, costs related to our CF programs represented the largest portion of our development costs.

Acquired In-process Research and Development Expenses


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		Change	2022		2021		Change
	(in millions, except percentages)
Acquired in-process research and development expenses	$	61.9	$	958.4	(94)%	$	63.9	$	960.1	(93)%

AIPR&D in the second quarter and first half of 2022 was primarily related to a $60.0 million payment to Catalyst to acquire their complement portfolio and related intellectual property. AIPR&D in the second quarter and first half of 2021 included the $900.0 million upfront payment to CRISPR. Our AIPR&D has historically fluctuated, and is expected to continue to fluctuate, from one period to another due to upfront, contingent milestone, and other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.

Selling, General and Administrative Expenses

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)
2021 2020 $ % 2021 2020 $ %
(in thousands, except percentages)
Selling, general and administrative expenses $ 198,189 $ 184,551 $ 13,638 7% $ 584,935 $ 558,613 $ 26,322 5%


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021		Change	2022		2021		Change
	(in millions, except percentages)
Selling, general and administrative expenses	$	215.3	$	194.6	11%	$	430.5	$	386.7	11%

Selling, general and administrative expenses increased by 7%11% in each of the ~~third~~second quarter and first half of ~~2021 as compared to third quarter of 2020 and increased by 5% in the nine months ended September 30, 2021~~2022 as compared to the ~~nine months ended September 30, 2020,~~second quarter and first half of 2021, primarily due to the continued investment to support the commercialization of our medicines and increased support for our CF pipeline ~~products and other disease areas.~~product candidates.

Contingent Consideration

The fair value of contingent consideration potentially payable to ~~Exonics’~~ former Exonics equity holders ~~increased $1.2~~decreased by $49.2 million and ~~decreased $1.1~~$56.7 million in the ~~third~~second quarter and ~~nine months ended September 30, 2021, respectively.~~first half of 2022, respectively, primarily the result of revision to the scope of certain gene-editing programs in the second quarter of 2022. The fair value of contingent consideration increased by ~~$1.8~~$1.6 million and ~~$12.6~~decreased by $2.3 million in the ~~third~~second quarter and ~~nine months ended September 30, 2020,~~first half of 2021, respectively.

Other Non-Operating Income (Expense), Net

Interest Income

Interest income was ~~$1.1~~$10.8 million and ~~$3.7~~$1.1 million in the ~~third~~second quarter of 2022 and ~~nine months ended September 30,~~ 2021, respectively, ~~which was lower than our interest income of $3.1~~and $12.4 million and ~~$19.9~~$2.6 million in the ~~third quarter~~first half of 2022 and ~~nine months ended September 30, 2020, respectively, due to a decrease in prevailing market interest rates, despite an increase in our cash equivalents and available-for-sale debt securities.~~2021, respectively. Our future interest income ~~will be~~is dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.

Interest Expense

Interest expense was ~~$15.3~~$14.6 million and ~~$46.4~~$15.5 million in the ~~third~~second quarter of 2022 and ~~nine months ended September 30,~~ 2021, respectively, ~~as compared to $13.9~~and $29.5 million and ~~$41.9~~$31.2 million in the ~~third quarter~~first half of 2022 and ~~nine months ended September 30, 2020,~~2021, respectively. The majority of our interest expense in these periods was related to imputed interest expense associated with our leased corporate headquarters in Boston. ~~Our future interest expense will be dependent on whether, and to what extent, we borrow amounts under our credit facilities.~~

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Other Income (Expense), Net

Other income (expense), net was expense of $78.1 million and income of ~~$42.4~~$8.1 million in the second quarter of 2022 and 2021, respectively, and expense of ~~$2.2~~$150.9 million and $44.6 million in the ~~third quarter~~first half of 2022 and ~~nine months ended September 30,~~ 2021, ~~respectively, as compared~~respectively. The vast majority of these amounts relate to ~~income of $84.4 million and $139.6 million in the third quarter and nine months ended September 30, 2020, respectively. Our other income (expense),~~ net ~~in these periods was primarily related to~~unrealized gains or losses resulting from changes in the fair value of our strategic investments. As of June 30, 2022, the fair value of our investments in publicly traded companies was $71.1 million. To the extent that we continue to hold strategic investments in publicly traded companies, we will record other income (expense) related to these strategic investments on a quarterly basis. We expect that due to the volatility of the stock price of biotechnology companies, our other income (expense), net will fluctuate in future periods based on increases or decreases in the fair value of our strategic investments.

Income Taxes

We recorded provisions for income taxes of ~~$230.8~~$213.9 million and ~~$287.5~~$406.6 million in the ~~third~~second quarter and ~~nine months ended September 30,~~first half of 2022, respectively, a benefit from income taxes of $111.2 million in the second quarter of 2021 ~~respectively, as compared to provisions~~and a provision for income taxes of ~~$78.4 million and $120.7~~$56.6 million in the ~~third quarter and nine months ended September 30, 2020, respectively.~~first half of 2021. Our effective tax rate of ~~15%~~21% for the ~~nine months ended September 30,~~first half of 2022 was similar to the U.S. statutory rate. Our effective tax rate of 7% for the first half of 2021 was lower than the U.S. statutory rate primarily due to a ~~$100~~$99.7 million discrete tax benefit associated with an increase in the U.K.’s corporate tax rate from 19% to 25%, which was enacted in June 2021 and will become effective in April 2023.

Net Income

Our ~~effective tax rate~~net income increased to $810.5 million and $1.6 billion in the second quarter and first half of ~~5% for~~2022, respectively, as compared to $67.0 million and $720.1 million in the ~~nine months ended September 30, 2020 was lower than the U.S. statutory rate~~second quarter and first half of 2021, respectively, primarily due to ~~(i) a $209~~the $900.0 million ~~discrete tax benefit associated with the transfer of intellectual property rights~~upfront payment we made to ~~the U.K., (ii) a discrete tax benefit associated with the write off of a long-term intercompany receivable,~~

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~~(iii) a discrete tax benefit associated with an increase~~CRISPR in the ~~U.K.’s corporate tax rate from 17%~~second quarter of 2021 and increased product revenues. These increases in net income were partially offset by increased cost of sales, development expenses to ~~19%, which was enacted~~progress several product candidates into mid- to late-stage clinical development, selling, general and ~~became effective~~administrative expenses to support the commercialization of our medicines and increased support for our pipeline product candidates and income taxes. We also incurred significant unrealized losses on our strategic investments in ~~July 2020,~~second quarter and ~~(iv) excess tax benefits related to stock-based compensation.~~first half of 2022.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		September 30,		December 31,		Increase/(Decrease)
		2021		2020		$		%		As of June 30, 2022		As of December 31, 2021		Change
		(in thousands)								(in millions, except percentages)
Cash, cash equivalents and marketable securities	Cash, cash equivalents and marketable securities	$	6,960,885	$	6,658,897	$	301,988	5%	Cash, cash equivalents and marketable securities	$	9,253.4	$	7,524.9	23%
Working Capital:	Working Capital:								Working Capital:
Total current assets	Total current assets	8,852,540		8,133,379		719,161		9%	Total current assets	11,503.5		9,560.6		20%
Total current liabilities	Total current liabilities	(1,914,264)		(1,877,533)		36,731		2%	Total current liabilities	(2,556.2)		(2,142.0)		19%
Total working capital	Total working capital	$	6,938,276	$	6,255,846	$	682,430	11%	Total working capital	$	8,947.3	$	7,418.6	21%

Working Capital

As of ~~September~~June 30, ~~2021,~~2022, total working capital was ~~$6.94~~$8.9 billion, which represented an increase of ~~$682.4 million~~$1.5 billion from ~~$6.26~~$7.4 billion as of December 31, ~~2020.~~2021. The increase in total working capital in the ~~nine months ended September 30, 2021~~first half of 2022 was primarily related to ~~$1.65~~$2.1 billion of cash provided by ~~operations, which was~~operations.

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Cash Flows


	Six Months Ended June 30,
	2022		2021
	(in millions)
Net cash provided by (used in):
Operating activities	$	2,096.0	$	721.3
Investing activities	$	(112.5)	$	(154.0)
Financing activities	$	(47.7)	$	(485.1)

Operating Activities

Cash provided by operating activities were $2.1 billion in the first half of 2022 as compared to $721.3 million in the first half of 2021, primarily due to a $852.5 million increase in our net ~~of our~~income resulting from the $900.0 million upfront payment to CRISPR ~~partially offset by $1.06 billion~~that was recorded within “Acquired in-process research and development expenses” in the first half of ~~cash~~2021 and changes to accrued expenses and accounts receivable due to increased product revenues.

Investing Activities

Cash used in investing activities were $112.5 million and $154.0 million in the first half of 2022 and 2021, respectively. These investing activities were primarily related to ~~repurchase~~purchases of property and equipment.

Financing Activities

Cash used in financing activities were $47.7 million and $485.1 million in the first half of 2022 and 2021, respectively. In the first half of 2022, the largest portion of our ~~common~~financing activities were payments related to our employee stock benefit plans. In the first half of 2021, the largest portion of our financing activities were share repurchases pursuant to our share repurchase programs ~~and expenditures for property and equipment of $173.3~~totaling $424.9 million.

Sources and Uses of Liquidity

As of ~~September~~June 30, ~~2021,~~2022, we had cash, cash equivalents and marketable securities of ~~$6.96~~$9.3 billion, which represented an increase of ~~$302 million~~$1.7 billion from ~~$6.66~~$7.5 billion as of December 31, ~~2020.~~2021. We intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity.

We may borrow up to a total of $2.5 billion pursuant to two revolving credit facilities. We may repay and reborrow amounts under these revolving credit agreements without penalty. Subject to certain conditions, we may request that the borrowing capacity for each of the credit agreements be increased by an additional $500.0 million, for a total of $3.5 billion collectively.

Other possible sources of future liquidity include commercial debt, public and private offerings of our equity and debt securities, strategic sales of assets or businesses and financial transactions. Negative covenants in our credit agreement may prohibit or limit our ability to access these sources of liquidity. As of September 30, 2021, we were in compliance with these covenants.

~~Future Capital Requirements~~

~~We have significant future capital requirements, including:~~

•~~significant expected operating expenses to conduct research and development activities and to operate our organization; and~~

•~~substantial facility and finance lease obligations.~~

~~In addition:~~

•We have entered into certain collaboration agreements with third parties that include the funding of certain research, development and commercialization efforts. Certain of our business development transactions, including collaborations and acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. We may enter into additional business development transactions, including acquisitions, collaborations and equity investments, that require additional capital.

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•~~To the extent we borrow amounts under the credit agreements we entered into in 2020 and 2019, we would be required to repay any outstanding principal amounts in 2022 or 2024, respectively.~~

•~~As of September 30, 2021, we had $857.8 million available under our 2021 Share Repurchase Program. We repurchased an additional $357.8 million of our common stock during October 2021.~~

We expect that cash flows from our products together with our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by our products, and the potential introduction of one or more of our other ~~drug~~product candidates to the market, the level of our business development activities and the number, breadth, cost and prospects of our research and development programs.

Credit Facilities & Financing Strategy

As of June 30, 2022, we could borrow up to a total of $2.5 billion pursuant to two revolving credit facilities and could repay and reborrow amounts under these revolving credit agreements without penalty. Subject to certain conditions, we could request that the borrowing capacity for each of the credit agreements be increased by an additional $500.0 million, for a total of $3.5 billion collectively. Negative covenants in our credit agreement could prohibit or limit our ability to access these sources of liquidity. As of June 30, 2022, both facilities were undrawn, and we were in compliance with these covenants.

In July 2022, we terminated the $500.0 million revolving credit facility that we entered into in 2019 and entered into a new $500.0 million revolving credit facility, which matures in July 2027. The $2.0 billion revolving credit facility that we entered into in 2020 matures in September 2022.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will consider all financing opportunities, whenever they may occur, that could strengthen

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our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.

Future Capital Requirements

We have significant future capital requirements, including:

•Expected operating expenses to conduct research and development activities and to operate our organization.

•Facility and finance lease obligations.

~~CONTRACTUAL COMMITMENTS AND OBLIGATIONS~~•Royalties we pay to the Cystic Fibrosis Foundation on sales of our CF products.

•Cash paid for income taxes.

In addition, we have significant potential future capital requirements including:

•We have entered into certain business development-related agreements with third parties that include the funding of certain research, development, and commercialization efforts. Certain of our transactions, including collaborations, licensing arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. Our ~~commitments~~obligation to fund these research and ~~obligations were reported~~development and commercialization efforts and to pay these potential milestone and royalties is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause the discontinuance of the programs associated with our collaborations, licensing arrangements and acquisitions. We may enter into additional business development transactions, including acquisitions, collaborations, licensing arrangements and equity investments, that require additional capital. For example, in July 2022, we entered into an agreement to acquire ViaCyte for approximately $320.0 million in cash.

•To the extent we borrow amounts under our existing credit agreements, we would be required to repay any outstanding principal amounts in the third quarter of 2022 or 2027.

•As of June 30, 2022, we had $0.5 billion available under our 2021 Share Repurchase Program.

There have not been any material changes to our future capital requirements disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the Securities and Exchange Commission, or SEC, on February ~~11, 2021. There have been no material changes from the contractual commitments and obligations previously disclosed in that Annual Report on Form 10-K.~~9, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~11, 2021.~~9, 2022.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, please refer to Note A, “Basis of Presentation and Accounting Policies.”

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is incorporated by reference from the discussion in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~11, 2021.~~9, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management (under the supervision and with the participation of our chief executive officer and chief financial officer), after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q, has concluded that, based on such evaluation, as of ~~September~~June 30, ~~2021~~2022 our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Controls Over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the three months ended ~~September~~June 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings

We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors

Information regarding risk factors appears in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~11, 2021.~~9, 2022. There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and, in particular, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I, Item 2, contain a number of forward-looking statements. Forward-looking statements are not purely historical and may be accompanied by words such as “anticipates,” “may,” “forecasts,” “expects,” “intends,” “plans,” “potentially,” “believes,” “seeks,” “estimates,” and other words and terms of similar meaning. Such statements may relate to:

•our expectations regarding the amount of, timing of, and trends with respect to our financial performance, including revenues, costs and expenses and other gains and losses, including those related to net product revenues;

•our expectations regarding clinical trials, development timelines, regulatory authority filings, submissions, and potential approvals and label expansions for our ~~medicines,~~product and product candidates, and other pipeline programs, including timing and structure of clinical trials, anticipated enrollment and dosing of patients, timing of availability of data from our ongoing and planned clinical trials, and timing of anticipated regulatory filings;

•our ability to obtain reimbursement for our medicines in the U.S. and ex-U.S. markets and our ability to launch, commercialize and market our ~~medicines~~products or any of our other ~~drug~~product candidates for which we obtain regulatory approval;

•the data that will be generated by ongoing and planned clinical trials and the ability to use that data to advance compounds, continue development or support regulatory filings;

•our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our ~~drug~~product candidates and other pipeline programs for further investigation, clinical trials or potential use as a treatment;

•our beliefs regarding the number of people with CF and those potentially eligible for our medicines, and our ability to grow our CF business by increasing the number of people with CF eligible and able to receive our medicines;

•our expectations regarding the potential benefits and commercial potential of our product candidates, including the potential approach to treating or curing specific diseases;

•our plan to continue investing in our research and development programs, including anticipated timelines for our programs, and our strategy to develop our pipeline programs, alone or with third party-collaborators;

•the potential future benefits of our acquisitions and collaborations, including our ~~CTX001~~exa-cel collaboration with ~~CRISPR, our CF mRNA therapeutics collaboration with Moderna, Inc., our collaboration with Arbor and our collaboration with Mammoth;~~CRISPR;

•the establishment, development and maintenance of collaborative relationships, including potential milestone payments or other obligations;

•potential business development activities, including the identification of potential collaborative partners or acquisition targets;

•our expectations regarding the effect of COVID-19 on, among other things, our financial performance, liquidity, business and operations, including manufacturing, supply chain, research and development activities and pipeline programs;

•potential fluctuations in foreign currency exchange rates;

•our expectations regarding our provision for or benefit from income taxes and the utilization of our deferred tax assets;

•our ability to use our research programs to identify and develop new ~~drug~~product candidates to address serious diseases and significant unmet medical needs; and

•our liquidity and our expectations regarding the possibility of raising additional capital.

Forward-looking statements are subject to certain risks, uncertainties, or other factors that are difficult to predict and could cause actual events or results to differ materially from those indicated in any such statements. These risks, uncertainties, and other factors include, but are not limited to, those described in our “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~11, 2021,~~9, 2022, and those described from time to time in our future reports filed with the Securities and Exchange Commission.

Any such forward-looking statements are made on the basis of our views and assumptions as of the date of the filing and are not estimates of future performance. Except as required by law, we undertake no obligation to publicly update any forward-looking statements. The reader is cautioned not to place undue reliance on any such statements.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases of Equity Securities

OnIn June ~~23,~~ 2021, our Board of Directors approved a share repurchase program (the “2021 Share Repurchase Program”), pursuant to which we are authorized to repurchase up to $1.5 billion of our common stock by December 31, 2022. ~~The table set forth below shows repurchases~~We did not

Table of ~~securities by us during~~Contents

repurchase any shares of our common stock under the 2021 Share Repurchase Program in the three months ended ~~September~~June 30, ~~2021~~2022. As of June 30, 2022, $499.7 million remained available to fund repurchases under ~~our 2021 Share Repurchase Program.~~this share repurchase program.

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, 2021 to July 31, 2021 — $ — — $ 1,500,000,000
August 1, 2021 to August 31, 2021 2,532,454 $ 197.79 2,532,454 $ 999,107,701
September 1, 2021 to September 30, 2021 760,707 $ 185.77 760,707 $ 857,793,473
Total 3,293,161 $ 195.01 3,293,161 $ 857,793,473

~~(1)~~ Under our 2021 Share Repurchase Program, we are authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases may be pursuant to Rule 10b5-1 plans or other means as determined by our management and in accordance with the requirements of the Securities and Exchange Commission.

Item 6. Exhibits


Exhibit Number			Exhibit Description
10.1			~~Research, Development and Commercialization~~Credit Agreement, dated as of ~~May 24, 2004, between~~July 1, 2022, by and among Vertex Pharmaceuticals Incorporated, Bank of America, N.A. and ~~Cystic Fibrosis Foundation Therapeutics Incorporated.†~~
~~10.2~~			Amendment No. 1 to Research, Development and Commercialization Agreement, dated as of January 6, 2006, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.†
~~10.3~~			Amendment No. 5 to Research, Development and Commercialization Agreement, effective as of April 1, 2011, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.†
~~10.4~~			Amendment No. 7 to Research, Development and Commercialization Agreement, dated October 13, 2016, between Vertex Pharmaceuticals Incorporated and Cystic Fibrosis Foundation Therapeutics Incorporated.†the other lenders party thereto.
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.
†			~~Confidential portions of this document have been redacted according to the applicable rules.~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Vertex Pharmaceuticals Incorporated

~~November 3, 2021~~August 5, 2022	By:	/s/ Charles F. Wagner, Jr.
		Charles F. Wagner, Jr.
		Executive Vice President, Chief Financial Officer (principal financial officer and duly authorized officer)

3937


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, 2021 to July 31, 2021	—	$	—	—	$	1,500,000,000
August 1, 2021 to August 31, 2021	2,532,454	$	197.79	2,532,454	$	999,107,701
September 1, 2021 to September 30, 2021	760,707	$	185.77	760,707	$	857,793,473
Total	3,293,161	$	195.01	3,293,161	$	857,793,473