Filed by the Registranto
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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| Preliminary Proxy Statement |
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| Definitive Proxy Statement |
| Definitive Additional Materials |
| Soliciting Material under §240.14a-12 |
VERTEX PHARMACEUTICALS INCORPORATED
(Name of Registrant as Specified In Its Charter)
| Payment of Filing Fee (Check | ||
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| A Letter from our Executive Chairman and Chief Executive Officer |
Dear Shareholders:
2021 was aan important year of tremendous success for Vertex, and more importantly,one that has positioned us well for the thousandsfuture as we continue discovering, developing, and commercializing transformative medicines for people with serious diseases. Our unique and differentiated corporate strategy, which is driven by a focus on serial innovation, is delivering both exceptional financial performance and unprecedented clinical results across multiple programs. The disciplined execution of people across the world withour strategy has enabled us to meaningfully expand our leadership position in cystic fibrosis (CF)., where we have already discovered, developed, and commercialized four transformative medicines, and to simultaneously expand and accelerate our clinical-stage pipeline in multiple additional disease areas and therapeutic modalities. During the last year, we significantly increased our annual product revenues by 22% to $7.57 billion and delivered industry-leading operating margins while continuing to invest the majority of our operating expenses in research and development. Our dream has beeninvestment in innovation allowed us to createprogress our pipeline with new proof-of-concept results obtained in type 1 diabetes and APOL1-mediated kidney disease, and to progress our mid- to late-stage clinical development programs in sickle cell disease, beta thalassemia, and pain.
In CF, we are treating more patients than ever before, and we have solidified our long-term leadership position in three important ways. First, with more than 20 new reimbursement agreements secured in 2021 and the launch of TRIKAFTA for children with CF 6 to 11 years of age in the United States, thousands of new patients have initiated treatment with TRIKAFTA, or KAFTRIO as it is known in Europe. Second, we have continued to accumulate unparalleled long-term and real-world data about our medicines showing a companybreadth of clinical benefits that go beyond what we have demonstrated in our Phase 3 studies. Third, we have made important progress advancing once-a-day, next-generation CFTR modulators, now in Phase 3 development, that have the potential for improved efficacy and enhanced economics, and made a significant breakthrough in our mRNA approach for the remaining people with CF who cannot benefit from our small molecule medicines. Based on these results, we are confident that we will reach our goal of bringing transformative therapies to all people with this devastating disease.
Beyond CF, we have a broad and deep pipeline that is both advancing and delivering important clinical results. In 2021, we made significant advances in key pipeline programs, laying the groundwork for multiple important clinical milestones in 2022. In sickle cell disease and beta thalassemia, we completed enrollment for the pivotal studies for CTX001, a one-time gene-editing therapy that is our most advanced program outside of CF and has the scientific wherewithalpotential to be a functional cure for people living with these diseases. In type 1 diabetes, we announced the first clinical data for VX-880, our stem cell-derived fully differentiated pancreatic islet cell therapy, which, while still early, are unprecedented and bring great hope that we will be able to deliver a functional cure to people suffering from this disease. In APOL1-mediated focal segmental glomerulosclerosis, we established clinical proof-of-concept with unprecedented results for VX-147, our small molecule targeting APOL1-mediated kidney disease, and announced plans to move into pivotal development. We also initiated and have now completed and announced positive data for two Phase 2 proof-of-concept studies for VX-548, our small molecule NaV1.8 inhibitor for the treatment of acute pain. 2021 also saw significant progress in our research pipeline for diseases including Duchenne muscular dystrophy, myotonic dystrophy type 1 and alpha-1 antitrypsin deficiency. The speed at which our clinical programs are progressing is a direct result of our differentiated research and development strategy, in which we target causal human biology, focusing on validated targets and on diseases with biomarkers that translate from bench to bedside. With six programs in mid- to late-stage development, we are positioned for multiple milestones and significant value creation in 2022 and beyond.
In addition to advancing our approved and pipeline medicines, we remained committed to supporting our communities and our workforce. In 2021, Vertex and the Vertex Foundation increased support to organizations focused on STEAM education, social innovation, and healthy families – and also continued with targeted efforts in response to COVID-19 and equity, diversity, and social justice. We increased support for our employees, offering a variety of new benefits and growth opportunities designed to enhance their well-being and development now and into the future. We are proud of our committed and talented team and are focused on ensuring that Vertex remains a great place to work for all.
Building on a successful 2021, we have the people, the programs, and the financial strength to consistently discoversuccessfully execute on our strategy: bringing our CF medicines to more people, advancing our broad and develop transformativedeep pipeline of first-in-class or best-in-class medicines that can treat the underlying cause offor multiple serious diseases, like CF. We are making that dream a reality one patient at a time.
Sincerely,
 |  | |
 | ||
Jeffrey M. Leiden, M.D., Ph.D. Executive Chairman | ||
Reshma Kewalramani, M.D. Chief Executive Officer and President |
| Notice of Annual Meeting of Shareholders |
Wednesday, May 18, 2022
9:30 a.m. (Eastern Time)
https://meetnow.global/MYNFZZ5
Dear Shareholders:
You are invited to attend the Vertex Pharmaceuticals Incorporated’s 2016Incorporated 2022 Annual Meeting of Shareholders. At the annual meeting, shareholders will vote:
 | to elect the 11 director nominees that are set forth in the attached proxy statement to our board of directors to serve for a one-year term until the 2023 annual meeting of shareholders and until his or her successor has been duly elected and qualified; |
| to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for 2022; |
| to approve our 2021 named executive officer compensation in an advisory vote; and |
| to approve an amendment and restatement of our 2013 Stock and Option Plan to increase the number of shares authorized for issuance under this plan by 13.5 million shares. |
Shareholders also will transact any other business that may properly come before the annual meeting or any adjournment or postponement of the annual meeting.
MEETING INFORMATION
PROXY MATERIALS:
We are using the “Notice and Access” method of providing proxy materials to you planvia the Internet. We are mailing to attend the annual meeting, please ensure that your shares are represented by voting, signing, dating and returning your proxy in the enclosed envelope, which requires no postage if mailed in the United States.
 | |
MEETING ACCESS:
IN LIGHT OF CONTINUED CONCERNS RELATED TO THE COVID-19 PANDEMIC, VERTEX WILL HOLD A VIRTUAL ANNUAL MEETING. THE VIRTUAL ANNUAL MEETING WILL FACILITATE SHAREHOLDER ATTENDANCE AND PARTICIPATION BY ENABLING SHAREHOLDERS TO PARTICIPATE FROM ANY LOCATION AND AT NO COST. YOU WILL BE ABLE TO PARTICIPATE IN THE MEETING ONLINE, VOTE YOUR SHARES ELECTRONICALLY AND SUBMIT YOUR QUESTIONS DURING THE MEETING BY VISITING HTTPS://MEETNOW.GLOBAL/MYNFZZ5. THERE IS NO PHYSICAL LOCATION FOR THE ANNUAL MEETING THIS YEAR.
Shareholders will need their unique control number, which appears on the Notice of Internet Availability of Proxy Materials or proxy card (printed in the shaded bar), or 2015 Annual Report,within the body of the email sending the proxy statement. If you hold shares beneficially through a bank, broker or other nominee (that is, in full.
To register, you will need to obtain a legal proxy from your bank, broker or other nominee. Once you have received a legal proxy from them, you must submit a copy of this legal proxy, along with your name and email address to Computershare at legalproxy@computershare.com. Alternatively, you may mail your legal proxy to the following address: Computershare, Vertex Pharmaceuticals Incorporated Legal Proxy, P.O. Box 43001, Providence, RI 02940-3001. Requests for registration must be labeled as “Legal Proxy” and received no later than 5:00 p.m. (Eastern Time) on May 13, 2022. You will receive an email from Computershare confirming your registration and providing your control number. You will need your control number to access the virtual annual meeting, submit your questions and vote your shares electronically. The annual meeting will begin promptly at 9:30 a.m. (Eastern Time) on May 18, 2022.
We will make a list of our shareholders of record available electronically during the annual meeting. A shareholder wishing access to the list during the annual meeting should contact our corporate secretary in advance of the meeting.
RECORD DATE:
Only Vertex shareholders of record at the close of business on March 24, 2022 are entitled to receive notice of, and vote at, the annual meeting, and, subject to applicable law, any adjournment or postponement thereof.
VOTING:
Your vote matters. Whether or not you plan to attend the annual meeting, we urge you to vote as promptly as possible by Internet, telephone or signing, dating and returning a printed proxy card. If you attend the annual meeting, you may vote your shares during the annual meeting even if you previously voted your proxy. Please vote as soon as possible to ensure that your shares will be represented and counted at the annual meeting.
April 7, 2022
By Order of the Board of Directors,
Sabrina Yohai
Corporate Secretary
| IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS. This notice, our proxy statement, and our Annual Report on Form 10-K for the year ended December 31, 2021 are first being made available to holders of record of our common stock on or about April 7, 2022. These materials are available to holders of record of our common stock at www.envisionreports.com/VRTX and to beneficial holders of our common stock at www.edocumentview.com/VRTX. |
SUMMARY
In 2021, we continued to developingexecute on our strategy of investing in scientific innovation to create transformative medicines for people with serious diseases. In so doing, we grew our cystic fibrosis (“CF”) business, advanced our pipeline of potential treatments for patients in multiple new disease areas, and further strengthened our financial position.
In CF, our fourth approved medicine, TRIKAFTA, or KAFTRIO as it is known in Europe, has the potential to treat approximately 90% of people with CF. In 2021, we continued to make progress bringing TRIKAFTA/KAFTRIO to many more eligible patients both within and outside of the U.S. Beyond CF, we are advancing programs in several serious diseases: sickle cell disease and beta thalassemia, APOL1-mediated kidney disease, type 1 diabetes , pain, alpha-1 antitrypsin deficiency, Duchenne muscular dystrophy, and myotonic dystrophy type 1.
Our outstanding performance in 2021 resulted in net product revenues of $7.57 billion and strong operating margins. As a result, we are well-positioned to continue creating long-term value for both our patients and our shareholders with a portfolio of approved high value medicines for CF, a broad and deep pipeline beyond CF, therapeutic modalities that span small molecules to genetic and cell therapies, and a strong financial profile.
Financial Performance
Our CF medicines, TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO, are transforming the lives of eligible patients around the globe and continue to drive our financial performance.
| Our CF net product revenues increased to $7.57 billion in 2021, up 22% or approximately $1.4 billion, from our 2020 net product revenues. |
| Our total R&D and SG&A expenses increased to $3.9 billion compared to $2.6 billion in 2020 primarily due to a $900 million upfront payment we made to CRISPR in connection with an amendment to our CTX001 collaboration in 2021, and incremental investments to support the advancement and expansion of our pipeline and to support the launches of our medicines globally. |
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VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 7
Marketed Products
Our deliberate strategy of continuous serial innovation has significantly solidified our leadership position in CF and moved us ever closer to our goal of delivering highly effective treatments to all patients with CF. In January 2012, KALYDECO was first approved to treat approximately 1,000 patients with the G551D mutation in the U.S. Since then, we have focused on expanding the number of patients eligible for our medicines and seeking improved treatment options for all patients with CF.
Today, our four approved medicines are being used to treat the majority of the approximately 83,000 people with CF in North America, Europe, and Australia. However, we believe that there are more than 25,000 untreated patients in these geographies who could still benefit from our medicines. Over the next several years, we plan to reach these patients through continued uptake of our medicines, expansion of our TRIKAFTA/KAFTRIO label to lower age groups, and additional approvals and reimbursement agreements. In support of our goal of bringing transformative therapies to all people with CF, we also are pursuing genetic therapies for the remaining people with CF who may not be helped by our current CF medicines. During the last year, we have significantly advanced our pre-clinical messenger ribonucleic acid (“mRNA”) program for these patients and expect to enter the clinic with this new therapy in 2022.
CONTINUED GROWTH AHEAD IN CF
Since the beginning of 2021, notable progress that has resulted from our efforts includes:
| The U.S. Food and Drug Administration (“FDA”) approved the use of TRIKAFTA for children with CF 6 through 11 years of age who have at least one F508del mutation or at least one other mutation that is responsive to TRIKAFTA. |
| Health Canada granted marketing authorization for TRIKAFTA for people with CF 12 years of age and older who have at least one F508del mutation. Our application for approval of TRIKAFTA for children with CF 6 through 11 years of age has been accepted for priority review by Health Canada. |
| In January 2022, the European Commission and the Medicines and Healthcare products Regulatory Agency granted marketing authorization for KAFTRIO for the treatment of children with CF 6 through 11 years of age who have at least one F508del mutation in the CFTR gene. |
| More than 20 countries outside the U.S. have now approved and reimbursed or made accessible TRIKAFTA/KAFTRIO. |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 8
Research and Development
We invest in research and development to discover and develop transformative medicines for people with serious diseases with a focus on specialty markets. Our research and development strategy is to combine transformative advances in the understanding of human disease and the science of therapeutics to discover and develop new medicines. This approach has yielded a broad and deep pipeline and increases the speed and likelihood of successfully bringing medicines to patients. Our differentiated approach to drug discovery has been validated by our success in moving multiple novel small molecule drug candidates into clinical trials and obtaining marketing approvals for five transformative medicines in the past decade.
We continue to research and develop small molecule product candidates for the treatment of serious diseases, including CF, APOL1-mediated kidney disease (“AMKD”), pain, alpha-1 antitrypsin (“AAT”) deficiency, and myotonic dystrophy type 1 (“DM1”). Our research and development approach includes advancing multiple candidates into clinical trials, pursuing multiple modalities, and evaluating clinical and non-clinical data to inform drug discovery and development, with the goal of bringing best-in-class therapies to patients. In 2022, we expect to have several small molecule programs in pivotal development (AMKD, CF, pain). In addition to expanding our small molecule programs during the last seven years, we also have assembled an industry-leading portfolio of programs in cell and gene therapies. In collaboration with our partner, CRISPR Therapeutics AG (“CRISPR”), we have developed the first human gene editing approach for two serious genetic diseases, sickle cell disease (“SCD”) and beta thalassemia. Based on our acquisition of Semma Therapeutics, we have recently reported unprecedented clinical data for the first stem cell-derived therapy for type 1 diabetes (“T1D”). We also continue to advance our late-stage pre-clinical gene editing program for Duchenne muscular dystrophy (“DMD”).
We are advancing programs across multiple disease areas and modalities, including:
| Cystic Fibrosis. We are evaluating in Phase 3 clinical trials a new, once-daily investigational triple combination of VX-121/tezacaftor/VX-561 (deutivacaftor). We also are researching mRNA therapies as well as gene-editing approaches to treat the remaining people with CF who are not expected to benefit from our small molecule medicines. We expect to submit an IND for our CF mRNA program in 2022. |
| Sickle Cell Disease and Beta Thalassemia. We are evaluating in Phase 3 clinical trials CTX001, an investigational CRISPR/Cas9-based gene-editing therapy for severe sickle cell disease and transfusion-dependent beta thalassemia (“TDT”) with CRISPR. Enrollment is complete, and we anticipate regulatory submissions for CTX001 in late 2022. |
| APOL1-Mediated Kidney Disease. Based on positive Phase 2 data for VX-147, our small molecule for the treatment of APOL1-mediated focal segmental glomerulosclerosis (“FSGS”), we advanced VX-147 into pivotal development in a broader population of people with AMKD in the first quarter of 2022. |
| Type 1 Diabetes. We are evaluating VX-880, a stem-cell derived therapy involving the transplantation of fully differentiated pancreatic islet cells, for the treatment of T1D in a Phase 1/2 clinical trial, and announced positive Day 150 data for the first T1D patient in this clinical trial. Our trials in the U.S. and Canada are ongoing, and we continue to dose patients. We also are pursuing additional programs in T1D, in which the implanted islet cells are encapsulated in an immunoprotective device or modified to produce hypoimmune cells. We are conducting IND-enabling studies for the cells and device program and expect to submit an IND for this program in 2022. |
| Pain. We recently announced positive Phase 2 data for VX-548, a NaV 1.8 inhibitor, for the non-opioid treatment of acute pain. We expect to advance VX-548 into pivotal development in the second half of 2022. |
| Alpha-1 Antitrypsin Deficiency. We obtained proof-of-mechanism for VX-864 in a Phase 2 study of protein folding correction of the Z-AAT protein. We plan to advance into the clinic one or more novel small molecule correctors intended to address the lung and liver manifestations of AAT deficiency in 2022. |
| Duchenne muscular dystrophy and myotonic dystrophy type 1. We are focused on advancing gene-editing therapies aimed at treating the underlying cause of DMD and DM1. We are also exploring potential small molecule approaches to address the underlying causal biology for DM1. |
| In addition to the programs listed above, we have a number of early-stage research programs aimed at other targets that represent the causal human biology of serious diseases. |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 9
We will continue investing in our research and development programs and fostering scientific innovation by identifying additional product candidates through our internal research efforts and investing in business development transactions to access emerging technologies, products and product candidates.
The following chart represents our pipeline programs by disease area, stage of development, and modality, for programs that have lead assets in the clinic.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 10
Increasing Shareholder Value
We believe that execution of our differentiated serial innovation strategy will continue to create shareholder value over the long term. The biotechnology sector is subject to short-term volatility and many biotechnology companies, including Vertex, experienced stock price fluctuations in 2021. Notwithstanding these short-term fluctuations, our executive team has outperformed on our CF business and successfully executed on our focused strategy, creating significant shareholder returns over the last several years. The following charts show our total shareholder return relative to the Nasdaq Biotechnology Index (“NBI”) and S&P 500 indices since the beginning of 2012, when KALYDECO was first approved, as well as our stock price performance over multiple periods.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 11
Corporate Responsibility
Vertex is a leading global biotechnology company that serially innovates to bring transformative medicines to people with serious diseases. Over the past several years, we have met or exceeded our goals, buildingmaintained and expanded on our leadership position incommitment to corporate responsibility, including through a ten-year $500 million corporate giving commitment previously announced by the treatmentcompany. Our progress and efforts have been recognized broadly, with Vertex named to the Points of cystic fibrosis, or CF, advancing and broadening our pipeline, increasing revenues and establishing a strong financial profile. We have two medicines that together are approved to treat approximately 25,000 patients with CF, or approximately one thirdLight Civic 50, JUST Capital’s list of the CF population worldwide. These medicines aretop 100 Companies Supporting Healthy Families and Communities, and the first, and only, medicines that treat the underlying cause of CF, and we believe they have fundamentally changed the way eligible patients can be treated. In addition, we have a strong CF pipeline, with multiple drug candidates, that may allow us to help all patients with this rare and life-shortening disease.
 | Community | In 2021, we supported nearly 2,000 nonprofit organizations in 29 countries through Vertex Volunteers and the Vertex Foundation Matching Gift Program. The Vertex Foundation, a nonprofit 501(c)(3) organization, seeks to improve the lives of people with serious diseases and contribute to the communities where Vertex is located through education, innovation and health. In 2021, the Vertex Foundation awarded more than $9 million to support STEAM education, social innovation, and healthy families with a focus on projects and organizations demonstrating a strong commitment to inclusion, diversity, and equity. The Vertex Foundation Matching Gift Program saw nearly $3.9 million in donations by employees and the Vertex Foundation, driven in part by two special match campaigns: an annual campaign in June focused on racial and social justice, COVID-19 relief, and patient support, and a second, offered for Giving Tuesday in November. |
 | Our commitment to inclusion, diversity, and |
| , employees from ethnic and racial minorities represented approximately 36% of our workforce and 43% of new hires. We are pleased to have been awarded a score of 100 on the Human Rights Campaign’s 2021 Corporate Equality Index and to have been recognized by numerous workplace lists, including Seramount’s (previously Working Mother) 100 Best Companies & 100 Best Companies for Dads. | |
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| We are |
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 3
Director Nominees
The following table provides summary information regarding our eleven director nominees. For detailed information about each nominee’s background and areas of expertise, please see “Proposal No. 1: Election of Directors.”
| Committees | ||||||||||||||
| Name, Occupation or Experience | Age | Director Since | Independent | AC | MDCC | CGNC | S&T | |||||||
| Jeffrey Leiden Executive Chairman, Vertex Former CEO and President, Vertex | 66 | 2009 | No | |||||||||||
| Reshma Kewalramani CEO and President, Vertex | 49 | 2020 | No | |||||||||||
| Sangeeta Bhatia John J. and Dorothy Wilson Professor of Health Sciences & Technology/Electrical Engineering & Computer Science, MIT | 53 | 2015 | Yes |  |  | |||||||||
| Lloyd Carney Founder and Chief Acquisition Officer, Carney Technology Acquisition Corp. II | 60 | 2019 | Yes |  | | |||||||||
| Alan Garber Provost, Harvard University | 66 | 2017 | Yes | | | |||||||||
| Terrence Kearney Former Chief Operating Officer, Hospira | 67 | 2011 | Yes |  | | |||||||||
| Yuchun Lee CEO, Allego | 56 | 2012 | Yes | | | |||||||||
| Margaret McGlynn Former President, Vaccines and Infectious Diseases, Merck & Co. Former President, Hospital and Specialty Products, Merck & Co. | 62 | 2011 | Yes | | | |||||||||
Diana McKenzie Former Chief Information Officer, Amgen | 57 | 2020 | Yes | | ||||||||||
| Bruce Sachs General Partner, Charles River Ventures | 62 | 1998 | Yes | | | |||||||||
| Suketu “Suky” Upadhyay Executive Vice President and Chief Financial Officer, Zimmer Biomet | 53 | Nominee | Yes | |||||||||||
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 13
2021 Compensation Decisions and Shareholder Engagement
In 2021, our executive compensation program and in particular, toreceived substantial support, approved by approximately 91% of the equity compensation component, which were implemented in early 2016. The new equity compensation reflects fundamental changes in our business and financial profile and feedback we received from our shareholders. While we continually engage in dialoguevotes cast at the annual meeting. We believe this support is consistent with our shareholders, we increased our level of engagement in response to the decline in support for our advisory say-on-pay proposal at our 2015 annual meeting. Over the past year, we held specific discussions regarding executive compensation with shareholders representing approximately 75% of our outstanding stock.
| We increased the base salary and target equity level for Dr. Reshma Kewalramani, our CEO and President, based on a comparative analysis of companies in our peer group. Dr. Kewalramani’s target cash bonus as a percentage of base salary was unchanged for 2021. |
| We increased compensation for select named executive officers (“NEOs”) based on a comparative analysis of companies in our peer group, including Mr. Arbuckle in connection with his promotion to Chief Operating Officer, and Mr. Wagner, our Chief Financial Officer. |
| We extended Dr. Leiden’s employment agreement by one year, until 2024. Under his amended employment agreement, Dr. Leiden will not receive any cash compensation for his role as Executive Chairman other than an annual cash payment intended to facilitate participation in the company’s benefit plans, and he will continue to receive equity awards for his third and fourth years of service. |
| The company’s outstanding performance in 2021 resulted in the board determining that the company had achieved a leading rating (138 out of a potential 150) for 2021, with the payment of annual cash bonuses near the high end of the range for 2021, commensurate with the performance described above. |
| We maintained the mix of equity granted to our NEOs with 50% consisting of performance stock units that vest upon achievement of rigorous performance goals and 50% consisting of time-vesting restricted stock units that reward stock price appreciation and serve as a long-term retention tool. |
Shareholder Engagement
We believe that a robust shareholder outreach program is an important component of maintaining our strong corporate governance practices. We strive for a collaborative approach with shareholders to result in grantssolicit and understand a variety of perspectives and interests, and our practice has been to engage with significantly fewer shares on an annual basis thanour top shareholders regularly over the prior, share-based approach;
During 2021, we solicited feedback regarding our corporate governance practices from our top 40 shareholders representing approximately 60% of each award will have performance features (e.g., performance vesting or stock option awards);our outstanding shares. Our integrated outreach team included leaders from our Investor Relations, Human Resources, Corporate Responsibility, and
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 14
Corporate Governance
We are committed to maintaining strong corporate governance practices that promote the changes we made to our executive compensation program, we also have implemented changes to our non-employee director compensation program to shift to a value-based program that will result in a more than 50% decrease in non-employee director equity compensation in 2016 as compared to 2015.
| Voting Roadmap | |
| Item 2: | FOR |
| Ratify Selection of Independent Auditor for | |
| Item 3: | FOR |
| Approve, on an Advisory Basis, Our Named Executive Officer Compensation | |
| Item 4: | |
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 515
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 16
| Frequently Asked Questions Regarding the Annual | Item 6: Shareholder Proposal #3 | 34 | ||
| Meeting | 7 | Item 7: Shareholder Proposal #4 | 36 | |
| Item 1: Election of Directors | 10 | Compensation Discussion and Analysis | ||
| Board Structure and Composition | 10 | Overview | 38 | |
| Shareholder-Recommended Director Candidates | 11 | Detailed Discussion and Analysis | 46 | |
| Proxy Access By-law | 11 | Management Development and Compensation | ||
| Majority Vote Standard | 12 | Committee Report | 66 | |
| Director Nominees | 13 | Compensation and Equity Tables | 67 | |
| Continuing Directors | 15 | Summary Compensation Table | 67 | |
| Corporate Governance and Risk Management | 18 | Option Exercises and Stock Vested for 2015 | 68 | |
| Independence, Chair and Co-Lead Independent | Total Realized Compensation Table | 69 | ||
| Directors | 18 | Grants of Plan-Based Awards During 2015 | 70 | |
| Board Committees | 18 | Outstanding Equity Awards at Fiscal Year-End | ||
| Risk Management | 19 | for 2015 | 72 | |
| Code of Conduct | 19 | Summary of Termination and Change of Control | ||
| Board Attendance, Committee Meetings and | Benefits | 75 | ||
| Committee Membership | 20 | Employment Contracts and Change of Control | ||
| Audit and Finance Committee | 20 | Arrangements | 76 | |
| Corporate Governance and Nominating | Equity Compensation Plan Information | 85 | ||
| Committee | 20 | Security Ownership of Certain Beneficial | ||
| Management Development and Compensation | Owners and Management | 86 | ||
| Committee | 21 | Section 16(a) Beneficial Ownership Reporting | ||
| Compensation Committee Interlocks and | Compliance | 87 | ||
| Insider Participation | 21 | Other Information | 88 | |
| Science and Technology Committee | 21 | Other Matters | 88 | |
| Director Compensation | 22 | Shareholder Proposals for the 2017 Annual | ||
| Item 2: Ratification of the Appointment of | Meeting and Nominations for Director | 88 | ||
| Independent Registered Public Accounting Firm | 25 | Shareholder Communications to the Board | 88 | |
| Audit and Finance Committee Report | 27 | Householding of Annual Meeting Materials | 88 | |
| Item 3: Advisory Vote to Approve Named | Solicitation | 89 | ||
| Executive Officer Compensation | 28 | Availability of Materials | 89 | |
| Item 4: Shareholder Proposal #1 | 30 | Forward Looking Statements | 89 | |
| Item 5: Shareholder Proposal #2 | 32 | |||
PROXY STATEMENT
This proxy statement with the enclosed proxy card, is being furnishedmade available to shareholders of Vertex Pharmaceuticals Incorporated in connection with the solicitation by our board of directors of proxies to be voted at our
VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 6
| Back to Contents |
Our board of directors if properly presented at the meeting;
Each of the nominees has agreed to be named in this proxy statement and to serve if elected. We believe that all of the nominees will be able and willing to serve if elected. However, if any nominee should become unable for any reason or unwilling to serve for any reason, proxies may be voted for another person nominated as a substitute by our board or our board may reduce the number of directors.
Our board of directors is our company’s ultimate decision-making body, except with respect to those matters reserved to the shareholders. Our board selects our senior management team, which in turn is responsible for the day-to-day operations of our company. Our board acts as an advisor and counselor to senior management and oversees its performance.
The corporate governance and nominating committee (“CGNC”) of our board of directors is responsible for recommending the composition and structure of our board, including identifying, developing, and for developing criteriarecommending qualified candidates for board membership. This committeeThe CGNC regularly reviews director competencies, qualities, skills, and experiences with the goal of ensuring that our board is comprised of an effective teamconsists of directors who function collegially and effectively and who are able to apply their experience toward meaningful contributions to general corporate strategy and oversight of corporate performance, risk management, organizational development, and succession planning.
Our by-laws provide that the size of our board may range between three and eleven members. We currently have nineten members on our board. Following our 2016 annual meetingboard and the election of the four directors, we expect that Dr. Boger will resign as a Class III director and will be re-appointed to our board as a Class I Director, with a term expiring in 2017, in order to ensure that the number ofhave eleven members of each class of our board following the 2022 annual meeting of directors remains as nearly equal as possible.shareholders. Our corporate governance and nominating committeeCGNC may seek additional director candidates in the future who meet the criteria below in order to complement the qualifications and experience of our existing board members. Our corporate governance and nominating committeeCGNC may engage a search firm to recommend candidates who satisfy the such criteria.
Director Criteria, Qualifications and Experience; Diversity.
The corporate governance and nominating committeeCGNC seeks to recommend for nomination experienced directors of stature who have a substantive knowledge of our business and industry or who can bring to the board specific and valuable strategic or management capabilities acquired in other industries. The committee expects each of our directors to have proven leadership, sound judgment, the highest ethics and integrity, and a commitment to the success of our company. WeIt also seekseeks personal qualities that foster a respectful environment in which our directors listen to one another and arehold engaged and constructive.constructive discussions. These goals for our board composition presuppose a diverse range of viewpoints, experiences, and specific expertise. The corporate governance and nominating committeeCGNC considers a nominee’s personal characteristics and business experience relative to those of our existing board members, including the type of prior management experience, levels of expertise relevant to our business, and its growth stage, prior board service, reputation in the business community, personal characteristics such as gender and race, and other factors that the committee believes to be important. At this time,When considering whether or not to re-nominate a director for board service, the CGNC also considers whether the director has served as a member of our board for more than 20 years and whether the director is over 72 years of age. Suky Upadhyay was selected and recommended as a nominee for our board of directors by the CGNC based on the criteria outlined above.
Our commitment to diversity and inclusion is demonstrated by the composition of our board, which currently includes threefour women and two ethnically diverse individuals.four members of ethnic and racial minority groups.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 18
The key experience, qualifications, attributesfollow table and skills brought bycharts provide information regarding our directors to our board that are important to our business include:director nominees:
 |  |  |  |  |  |  |  |  |  |  | |
| Leadership Experience. We believe that directors who have held significant leadership positions over extended periods of time provide our company with special insights. |  | | | | | | | | | | |
| Industry Knowledge. We seek directors with substantive knowledge of the healthcare and biotechnology industries to successfully advise and oversee the strategic development and direction of our company. |  | | | | | | | | |||
| Financial Expertise. We believe that an understanding of finance is important for members of our board, and our budgeting processes and financial and strategic transactions require our directors to be financially knowledgeable. | | | | | | | | | | | |
| International Perspective. We have significant operations outside the United States and value directors with experience in the operation of complex multinational organizations. | | | | | | | | | | | |
| Public Policy and Regulation. We operate in a highly-regulated industry and seek directors who have experience in public policy and the regulation of medicines. | | | | | |||||||
| Academic Experience or Technological Background. As a biotechnology company that seeks to develop transformative medicines for patients with serious diseases, we look for directors with backgrounds in academia, science and technology and, in particular, the research and development of pharmaceutical products. | | | | | | | | | |||
| Commitment to Company Values and Goals. We seek directors who are committed to our company and its values and goals and who value the contributions that can be provided by individuals who believe in our company and its prospects for success. | | | | | | | | | | | |
| Independence | Y | Y | Y | Y | N | Y | N | Y | Y | Y | Y |
| Age | 53 | 60 | 66 | 67 | 49 | 56 | 66 | 62 | 57 | 62 | 53 |
| Tenure on Board | 6 | 3 | 4 | 10 | 2 | 9 | 12 | 10 | 2 | 23 | 0 |
| Gender | F | M | M | M | F | M | M | F | F | M | M |
| Ethnic or Racial Minority | | | | | |
| NOMINEE INDEPENDENCE | NOMINEE TENURE |
 |  |
| NOMINEE DIVERSITY | NOMINEE AGE |
 |  |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 19
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Board Diversity Matrix
The table below provides certain self-identified characteristics of our board of directors comprised of individuals with
| Board Diversity Matrix as of April 7, 2022 | |||||
| Total Number of Directors | 10 | ||||
| Female | Male | Non-Binary | Did Not Disclose Gender | ||
| Part I: Gender Identity | |||||
| Directors | 4 | 6 | 0 | 0 | |
| Part II: Demographic Background | |||||
| African American or Black | 0 | 1 | 0 | 0 | |
| Alaskan Native or Native American | 0 | 0 | 0 | 0 | |
| Asian | 2 | 1 | 0 | 0 | |
| Hispanic or Latinx | 0 | 0 | 0 | 0 | |
| Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 | |
| White | 2 | 4 | 0 | 0 | |
| Two or More Races or Ethnicities | 0 | 0 | 0 | 0 | |
| LGBTQ | 0 | ||||
| Did Not Disclose Demographic Background | 0 | ||||
The corporate governance and nominating committeeCGNC will consider director candidates recommended by shareholders using the same criteria for director selection described above under
Our by-laws and adoptedprovide for proxy access, a process that allows qualifying shareholders to nominate a director candidate for consideration at an annual meeting of shareholders and have such candidate be included in our proxy materials for the applicable shareholder meeting. This amendment was in response to the approval of a shareholder proposal at our 2015 annual meeting. Our engagement with our shareholders regarding proxy access included discussions over the last several months with a number of our largest shareholders that together hold approximately 46% of our outstanding stock. This engagement allowed us to gain valuable feedback as to the particular proxy access parameters that our shareholders consider appropriate. Based on that feedback and after considering various proxy access provisions recently adopted by other companies, including biotech peers such as Alexion and pharmaceutical companies such as Pfizer, our board of directors adopted a proxy access framework that it believes will provide meaningful access for shareholders while safeguarding the interest of all our shareholders and limiting the potential for abuse. The key elements of our proxy access by-law are as follows:
| Provision | |
| Ownership Threshold and Holding Period | Available to shareholders owning 3% or more of our shares continuously for at least 3 years. |
| Number of Board Seats | Total number of proxy access nominees is capped at 20% of the existing board seats (or the closest whole number below 20%), with a minimum of two. |
| Aggregation Limits | 20-shareholder limit on the number of shareholders who can aggregate their shares to satisfy the 3% ownership requirement. |
| Proxy Fights | Proxy access nominees will not be included in the proxy materials if we receive notice that a shareholder intends to nominate a candidate who is not to be included in our proxy materials. |
| Future Ineligibility | Proxy access nominees who fail to receive at least 10% of the votes cast |
The above table is only a summary of our proxy access by-law and is qualified in its entirety by the actual amendment to our by-laws, which is set forth in Exhibit 3.1 of a Current Report on Form 8-K, that we filed with the SEC on April 27, 2016.by-laws. A shareholder who wishes to nominate a proxy access nominee to be considered for election as a director at the
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Our by-laws provide for a majority vote standard for uncontested elections of our directors. Under our by-laws, director nominees in an uncontested election who receive more votes cast “for” such director nominee than “withheld” from“against” such director nominee are elected. Our board’s policy is that any nominee for director in an uncontested election who receives a greater number of votes “withheld”“against” than votes “for” the nominee’s election shall promptly tender his or her resignation to the chair of our board following certification of the shareholder vote. Our corporate governance and nominating committeeThe CGNC will promptly consider the tendered resignation. Based on all factors it deems in its discretion to be relevant, the committeeCGNC will recommend that our board either accept or reject the resignation and may recommend that the board adopt measures designed to address any issues perceived to underlie the election results. Our board will then act on the corporate governance and nominating committee’sCGNC’s recommendation. We will promptly disclose our board’s decision, including, if applicable, the reasons for rejecting the tendered resignation. Any director whose resignation is being considered under this policy will not participate in the corporate governance and nominating committeeCGNC or board considerations, recommendations or actions with respect to the tendered resignation.
Other Public Company Boards: None | Sangeeta Bhatia | ||
| Age: 53 | Board Committees: | ||
| Director Since: 2015 | Chair – Science and Technology Committee | ||
Member – Corporate Governance and Nominating Committee | |||
| Experience: | |||
Professor at the Massachusetts Institute of Technology, or MIT; John J. and Dorothy Wilson Professor of Health Sciences & Technology/Electrical Engineering & Computer Science, since 2005 Co-founder of Satellite Bio, a private company focused on developing satellite organs as living therapeutic solutions, since 2020 Co-founder of Glympse Bio, a private company focused on developing in vivo sensing technology dedicated to disease monitoring, since 2018 Professor of bioengineering and medicine at the University of California at San Diego, from 1998 through 2005 Investigator for the Howard Hughes Medical Institute, a member of the Department of Medicine at Brigham and Women’s Hospital, a member of the Broad Institute and a member of the Koch Institute for Integrative Cancer Research Holds a Sc.B. in biomedical engineering from Brown University, an S.M. and Ph.D. in Mechanical Engineering from MIT, and an M.D. from Harvard Medical School | |||
Key Skills and Qualifications: Dr. Bhatia is a leading academic scientist and medical researcher. Her extensive experience in the field of biomedical engineering and in-depth understanding on the use of advanced technologies in medical research provides valuable insights to our board of directors, including with respect to our key research and development initiatives. | |||
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 21
Other Public Visa Inc. Grid Dynamics Holdings Inc. | Lloyd Carney | ||
| Age: 60 | Board Committees: | ||
| Director Since: 2019 | Member – Audit and Finance Committee | ||
Member – Management Development and Compensation Committee | |||
| Experience: | |||
Chief Acquisition Officer of Carney Technology Acquisition Corp. II, a special purpose acquisition corporation, since October 2020 Chief Executive Officer of ChaSerg Technology Acquisition Corp., a technology acquisition company, from September 2018 until March 2020 Chief Executive Officer of Brocade Communications Systems Inc., a global supplier of networking hardware and software, from January 2013 until it was acquired by Broadcom in November 2017 Chief Executive Officer of Xsigo Systems, a cloud-based infrastructure solutions provider, until it was acquired by Oracle in 2012 Chief Executive Officer and Chairman of Micromuse Inc., a software solutions provider for business and service assurance, until it was acquired by IBM Previously held senior leadership roles at Juniper Networks, Inc., Nortel Networks Inc., and Bay Networks, Inc. Member of the Board of Directors of Nuance Communications Inc., a publicly traded AI-enabled communication company, until it was acquired by Microsoft Corp in March 2022 Holds a Bachelor of Science degree in Electrical Engineering Technology from Wentworth Institute of Technology, a Master of Science degree in Applied Business Management from Lesley College, and an Honorary Doctorate degree in Engineering from Wentworth Institute of Technology | |||
Key Skills and Qualifications: Mr. Carney brings strong business judgment, honed through his time as a senior executive and board member of multiple global technology companies, to our board of directors. Mr. Carney has extensive corporate leadership experience, including service as the chief executive officer of several technology companies, as well as financial expertise. | |||
Other Public Exelixis, Inc. | Alan Garber | ||
| Age: 66 | Board Committees: | ||
| Director Since: 2017 | Member – Audit and Finance Committee | ||
Member – Science and Technology Committee | |||
| Experience: | |||
Provost of Harvard University and the Mallinckrodt Professor of Health Care Policy at Harvard Medical School, a Professor of Economics in the Faculty of Arts and Sciences, Professor of Public Policy in the Harvard Kennedy School of Government, and Professor in the Department of Health Policy and Management in the Harvard T.H. Chan School of Public Health, since 2011 Henry J. Kaiser Jr. Professor, a Professor of Medicine, and a Professor (by courtesy) of Economics, Health Research and Policy, and of Economics in the Graduate School of Business at Stanford University, from 1998 until 2011 Member of the National Academy of Medicine, the American Society of Clinical Investigation, the Association of American Physicians, and the American Academy for Arts and Sciences Fellow of the American Association for the Advancement of Science, the American College of Physicians, and the Royal College of Physicians Former Research Associate with the National Bureau of Economic Research and served for nineteen years as founding Director of its Health Care Program Previously served as a member of the National Advisory Council on Aging at the National Institutes of Health, as a member of the Board of Health Advisers of the Congressional Budget Office, and as Chair of the Medicare Evidence Development and Coverage Advisory Committee at the Centers for Medicare and Medicaid Services Holds an A.B. summa cum laude, an A.M. and a Ph.D., all in Economics, from Harvard University, and an M.D. with research honors from Stanford University | |||
Key Skills and Qualifications: Dr. Garber brings extensive leadership experience and knowledge regarding science, medicine, and the healthcare industry and in particular healthcare economics to our board of directors. The insights he has developed as an expert in health care policy and as an advisor to government agencies provides our board important perspectives on the issues facing our company. | |||
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 22
Other Public None | Terrence Kearney | ||
| Age: 67 | Board Committees: | ||
| Director Since: 2011 | Chair – Audit and Finance Committee | ||
Member – Management Development and Compensation Committee | |||
| Experience: | |||
Chief Operating Officer of Hospira, Inc., a specialty pharmaceutical and medication delivery company, from April 2006 until January 2011 Senior Vice President, Finance, and Chief Financial Officer of Hospira from April 2004 to April 2006; Acting Chief Financial Officer through August 2006 Vice President and Treasurer of Abbott Laboratories, from 2001 to April 2004 Divisional Vice President and Controller for Abbott’s International Division, from 1996 until 2001 Member of the Board of Directors of Levo Therapeutics, Inc., a biotechnology company focused on developing treatments for Prader-Willi Syndrome, since 2018 Member of the Board of Directors of Acceleron Pharma Inc., a publicly traded biopharmaceutical company, until it was acquired by Merck in 2021; Innoviva (formerly known as Theravance, Inc.), a publicly traded royalty management company, from October 2014 through April 2016; and AveXis, Inc., a publicly traded gene therapy company, from January 2016 until it was acquired by Novartis in May 2018 Holds a B.S. in biology from the University of Illinois and an M.B.A. from the University of Denver | |||
Key Skills and Qualifications: Mr. Kearney’s corporate leadership experience, industry knowledge and financial expertise make him a valuable contributor to our board of directors. He has a practical perspective on the management of global pharmaceutical operations, including commercial, manufacturing and research and development activities, and financial management strategies. Mr. Kearney is an “audit committee financial expert” with particular experience in matters faced by the audit committee of a company with pharmaceutical product revenues and related expenses. | |||
Other Public Ginkgo Bioworks Holdings, Inc. | Reshma Kewalramani | ||
| Age: 49 | Position: | ||
| Director Since: 2020 | Chief Executive Officer and President | ||
| Experience: | |||
Chief Executive Officer and President of Vertex Pharmaceuticals Incorporated since April 2020 Executive Vice President and Chief Medical Officer of Vertex from April 2018 through March 2020 Senior Vice President, Late Development of Vertex from February 2017 until April 2018 Served in roles of increasing responsibility at Amgen Inc. from August 2004 to January 2017, most recently as Vice President, Global Clinical Development, Nephrology & Metabolic Therapeutic Area and as Vice President, U.S. Medical Organization Industry representative to the FDA’s Endocrine and Metabolic Drug Advisory Committee from 2014 through 2019 Holds a B.A. from Boston University and an M.D. from Boston University School of Medicine; Dr. Kewalramani completed her internship and residency in Internal Medicine at the Massachusetts General Hospital and her fellowship in Nephrology at the Massachusetts General Hospital and Brigham and Women’s Hospital combined program Dr. Kewalramani also completed the General Management Program at Harvard Business School and is an alumna of the school | |||
Key Skills and Qualifications: Dr. Kewalramani has extensive industry knowledge and leadership experience garnered through her scientific and medical expertise, as well as her role as a global senior leader across multiple disease areas and all stages of drug development. She provides our board of directors with in-depth knowledge of our company gained during her various senior management roles within Vertex and through the day-to-day leadership of our executives as CEO. | |||
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 12
Other Public None | Yuchun Lee | ||
| Age: 56 | Board Committees: | ||
| Director Since: 2012 | Member – Audit and Finance Committee | ||
Member – Management Development and Compensation Committee | |||
| Experience: | |||
Chief Executive Officer of Allego, a technology company focused on modern sales learning and enablement, since 2013 Executive Chairman of DSP Concepts, an Audio of Things (AoT) platform company, since 2022 Executive in Residence of General Catalyst Partners, a venture capital firm, since 2013 Executive Chairman of Clarabridge, Inc. until it was acquired by Qualtrics in 2021 Vice President of IBM’s Enterprise Marketing Management Group from November 2010 through January 2013 Co-founder of Unica Corporation, a provider of software and services used to automate marketing processes, in 1992, and served as Unica’s President and/or Chief Executive Officer from 1992 through November 2010, until it was acquired by IBM Senior consultant at Digital Equipment Corporation, a supplier of general computing technology and consulting services, from 1989 to 1992 Holds a B.S. and an M.S. in electrical engineering and computer science from the Massachusetts Institute of Technology and an M.B.A. from Babson College | |||
Key Skills and Qualifications: Mr. Lee’s expertise in marketing processes and customer engagement and business and financial experience make him a valuable contributor to our board of directors. Mr. Lee is an innovator who founded and managed the growth of a successful technology company and gained further leadership experience while serving as an executive at IBM. Mr. Lee’s experiences outside of the biopharmaceutical sector provide the board with an important perspective on the issues facing the company. | |||
Other Public Revolution Healthcare Acquisition Corp. | Jeffrey Leiden | ||
| Age: 66 | Position: | ||
| Director Since: 2009 | Executive Chairman | ||
| Experience: | |||
Chief Executive Officer and President of Vertex Pharmaceuticals Incorporated from 2012 through March 2020 Chairman of Board of Directors of Vertex since May 2012; previously served as lead independent director from October 2010 through December 2011 Managing Director at Clarus Ventures, a life sciences venture capital firm, from 2006 through January 2012 President and Chief Operating Officer of Abbott Laboratories, Pharmaceuticals Products Group and a member of the Board of Directors of Abbott Laboratories from 2001 to 2006 Held several academic appointments from 1987 to 2000, including the Rawson Professor of Medicine and Pathology and Chief of Cardiology and Director of the Cardiovascular Research Institute at the University of Chicago, the Elkan R. Blout Professor of Biological Sciences at the Harvard School of Public Health, and Professor of Medicine at Harvard Medical School Elected member of both the American Academy of Arts and Sciences and the Institute of Medicine of the National Academy of Sciences Member of the Board of Directors of Massachusetts Mutual Life Insurance Company, an insurance company Member of the Board of Directors of Quest Diagnostics Incorporated, a publicly traded medical diagnostics company, from December 2014 to May 2019; member of the Board of Directors and non-executive Vice Chairman of Shire plc, a specialty biopharmaceutical company, from 2006 to January 2012 Dr. Leiden received his M.D., Ph.D. and B.A. degrees from the University of Chicago | |||
Key Skills and Qualifications: Dr. Leiden possesses strong leadership qualities, demonstrated through his service as a senior executive in the biotechnology and pharmaceutical industries and as a life sciences venture capitalist, and has extensive knowledge of the science underlying drug discovery and development through his experiences as a distinguished physician, scientist, and teacher. As our former CEO and as a former senior executive at Abbott Laboratories, he brings a global perspective to our business and public policy issues facing our company. He also provides our board of directors with in-depth knowledge of our company and guidance with respect to our corporate strategy. | |||
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 24
Other Public Amicus Therapeutics, Inc. Novavax, Inc. | Margaret McGlynn | ||
| Age: 62 | Board Committees: | ||
| Director Since: 2011 | Chair – Corporate Governance and Nominating Committee | ||
Member – Science and Technology Committee | |||
| Experience: | |||
Retired from Merck & Co. in 2009, where she served as President, Vaccines and Infectious Diseases and as President, Hospital and Specialty Products Held various leadership roles in the U.S. and globally in marketing, sales, managed care, and business development during her 26-year career at Merck President and Chief Executive Officer of the International AIDS Vaccine Initiative, a global not-for-profit organization whose mission is to ensure the development of safe, effective and accessible HIV vaccines for use throughout the world, from 2011 until 2015 Member of the National Industrial Advisory Committee at the University at Buffalo School of Pharmacy and Pharmaceutical Sciences Member of the Board of Directors of Air Products and Chemicals, Inc., a publicly traded company specializing in gases and chemicals for industrial uses, from 2005 to November 2020 Holds a B.S. in Pharmacy, an M.B.A. in Marketing, and an Honorary Doctorate from the State University of New York at Buffalo | |||
Key Skills and Qualifications: Ms. McGlynn’s leadership experience and industry knowledge make her a valuable contributor to our board of directors. Her service as an executive at Merck and her service on the boards of Amicus Therapeutics, Inc. and Novavax, Inc., and previously on the board and audit committee of Air Products and Chemicals, Inc., give her a practical understanding of organizational practices valuable to a company at our stage of growth. Her experience in the development and commercialization of products across several therapeutic areas, and in her board roles and advocacy in rare diseases, provides her with a valuable understanding of the scientific, public policy, regulatory and marketplace issues we face in the drug development and commercialization process. | |||
Other Public MetLife Inc. Change Healthcare, Inc. | Diana McKenzie | ||
| Age: 57 | Board Committees: | ||
| Director Since: 2020 | Member – Corporate Governance and Nominating Committee | ||
| Experience: | |||
Chief Information Officer of Workday, Inc., a cloud-based financial and human capital management software company, from February 2016 until April 2019 Held roles of increasing responsibility at Amgen Inc., a biotechnology company, from 2004 through February 2016, most recently serving as Senior Vice President and Chief Information Officer Held various leadership roles at Eli Lilly and Company, a pharmaceutical company, for 17 years, focused on drug development, reducing time to market and improving technology and security standards Member of the Board of Directors of Paradox AI; member of the Board of Directors of GenapSys Inc.; Special Advisor to Brighton Park Capital Holds a Bachelor of Science degree in Computer Information Systems from Purdue University and completed the Information Technology Management Program at University of California, Los Angeles and the CERT Certification for Cybersecurity Oversight from Carnegie Mellon’s Software Engineering Institute | |||
Key Skills and Qualifications: Ms. McKenzie has corporate leadership experience and industry knowledge that make her a valuable contributor to our board of directors. Her service as an executive and innovator in the biotechnology and technology industries and as a member of the board of directors of public companies involved in healthcare issues provide her with multiple perspectives on our industry. Ms. McKenzie provides valuable guidance and support to our management and our board of directors. | |||
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 25
Other Public Company Boards: None | Bruce Sachs | ||
| Age: 62 | Board Committees: | ||
| Director Since: 1998 | Chair – Management Development and Compensation Committee | ||
Member – Corporate Governance and Nominating Committee | |||
| Experience: | |||
General Partner at Charles River Ventures, a venture capital firm, since 1999 Executive Vice President and General Manager of Ascend Communications, Inc. from 1998 to 1999 President and Chief Executive Officer of Stratus Computer, Inc. from 1997 to 1998 Executive Vice President and General Manager of the Internet Telecom Business Group at Bay Networks, Inc. from 1995 to 1997 President and Chief Executive Officer of Xylogics, Inc. from 1993 to 1995 Holds a B.S.E.E. in electrical engineering from Bucknell University, an M.E.E. in electrical engineering from Cornell University, and an M.B.A. from Northeastern University | |||
Key Skills and Qualifications: Mr. Sachs brings strong business judgment, honed through his experience developing business strategy as a senior executive and in venture capital, to our board of directors. Mr. Sachs has a deep understanding of our business and the global business environment along with expertise in the technology that supports our infrastructure and operations. In addition, Mr. Sachs has extensive business leadership experience, including service as a technology company CEO, as well as financial expertise. | |||
Other Public Company Boards: None | Suketu “Suky” Upadhyay | ||
| Age: 53 | |||
| Director Nominee | |||
| Experience: | |||
Executive Vice President and Chief Financial Officer of Zimmer Biomet, a leading global innovator and manufacturer of orthopedic solutions, since July 2019 Senior Vice President, Global Financial Operations at Bristol-Myers Squibb from November 2016 to June 2019 Executive Vice President and Chief Financial Officer of Endo International from September 2013 to November 2016 Previously served as interim Chief Financial Officer and Senior Vice President of Finance, Corporate Controller and Principal Accounting Officer of Becton Dickinson and Senior Vice President of Global Financial Planning and Analysis and Vice President and Chief Financial Officer of Becton Dickinson’s international business Previously held a number of global finance and strategy roles across AstraZeneca and Johnson & Johnson, including Research and Development, Supply Chain, Commercial Operations and Business Development Spent the early part of his career in public accounting with KPMG, earning his CPA designation and his CMA designation (each designation currently inactive) Holds a Bachelor of Science in Finance from Albright College and an MBA from The Fuqua School of Business at Duke University | |||
Key Skills and Qualifications: Mr. Upadhyay has extensive experience in the health care industry in financial roles covering all major areas of a fully integrated life sciences business. His service as an executive in the pharmaceutical and health care industries provide him with multiple perspectives on our industry. We believe this knowledge and expertise will make him a valuable contributor to our board of directors and management. | |||
Board Recommendation
In each of the director nominee and continuing director biographies, that follow, we highlight the specific experience, qualifications, attributes, and skills that led the board of directors to conclude that the director nominee or continuing director should serve on our board at this time.
Our board of directors unanimously recommends that you vote FOR each of the nominees.
CLASS III DIRECTORS— PRESENT TERMS EXPIRING IN VERTEX PHARMACEUTICALS INCORPORATED2016 AND PROPOSED TERMS TO EXPIRE IN 2019
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We are committed to good corporate governance and integrity in our business dealings. Our governance practices are documented in our Statement of Corporate Governance Principles, which addresses the role and composition of our board of directors and the functioning of the board and its committees. You can find our governance documents, including our Statement of Corporate Governance Principles, charters for each committee of the board, and our Code of Conduct, on our website www.vrtx.com under “Investors—Corporate Governance—Governance Documents.”
Our board of directors has determined that eight of our nineten directors qualify as “independent” under the definition of that term adopted by The Nasdaq Stock Market LLC or Nasdaq. These(“Nasdaq”). Our independent directors are Dr. Bhatia, Mr. Carney, Dr. Boger,Garber, Mr. Kearney, Mr. Lee, Ms. McGlynn, Mr. Sachs, Ms. UllianMcKenzie, and Mr. Young. Dr. Wayne Riley was an independent director prior to his resignation from our board in June 2015. Sachs. Mr. Upadhyay, if elected, also will qualify as “independent.”
Our independent directors generally meet in executive session without management at each regularly scheduled board meeting.
Since 2020, Dr. Leiden has served as our Executive Chairman. In this role, Dr. Leiden continues to focus on strategy and business development, our cell and genetic therapy programs, and government and community affairs activities, along with serving as the Chairman of our independentBoard. Dr. Leiden and Dr. Kewalramani are not considered “independent” directors.
Our board believes that strong, independent board leadership is a critical aspect of effective corporate governance, and ourgovernance. Our corporate governance principles require that if the chair is not an independent director, that the independent directors shall elect aone or more lead independent director.director(s). Since December 2011, Mr. Sachs and Ms. Ullian havehas served as our co-leada lead independent directors.director. We believe this structure provides our board independent leadership, while providing the benefit of having our chief executive officer, the individual with primary responsibility for managing our day-to-day operations,former CEO chair regular board meetings and our current CEO participate in regular board meetings as we discuss key business and strategic issues.a director. Combined with the co-leadlead independent directorsdirector and experienced and independent committee chairs, thismembers, our board structure provides strong independent oversight of management.
Our co-leadlead independent directors’director’s responsibilities include:
| calling and leading regular and special meetings of the independent directors; |
| serving as a liaison between our management and independent directors; |
| reviewing the planned dates for regularly scheduled board meetings and the primary agenda items for each meeting; and |
| reviewing with the chair of each board committee agenda items that fall within the scope of the responsibilities of that committee. |
Our board of directors has established various committees, each of which has a written charter, to assist in discharging its duties: the audit and finance committee (“audit committee”), the corporate governance and nominating committee,CGNC, the MDCC, and the science and technology committee.committee (“S&T committee”). Each member of the audit committee, CGNC, MDCC and financeS&T committee corporate governance and nominating committee and MDCC is an independent director as that term is defined by the applicable SEC and Nasdaq.Nasdaq rules. The primary responsibilities of each of the committees are set forth below, and the committee memberships are provided in the table appearing on page 2028 of this proxy statement.
Each of the committees has the authority, as its members deem appropriate, to engage outside legal counsel or other experts or consultants in order to assist the committee in carrying out its responsibilities.
Our board of directors dischargesand its overall responsibility tocommittees oversee risk and risk management with a focus onfor the company and regularly receive updates from management regarding our most significant strategic, compliance, and operational risks. This includes presentations throughout the year, as well as an annual review of our key risks as identified by our Enterprise Risk Management (“ERM”) Program. As part of our ERM Program, we obtain input from our senior leaders and relevant subject-matter experts to identify our key enterprise risks based on likelihood of occurrence and potential impact to the business, as well as root causes of those risks. The ERM Program also assigns risk owners who are responsible for implementing controls and mitigations to reduce the likelihood or impact of each risk. The identified risks and related controls and mitigations are actively monitored and regularly reviewed with senior management. We face considerable riskrisks related to the commercialization of our approved products, including regulatory riskrisks with respect to our promotional activities and competition from approved drugs and investigational drug
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 27
candidates that may have product profiles superior to our approved products. We continueadditionally face risks related to invest significant resources inour research programs, and clinical development programs, as part ofbusiness development activities, and operations, including considerable risks that our strategy to develop transformative medicines for patients with serious diseases. With respect to each of our drug development and commercialization programs we face considerable risk that the program will not ultimately result in a commercially successful pharmaceutical product. Our board and its committees monitor and manage the strategic, compliance and operational risks related to KALYDECO, ORKAMBI and our research and development programs through regular board and committee discussions that include presentations to the board and its committees by our executive officers as well as during in-depth short- and long-term strategic reviews held at least annually.
For certain specific risk types, our board has delegated oversight responsibility to board committees as follows:
| Our audit committee oversees our policies and programs related to our financial and accounting systems, accounting policies and investment strategies, internal audit function, and cybersecurity. The audit committee also is responsible for addressing risks arising from related party transactions, if any. |
| Our MDCC oversees risks associated with our compensation policies, management resources and structure, and management development and selection processes. |
| Our CGNC oversees risks related to the company’s governance structure and CEO succession planning. |
| Our S&T committee oversees risks related to our research and development investments. |
We have adopted a Code of Conduct that applies to all of our directors and employees, including our chief executive officerCEO and chief financial and accounting officers. We routinely review our Code of Conduct and make updates, as necessary. Our Code of Conduct is available on our website www.vrtx.comwww. vrtx.com under “Investors—Corporate Governance—Governance Documents.” Disclosure regarding any amendments to, or waivers from, provisions of the Code of Conduct that apply to our directors or principal executive, financial or accounting officers, or controller or persons performing similar functions will be posted on our website or included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver.
The following table sets information regarding the current membership of our board of directors. Mr. Upadhyay has been nominated for our board of directors and is therefore not included in the table below.
| Director(1) | Independence | Board | Audit Committee | CGNC | MDCC | S&T Committee | 2021 Attendance at Meetings(2) | |||||||
| Sangeeta N. Bhatia |  |  | |  | 100% | |||||||||
| Lloyd Carney |  |  | | | 100% | |||||||||
| Alan Garber | | | | | 100% | |||||||||
| Terrence C. Kearney | | |  | | 100% | |||||||||
| Reshma Kewalramani | | 100% | ||||||||||||
| Yuchun Lee | | | | | 100% | |||||||||
| Jeffrey M. Leiden | | 100% | ||||||||||||
| Margaret G. McGlynn | | | | | 100% | |||||||||
| Diana McKenzie | | | | 100% | ||||||||||
| Bruce I. Sachs | |  | | | 100% | |||||||||
| 2021 Meetings | 9 | 9 | 5 | 6 | 5 |
| = Member |
| = Chair |
| Director (1) | Independence | Board | Audit and Finance | Corporate Governance and Nominating | Management Development and Compensation | Science and Technology | 2015 Attendance at Meetings (2) |
| Sangeeta N. Bhatia | X | ● | ● | ● | 88% | ||
| Joshua Boger | X | ● | Chair | 100% | |||
| Terrence C. Kearney | X | ● | Chair | ● | 100% | ||
| Yuchun Lee | X | ● | ● | ● | 100% | ||
| Jeffrey M. Leiden | Chair | 100% | |||||
| Margaret G. McGlynn | X | ● | ● | 100% | |||
| Bruce I. Sachs | X | Co-lead | ● | Chair | 100% | ||
| Elaine S. Ullian | X | Co-lead | Chair | ● | 95% | ||
| William D. Young | X | ● | ● | ● | 100% | ||
| 2015 Meetings | 7 | 8 | 5 | 7 | 5 | ||
| = Lead Independent Director |
| (1) |
| shareholders meeting. | |
| (2) | Includes meetings of the board of directors and meetings of each committee of the board while the director served on such committee. |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 28
The primary purposes of the audit and finance committee are to:
| assist our board’s oversight of our accounting and financial reporting processes, including financial controls and audits of our financial statements; |
| appoint, oversee, and replace, if necessary, our independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attestation services; |
| review and discuss our annual audit, quarterly reviews and related disclosures, and oversee our internal audit function; |
| review and make recommendations to our board concerning our financial structure, financial strategy, and risks; |
| oversee our policies and programs and address risks related to our programs, our financial and accounting systems, accounting policies and investment strategies, internal audit function, and cybersecurity; |
| address risks arising from related person transactions; and |
| assist our board’s oversight of our Code of Conduct, related policies and procedures, and ongoing compliance matters as needed. |
Our independent registered public accounting firm reports directly to, and is held accountable by, our audit and finance committee in connection with the audit of our annual financial statements and related services.
Mr. Kearney, the chair of our audit and finance committee, is our “audit committee financial expert” as that term is defined in applicable rules and regulations of the SEC.SEC, and is independent according to the applicable listing standards of Nasdaq. In addition, each of the other members of the audit and finance committee are qualified to serve as an audit committee financial expert under the SEC's rules.
Our audit and finance committee reviews and if appropriate, recommends for approval or ratification by our board,approves all transactions with related persons that are required to be disclosed by us pursuant to Item 404(a) of Regulation S-K promulgated by the SEC, except for transactions, if any, related to the employment of executive officers, which would be
Corporate Governance and Nominating Committee
The corporate governance and nominating committee:
| assist our board of directors in developing and implementing our corporate governance principles;
Management Development and Compensation Committee The primary purposes of the MDCC are
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 29
See Compensation Discussion and Analysis—Detailed Discussion and Analysis below for a discussion of the MDCC’s role in overseeing executive compensation. The report of the MDCC appears on page Science and Technology Committee Our S&T committee assists our board of directors
Each board committee has the authority to delegate any of its responsibilities to one or more subcommittees comprised of at least one member of the committee to the extent deemed appropriate but subject always to the general oversight of the board. Compensation Committee Interlocks and Messrs. Carney, Kearney, Lee, and Public Policy and | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Non-Employee Director Compensation Program
We have designed and implemented our compensation program for our non-employee directors to attract, motivate and retain highly experienced individuals who have strong industry knowledge, are committed to our values and goals, and who have the expertise and experience that we need to achieve those goals.
The compensation program for our non-employee directors and consistent with changes made to our executive compensation program, we modified the compensation program for our non-employee directors to reflect the fundamental changes in our business and financial profile. The changes include a transition from a share-based approach to a value-based approach in the granting of equity awards to our non-employee directors, reducing our reliance on stock options and increasing our cash fees. Under our revised program, the value of the equity awards to non-employee directors, as reported in the Director Compensation Table, will be reduced by more than 50% in 2016 as compared to 2015.
| Compensation Elements | |||||
| Cash | |||||
| Annual Cash Retainer | $ | 100,000 | |||
| Annual Committee Chair Retainer | Audit and Finance Committee | $ | 30,000 | ||
| Management Development and Compensation Committee | $ | 25,000 | |||
| Corporate Governance and Nominating Committee | $ | 25,000 | |||
| Science and Technology Committee | $ | 25,000 | |||
| Committee Membership Retainer | |||||
| Audit and Finance Committee | $ | 15,000 | |||
| Management Development and Compensation Committee | $ | 12,500 | |||
| Corporate Governance and Nominating Committee | $ | 10,000 | |||
| Science and Technology Committee | $ | 10,000 | |||
| Annual Lead Independent Director Retainer | $ | 40,000 | |||
| Equity | |||||
| Initial Equity Grant | A $400,000 value-based award in restricted stock units vesting after 12 months | ||||
| Annual Equity Retainer | On May 1 of each year, a $400,000 value-based award, which the directors can elect to receive in the form of: | ||||
| options that are fully-vested upon grant; | |||||
| restricted stock units that vests on the first anniversary of the date of grant; or | |||||
| a 50/50 mix of options and restricted stock units | |||||
Each of our non-employee directors is eligible to defer 50% or 100% of the cash and restricted stock portion of his/his or her compensation set forth above and elect to receive deferred stock units that are paid out in common stock upon the earliest to occur of (i) termination of the non-employee director'sdirector’s service on our board of directors, (ii) a change of control, and (iii) the non-employee directorsdirector’s disability or death.
Our onlytwo employee director,directors, Dr. Leiden receives no separateand Dr. Kewalramani, do not receive compensation for histheir service as directors.
We annually review the compensation program for our non-employee directors. We did not make any material changes to the compensation program for our non-employee directors in such capacity.2019 or 2020. In 2021, based on a comparative analysis of companies in our peer group, we increased the annual committee chair retainer for the CGNC and the S&T committees from $20,000 to $25,000.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 31
2021 Summary Compensation
| Director | Fees Earned or Paid in Cash | Stock Awards(1) | Option Awards(1) | All Other Compensation(3) | Total | |||||||||||||||
| Sangeeta N. Bhatia | $ | 130,000 | $ | 400,082 | $ | — | $ | — | $ | 530,082 | ||||||||||
| Lloyd Carney | $ | 118,125 | $ | 400,082 | $ | — | $ | 25,000 | $ | 543,207 | ||||||||||
| Alan Garber | $ | 125,000 | $ | — | $ | 400,058 | $ | — | $ | 525,058 | ||||||||||
| Terrence C. Kearney | $ | 142,500 | $ | — | $ | 400,058 | $ | — | $ | 542,558 | ||||||||||
| Yuchun Lee | $ | 127,500 | $ | — | $ | 400,058 | $ | 7,000 | $ | 534,558 | ||||||||||
| Margaret G. McGlynn | $ | 130,000 | $ | 200,041 | $ | 200,062 | $ | 25,000 | $ | 555,103 | ||||||||||
| Diana McKenzie(2) | $ | 110,000 | $ | 400,082 | $ | — | $ | 24,000 | $ | 534,082 | ||||||||||
| Bruce I. Sachs(2) | $ | 175,000 | $ | — | $ | 400,058 | $ | 10,000 | $ | 585,058 | ||||||||||
| (1) | The amounts set forth under the captions “Stock Awards” and “Option Awards” in the table above represent the grant-date fair value for financial statement reporting purposes of the equity awards granted during 2021. Our methodology, including underlying estimates and assumptions, for calculating these values is set forth in Note N to our consolidated financial statements included in our 2021 Annual Report on Form 10-K, filed with the SEC on February 9, 2022. |
| (2) | Ms. McKenzie and Mr. Sachs elected to defer their quarterly cash retainers, which were paid in deferred stock units, on each of the quarterly payment dates occurring on the 15th of the month following the quarter end in an amount equal to the dollar value of the cash amount that would have been paid on such date divided by the fair market value of a share of common stock on each such date. The per share fair market values of our common stock on each of those dates was $220.17, $198,00, $182.07 and $230.58. |
| (3) | Mr. Carney, Mr. Lee, Ms. McGlynn, Ms. McKenzie and Mr. Sachs participated in the Vertex Foundation Matching Gift Program. |
2021 Equity Grants
| Grant | Date | Shares | Exercise Price | Grant-Date Fair Value | ||||||||
| Annual Non-Employee Director - 100% Option Grants | May 1, 2021 | 6,067 | $ | 217.20 | $ | 400,058 | ||||||
| Annual Non-Employee Director - 50% Option Grants | May 1, 2021 | 3,034 | $ | 217.20 | $ | 200,062 | ||||||
| Annual Non-Employee Director - 100% Restricted Stock Unit Grants | May 1, 2021 | 1,842 | — | $ | 400,082 | |||||||
| Annual Non-Employee Director - 50% Restricted Stock Unit Grants | May 1, 2021 | 921 | — | $ | 200,041 | |||||||
Outstanding Equity
As of December 31, 2021, our non-employee directors had outstanding restricted stock units, deferred stock units and stock options to purchase our common stock as follows:
| Director | Outstanding Restricted Stock Units | Outstanding Deferred Stock Units | Exercisable Options | Total Outstanding Options | ||||
| Sangeeta N. Bhatia | 1,842 | — | 3,845 | 3,845 | ||||
| Lloyd Carney | 1,842 | — | — | — | ||||
| Alan Garber | — | — | 20,210 | 20,210 | ||||
| Terrence C. Kearney | — | — | 39,118 | 39,118 | ||||
| Yuchun Lee | — | 1,801 | 92,850 | 92,850 | ||||
| Margaret G. McGlynn | 921 | 4,688 | 47,554 | 47,554 | ||||
| Diana McKenzie | 1,842 | 674 | — | — | ||||
| Bruce I. Sachs | — | 13,483 | 77,850 | 77,850 |
Non-Employee Director Stock Ownership Guidelines
We have stock ownership guidelines for our non-employee directors pursuant to which our non-employee directors should, within five years of becoming subject to the guidelines, achieve ownershiphold shares of shares of(a) our common stock, with(b) unvested restricted stock units, and/or (c) deferred stock units, having a value equal toof at least threefive times the annual cash retainer. As of March 31, 2022, each of our non-employee directors was in compliance with our stock ownership guidelines, and each of our non-employee directors satisfied the individual holding requirements.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 32
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 | Community |
Vertex is a leading global biotechnology company that serially innovates to bring transformative medicines to people with serious diseases. Over the past several years, we have maintained and Equity Information
At Vertex, volunteering and giving back are core to our non-employee directors. culture. In 2021, we supported nearly 2,000 nonprofit organizations in 29 countries through Vertex Volunteers and the Vertex Foundation Matching Gift Program.
The Vertex Foundation, a nonprofit 501(c)(3) organization, seeks to improve the lives of people with serious diseases and contribute to the communities where Vertex is located through education, innovation and health. In 2021, the Vertex Foundation awarded more than $9 million to support STEAM education, social innovation, and healthy families with a focus on projects and organizations demonstrating a strong commitment to inclusion, diversity, and equity. The Vertex Foundation Matching Gift Program saw nearly $3.9 million in employee donations, driven in part by two special match campaigns: an annual campaign in June focused on racial and social justice, COVID-19 relief, and patient support, and a second, offered for Giving Tuesday in November.
Throughout the year, we encourage our employees to participate in community service through our Vertex Volunteers program, including activities such as pro bono service conducted by members of our legal and compliance group and our annual global Day of Service. Last year, 40% of Vertex employees collectively volunteered 5,000+ hours in their local communities through these programs.
Our modified compensation programcorporate giving extends and expands on our long-term commitment to patients with serious diseases and our communities, with an on-going focus on STEAM education. In 2021, we continued to offer virtual opportunities for non-employee directors became effectivelocal students and teachers through our Learning Labs in Boston, San Diego, and Oxford, UK and expanded our paid high school internship programs. The Vertex Foundation provided 88 scholarships to people with CF and their family members who are pursuing two-year, four-year, or graduate degrees. Vertex also is committed to supporting programs and initiatives in the countries in which we operate to educate healthcare professionals, strengthen CF research and development, raise disease awareness, and provide support to nonprofit organizations.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 33
 | Workplace |
We are committed to building an outstanding, dedicated, and passionate team at Vertex. We believe that we can do our best work for 2016patients when we foster a culture and environment where all points of view are respected and heard. At Vertex, we view diversity as a catalyst for innovation, and as a result,key driver in making better decisions and achieving the tables below reflect compensation paid under our prior compensation program for non-employee directors. Compensation paid in 2016 under our modified program will be reflected in next year's proxy statement and will reflect a significant decrease in total compensation, and specifically a more than 50% decrease in the value of annual equity awards in 2016 as comparedbest outcomes.
We are pleased to 2015.
| Director | Fees Earned or Paid in Cash | Option Awards (1) | Total | |||||||||
| Sangeeta N. Bhatia | $ | 27,818 | $ | 1,691,118 | $ | 1,718,936 | ||||||
| Joshua Boger | $ | 62,500 | $ | 1,168,916 | $ | 1,231,416 | ||||||
| Terrence C. Kearney | $ | 80,000 | $ | 1,168,916 | $ | 1,248,916 | ||||||
| Yuchun Lee | $ | 60,000 | $ | 1,168,916 | $ | 1,228,916 | ||||||
| Margaret G. McGlynn | $ | 55,000 | $ | 1,168,916 | $ | 1,223,916 | ||||||
| Wayne J. Riley (until June 30, 2015) | $ | 35,000 | $ | 1,168,916 | $ | 1,203,916 | ||||||
| Bruce I. Sachs | $ | 100,000 | $ | 1,315,031 | $ | 1,415,031 | ||||||
| Elaine S. Ullian | $ | 100,000 | $ | 1,315,031 | $ | 1,415,031 | ||||||
| William D. Young | $ | 60,000 | $ | 1,168,916 | $ | 1,228,916 | ||||||
| a score of 100 on the Human Rights Campaign’s 2021 Corporate Equality Index; and |
|
Seven of Annual Meetingour eleven director nominees are women and/or ethnic and racial minorities.
As of Shareholders
 | Environment |
We are committed to limiting our environmental impacts and to operating our business in a sustainable manner. We make strong local efforts to reduce our impact on the environment. In 2021, we sourced 100% renewable energy for our International Headquarters in London and our Oxford, UK facility, and we completed installation of a solar panel array at our San Diego research site. We completed construction on the Jeffrey Leiden Center for Cell and Genetic Therapies in Boston, Massachusetts, which incorporates sustainability into all aspects of its construction and design. We continue to take steps to minimize waste across all of our sites through employee engagement initiatives, vendor takeback programs and improved product distribution processes.
In 2022, we received a score of B, which is above the global average, on the CDP Climate Change survey by demonstrating management and coordinated action on climate issues. We continue to make progress towards our global goal of reducing our absolute greenhouse gas emissions 20% by the end of 2023 over a 2018 baseline.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement | 23
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| Option Grant | Date | Shares | Exercise Price | Grant-Date Fair Value | |||||||
| Annual Non-Employee Director Grants | June 1, 2015 | 20,000 | $ | 127.54 | $ | 1,168,916 | |||||
| Annual Grants to Co-lead Independent Directors | June 1, 2015 | 2,500 | $ | 127.54 | $ | 146,115 | |||||
| Initial Grant - Sangeeta N. Bhatia | June 4, 2015 | 30,000 | $ | 126.68 | $ | 1,691,118 | |||||
Engagement of
| Director | Exercisable Options | Total Outstanding Options | ||
| Sangeeta N. Bhatia | 3,750 | 30,000 | ||
| Joshua Boger | 1,067,400 | 1,067,400 | ||
| Terrence C. Kearney | 60,375 | 60,375 | ||
| Yuchun Lee | 79,042 | 84,667 | ||
| Margaret G. McGlynn | 80,000 | 80,000 | ||
| Bruce I. Sachs | 120,000 | 120,000 | ||
| Elaine S. Ullian | 67,500 | 67,500 | ||
| William D. Young | 51,250 | 70,000 | ||
Our audit and finance committee is responsible for the appointment, compensation, and oversight of our independent registered public accounting firm. Ernst & Young LLP has been our independent registered public accounting firm since 2005, and we believe that the selection of Ernst & Young LLP as our independent registered accounting firm for the year ending December 31, 20162022 is in the best interest of our company and our shareholders.
In determining whether to reappoint our independent registered public accounting firm, our audit and finance committee undertakes an annual formal evaluation of the independent registered public accounting firm, during which it considers the quality of its discussions with, and the performance of, the lead audit partner, the audit team assigned to our account, the potential impact of changing our independent registered public accounting firm, the overall strength and reputation of the firm and issues pertaining to auditor independence, including fees that our independent registered public accounting firm receives for non-audit services.
Representatives of Ernst & Young LLP are expected to attend the annual meeting, will have the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions from shareholders.
Effect of Vote
Although we are not required to have shareholders ratify the selection of Ernst & Young LLP.LLP, our board is submitting this proposal to our shareholders for ratification as a matter of good corporate practice. If our shareholders do not ratify the selection, our audit and finance committee will reconsider the selection of Ernst & Young LLP for the ensuing year, but may determine that continued retention of Ernst & Young LLP is in our company’s and our shareholders’ best interests. Even if the appointment is ratified, the audit and finance committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines
Independent Registered Public Accounting Firm Fees
The audit and finance committee works with our management in order to negotiate appropriate fees with Ernst & Young LLP and is ultimately responsible for approving those fees. The following is a summary and description of fees for services provided by Ernst & Young LLP in
| Service | 2015 | 2014 | ||||
| Audit fees | $ | 1,750,000 | $ | 1,384,000 | ||
| Audit-related fees | 342,000 | 156,000 | ||||
| Tax fees | 1,645,000 | 1,030,000 | ||||
| All other fees | 1,995 | 1,995 | ||||
| Total | $ | 3,738,995 | $ | 2,571,995 | ||
| Service | 2021 | 2020 | ||||||
| Audit fees | $ | 3,989,000 | $ | 3,594,000 | ||||
| Audit-related fees | — | — | ||||||
| Tax fees | 4,650,000 | 4,212,000 | ||||||
| All other fees | 6,000 | 8,000 | ||||||
| TOTAL | $ | 8,645,000 | $ | 7,814,000 | ||||
“
AuditVERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 35
“
Audit-related“
Tax | tax compliance and preparation fees, including the preparation of original and amended tax returns and refund claims, and tax payment planning of $1,990,000 and $1,660,000, respectively; and |
| tax advice and planning fees of $2,660,000 and $2,552,000, respectively. |
“All other fees”fees” consisted of licensing fees paid to Ernst & Young LLP for access to its proprietary accounting research database.
Audit and Finance Committee Pre-Approval Policies and Procedures
Our audit and finance committee has established a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. Prior to the engagement of the firm for each year’s audit, management submits to our audit and finance
| Audit fees include fees for audit work performed in the preparation of financial statements, as well as work that generally only our independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, consents, and attestation services. |
| Audit-related fees relate to services for assurance and related services that traditionally are performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, special procedures required to meet certain regulatory requirements, and consultation regarding financial accounting and/or reporting standards. |
| Tax fees include fees for all services performed by the independent registered public accounting firm’s tax personnel except those services specifically related to the audit of our financial statements, and include fees in the areas of tax compliance, tax planning, and tax advice. |
| All other fees are those associated with services not captured in the three preceding categories. |
Prior to the engagement of our independent registered public accounting firm, our audit and finance committee pre-approves these services by category of service. The fees are budgeted and our audit and finance committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, our audit and finance committee requires that we obtain its specific pre-approval for these services.
The audit and finance committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report any pre-approval decisions to our audit and finance committee at its next scheduled meeting.
All of the services set forth above in the categories “audit-related fees,” “tax fees”fees,” and “all other fees” were pre-approved and none were approved by our audit and finance committee pursuant to Rule 2-01(c)(7)(i)(C), of Regulation S-X, which relates to the approval of a
The affirmative vote of a majority of the shares represented and entitled to vote on this matter is required for the approval of this proposal.
Our board of directors unanimously recommends that you vote FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2022.
VERTEX PHARMACEUTICALS INCORPORATED
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The Audit and Finance Committee of the Board of Directors (the “Audit Committee”) of Vertex Pharmaceuticals Incorporated (the “Company”), which consists entirely of directors who meetoversees the independencecompany’s accounting, auditing and experience requirements of the Securities and Exchange Commission and The Nasdaq Stock Market LLC, has furnished the following report:
The Audit Committee reviewed and discussed the company’s audited financial statements for the year ended December 31, 2021 with Ernst & Young is required to communicate to and discuss withthe company’s management, as well as Ernst & Young’s audit of the company’s internal control over financial reporting. In addition, the Audit Committee has discussed with Ernst & Young the matters that are required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (United States) Auditing Standard No. 16,
The Audit Committee discussed with Ernst & Young the firm’s independence, andalso has received from Ernst & Young the written disclosures and the letter concerning independence as required by Public Company Accounting Oversight Board Ethics and Independence Rule 3526 (Communicationthe applicable requirements of the PCAOB regarding Ernst & Young’s communications with Audit Committees Concerning Independence). This discussion and disclosure informed the Audit Committee of Ernst & Young’s relationships with the Companyregarding independence, and was designed to assist the Audit Committee in considering Ernst & Young’s independence. Finally, the Audit Committee reviewed andhas discussed with Ernst & Young the firm’s independence. The Audit Committee has also concluded that Ernst & Young’s provision of audit and non-audit services to the company is compatible with Ernst & Young’s independence from the Company’s management, the Company’s audited consolidated balance sheet as of
Based on the review and discussions noted above, the Audit Committee recommended to the company’s Board of Directors that the audited financial statements of operations, comprehensive income (loss), shareholders’ equity and noncontrolling interest, and cash flows for the year ended
Terrence C. Kearney (Chair)
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 27
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Our compensation program is structureddesigned to attract, retain, and motivate talented and experienced leaders and reward our executive officers for the achievementindividuals across all areas of short- and long-term strategic and operational goals while avoiding inappropriate or excessive risk-taking. In 2015, our board of directors and the MDCC decided, based on fundamental changes in our business and financial profile and feedback we received from our shareholders, to adopt significant changes to our executive compensation program, and in particular, our equity compensation program that were implemented in early 2016.
In 2021, our annual advisory vote on executive compensation received support from approximately 91% of the votes cast at the annual meeting of shareholders. Based in part onWe believe this feedback,support is consistent with our shareholders’ understanding of our business model and the long-term value we made significant changesare creating. We plan to continue a high level of shareholder engagement regarding our equityexecutive compensation program, which we believe will allow usprogram.
Our focus is and continues to (i)be maintaining the strong link between our compensation programs and our ability to continue to attract, retain and motivatedevelop transformative medicines while delivering sustained company performance, with more than 90% of our named executive officers and (ii) address the concerns raised by our shareholders. As a result of these changes, our named executive officer's total equityofficer (“NEO”) compensation as provided in the summary compensation tables is expectedlinked to decrease by 40% to 45% in 2016 under the new program as compared to our NEO's total equity compensation in 2015 under the prior program.
| We increased the base salary and target equity level for Dr. Reshma Kewalramani, our CEO and President, based on a comparative analysis of companies in our peer group. Dr. Kewalramani’s target cash bonus as a percentage of base salary was unchanged for 2021. |
| Based on a comparative analysis of companies in our peer group, we increased compensation for Mr. Arbuckle in connection with his promotion to Chief Operating Officer, and for Mr. Wagner, our Chief Financial Officer. |
| We extended Dr. Leiden’s employment agreement by one year, until 2024. Under his amended employment agreement, Dr. Leiden will not receive any cash compensation for his Executive Chairman role other than an annual cash payment intended to facilitate participation in the company’s benefit plans. Dr. Leiden will continue to receive equity awards for his third and fourth years in his Executive Chairman role. |
| The company’s outstanding performance in 2021 resulted in the board determining that the company had achieved a leading rating (138 out of a potential 150) for 2021, with the payment of annual cash bonuses near the high end of the range for 2021, commensurate with the performance described herein. |
| We maintained the mix of equity granted under our compensation program with 50% consisting of performance stock units that vest solely upon achievement of rigorous performance goals and 50% consisting of time-vesting restricted stock units that reward stock price appreciation but also serve as a long-term retention tool. |
Our executive compensation program, including our performance and the compensation earned byof our named executive officers,NEOs, is discussed in greater detail in the
As required by Section 14(a) of the Exchange Act, our board of directors is asking that section, we discuss our executive compensation program and policies and explain the compensation decisions relating to our named executive officers for 2015. In addition, the compensation tables and related narratives, which begin on page 67 of this proxy statement, provide additional information regarding the compensation received by our named executive officers in 2015. In reviewing the compensation information included in this proxy statement, it is important to note that the equity compensation in these tables for 2015 reflects compensation received under the program we had in place prior to the changes implemented in early 2016.
RESOLVED, that the shareholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed inpursuant to the rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, section, the Compensation and Equity Tables and the related narrative executive compensation disclosures contained in this proxy statement.
The vote on this resolution is advisory in nature, and therefore will not bind us to take any particular action,binding on the board. However, our MDCC and board intend to consider carefully the outcome of the shareholder vote resulting from the proposal in makingwhen considering future decisions regarding our executive compensation program.
Our board of directors unanimously recommends athat you vote AGAINST FOR the shareholder proposal forapproval of the reasonsresolution set forth followingabove.
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Our broad-based equity compensation program is essential to attract, retain and motivate people with the proposal.
On April 1, 2022, our board of directors has determined that continuation ofamended and restated our classified board structure is appropriate and in the best long-term interests of our company and our shareholders.
The 2013 Plan utilizes “fungible” shares, with astock options counting as one share against the total authorized shares and full value at least six times his then-current base salaryawards, such as restricted stock or (ii) ownership of at least 150,000restricted stock units, counting as 1.66 shares of our common stock. Our executive vice presidents should, within five years of becoming subjectagainst the total authorized shares. We adopted this fungible share plan to these guidelines, achieve ownership of shares of our common stock with a value at least four times such executive vice president’s then-current base salary.
Maintenance of December 31, 2015. For 2015, realizable compensation values for companies in our Peer Group were estimated based on Form 4 filings for equity awards and the assumption that compensation amounts were the same in 2015 as in 2014 for other forms of compensation.
Since our inception, we have compensated all eligible employees using a mix of cash and equity. The broad-based nature of our equity compensation program is an important element of our overall employee compensation program and reflects our philosophy that it is important for all of our employees to approach their jobs with a long-term commitment and perspective. Over the last several years, we have modified our equity compensation programs. These modifications are consistent with modifications other biotechnology companies have made as they matured from development-stage companies to commercial-stage companies with a strong financial profile. As a result of these changes, we granted, on an absolute basis, equity awards representing 33%34% fewer shares of common stock in 20152021 as compared to 20122018 and reduced our "burn rate"“gross burn rate” from 3.6%1.7% in 20122018 to 2.1%1.1% in 2015.
| 2018 | 2019 | 2020 | 2021 | % Change 2018 to 2021 | ||||||
| (in thousands, except percentages and employee numbers) | ||||||||||
| Total Shares Granted Subject to Equity Awards | 4,391 | 3,687 | 1,814 | 2,908 | (34)% | |||||
| Gross Burn Rate(1) | 1.7% | 1.4% | 0.7% | 1.1% | ||||||
| Awards Canceled, Forfeited or Expired | 826 | 886 | 432 | 646 | ||||||
| Net Dilution | 3,565 | 2,801 | 1,382 | 2,262 | (37)% | |||||
| Net Burn Rate | 1.4% | 1.1% | 0.5% | 0.9% | ||||||
| Average Employees During Fiscal Year(2) | 2,398 | 2,668 | 3,113 | 3,655 | ||||||
| (1) | “Burn rate” is defined as the number of equity awards granted in a specific year divided by the basic weighted average number of shares outstanding during that year. |
| (2) | Average number of employees as of January 1st and December 31st. |
Key Provisions of Annual Meetingthe 2013 Plan
The 2013 Plan includes a number of Shareholders
| Fungible Shares: Options granted at fair market value on the grant date (which is defined under the 2013 Plan as the average of the highest and lowest quoted selling prices on such date), and any other awards that we may in the future grant at a purchase price of 100% of the fair market value of a share of our common stock on the date of grant such as stock appreciation rights, count against the number of shares authorized under our 2013 Plan at a rate of one share for each share granted. Any restricted stock units, restricted stock or other “full value” awards granted under the 2013 Plan count against the number of shares authorized for issuance under our 2013 Plan at a rate of 1.66 shares for each share granted. |
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| ||
| 2012 Equity Awards | 2013 Equity Awards | 2014 Equity Awards | 2015 Equity Awards | % Change 2012 v 2015 | ||||
| Total Shares Subject to Equity Awards | 7,525,000 | 6,276,000 | 5,629,000 | 5,035,000 | (33)% | |||
| Burn Rate (1) | 3.6% | 2.8% | 2.4% | 2.1% | ||||
| No Discounted Stock Options or SARs: Stock options and stock appreciation rights cannot be granted with an exercise price less than the fair market value on the date of grant. |
| No “Evergreen” Provision: The 2013 Plan does not contain an “evergreen” or similar provision. The 2013 Plan fixes the number of shares available for future grants and does not provide for any increase based on increases in the number of outstanding shares of common stock. |
| No Reload Rights: Stock options granted under the 2013 Plan do not contain provisions entitling participants to automatic grants of additional stock options in connection with the exercise of the original option. |
| Limitation on Re-use of Shares: Shares that are delivered to, or withheld by, the company under an award may not be reissued under the 2013 Plan. Shares may be delivered or withheld in connection with the exercise of stock options or the payment of required withholding taxes. |
| Limitations on Dividend Payments: No dividends or dividend equivalents will be paid with respect to shares subject to stock options or stock appreciation rights unless and until such awards have vested and been exercised in accordance with their terms. Any dividends or dividend equivalents paid with respect to shares underlying stock rights other than stock options or stock appreciation rights will be subject to the same vesting terms otherwise applicable to the award. |
Existing Plans
As of February 28, 2022, options to purchase (i) an aggregate of 3,165,632 shares having a weighted-average exercise price of $147.70 per share and a weighted-average term before expiration of 5.58 years were outstanding under the 2013 Plan, and (ii) an aggregate of 252,327 shares having a weighted-average exercise price of $74.66 per share and a weighted-average term before expiration of 1.69 years were outstanding under our Amended and Restated 2006 Stock and Option Plan (the “2006 Plan”). Also, as of February 28, 2022, there were outstanding an aggregate of 4,348,128 unvested shares of restricted stock units granted under the 2013 Plan and no unvested shares of restricted stock and restricted stock units granted under the 2006 Plan. As of this same date, there were outstanding purchase rights with respect to approximately 90,000 shares under our Employee Stock Purchase Plan (based on the closing price per share on February 28, 2022) and 1,777,228 shares remaining available for future issuance under this plan.
Submission of 2013 Plan
We are submitting an amendment and restatement of our 2013 Plan to our shareholders as required under applicable rules of Nasdaq and to ensure favorable federal income tax treatment under Section 422 of the Code, for any grants of incentive stock options that we may make under our 2013 Plan.
A summary of the principal features of our 2013 Plan is definedset forth below. A copy of our 2013 Plan, as amended and restated and in the form that would become effective upon shareholder approval of this proposal, is attached to this proxy statement as Appendix A.
Administration and Eligibility for Participation
The 2013 Plan is administered by our board of directors or any committee to which it delegates all or a part of its administrative responsibilities under the 2013 Plan. The term “administrator” as used in this summary refers to our board or any committee thereof that has been delegated the responsibility for administering the 2013 Plan. Subject to the provisions of the 2013 Plan, the administrator determines the persons to whom awards under the 2013 Plan will be granted, the number of equityshares to be covered by each award, the exercise price per share and the manner of exercise, the terms and conditions upon which awards are granted, whether to accelerate the vesting or extend the date of exercise of any installment of any award and how to interpret the provisions of the 2013 Plan. Awards may be granted under the 2013 Plan to our employees, including officers and directors who are employees, and to our consultants, advisors and non-employee directors. As of February 28, 2022, we and our subsidiaries had approximately 4,000 employees and 8 non-employee directors eligible to participate in the 2013 Plan. The number of consultants and advisors eligible for awards under the 2013 Plan varies from time to time and, as of February 28, 2022, approximately 50 consultants and advisors would be eligible to participate in the 2013 Plan. No participant may be granted awards in any calendar year for more than 1,000,000 shares, subject to adjustment for stock splits and similar recapitalizations.
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Description of Awards
The 2013 Plan provides for the award of stock options, stock grants, and other stock-based awards. Any restricted stock grants, restricted stock units or other “full value” awards granted in a specific year divided byunder the basic weighted average2013 Plan will count against the number of shares outstanding duringauthorized for issuance under the 2013 Plan at a rate of 1.66 shares for each share granted. Shares of common stock reserved for such awards granted under the 2013 Plan that year.
On March 24, 2022, the last reported sale price of our common stock on Nasdaq was $251.70 per share.
Stock Options
Stock options provide award recipients with the right, subject to the terms and conditions that are specified in connection with the option grant, to purchase a specified number of shares of our common stock at a specified exercise price. Stock options granted under the 2013 Plan may be awarded as either non-qualified stock options or as incentive stock options within the meaning of Section 422 of the Code, referred to as ISOs, however only employees may receive ISOs. The maximum value of shares of common stock—determined at the time of grant—that may be subject to ISOs that become exercisable by an employee in any one year is limited to $100,000. Since 2003, we have only granted non-qualified stock options under our equity plans.
Stock options granted under the 2013 Plan may not be granted with an exercise price that is less than the fair market value of our common stock on the date of grant, which is defined under the 2013 Plan as the average of the highest and lowest quoted selling prices on such date. ISOs may not be granted with an exercise price that is less than 110% of fair market value in the case of employees or officers holding 10% or more of our voting stock. ISOs granted to an employee or officer holding 10% or more of our voting stock must expire not more than five years from the date of grant.
Stock options granted under the 2013 Plan can only be exercised by the option holder and are not transferable except by the laws of descent and distribution or pursuant to domestic relations orders or as otherwise determined by the administrator, provided such transfer is not for value.
The 2013 Plan provides for stock option grants to non-employee directors under our director compensation program. In addition to any other stock rights as may be determined by our board of directors, each non-employee director serving in office is granted annually, pursuant to our equity plans, a fully vested non-qualified option to purchase a specified number of shares determined from time to time by our board.
The 2013 Plan permits the administrator to determine the manner of payment of the exercise price of options. Such methods include payment by cash or check, or, at the discretion of the administrator, by means of a broker assisted “cashless exercise,” delivery to us of shares of our common stock, any combination of such methods or any other lawful means approved by the administrator, other than delivery of a promissory note.
Stock Grants
A stock grant is an award of shares of common stock. Stock grants may be issued subject to restrictions on transfer and vesting requirements, as determined by the administrator. Vesting requirements may take the form of our lapsing right to repurchase the stock from the award recipient, based on either continued employment for specified time periods or on the attainment of specified business performance goals set by the administrator. Subject to the transfer restrictions and our repurchase rights, if any, the grantee will grant fewer options in 2016 than 2015. As a result, although the MDCC and board retains discretionhave all rights with respect to unvested shares of common stock issued under a stock grant as are possessed by our other shareholders, including all voting and dividend rights, provided that dividends, if any, with respect to unvested shares shall accrue and be payable only upon the vesting of such shares.
Stock-Based Awards
The 2013 Plan provides that the administrator may grant other stock-based awards, including restricted stock units, share grants based upon specified conditions, the grant of securities convertible into shares, or the grant of stock appreciation rights, or phantom stock awards, in each case upon terms and conditions established by the administrator.
Performance Awards
Under the 2013 Plan, we have the discretionary authority to structure one or more awards so that the shares of common stock subject to those particular awards will not vest unless certain pre-established objective performance goals are achieved. Each objective performance measure that is a financial measure may be determined pursuant to generally accepted accounting principles (GAAP) or on a non-GAAP basis.
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Such objective performance measures may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities, an index or indices or other external measure of the selected performance criteria, and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The objective performance measures and any targets with respect thereto need not be based on an increase, a positive or improved result or the avoidance of loss. Such performance measures: (1) may vary by participant and may be different for different awards and (2) may be particular to a participant or the department, branch, line of business, subsidiary or other unit in which the participant works and may cover such performance period as may be specified by us.
Adjustments in the Event of Stock Dividends, Stock Splits, Recapitalizations or Reorganizations
The number of shares subject to stock rights and other terms applicable to such rights will be equitably adjusted if we issue a stock dividend, or in the event of a stock split, recapitalization or reorganization. In addition, in the event of certain consolidations or acquisitions or a sale of substantially all of our assets, either (i) the administrator or the entity assuming our obligations under the 2013 Plan shall make appropriate provision for the continuation of all outstanding stock rights under the 2013 Plan or grant replacement stock rights on an equitable basis as determined by the administrator or the relevant entity, or (ii) if there is no assumption or replacement, the vesting of all outstanding and unvested stock rights under the 2013 Plan will be accelerated and such stock rights will become fully exercisable immediately prior to such consolidation, acquisition or sale.
Effective Date, Amendment and Expiration
The 2013 Plan became effective on May 8, 2013 and was previously amended and restated effective as of June 4, 2015, June 8, 2017, May 17, 2018, October 16, 2018 and June 5, 2019. The amendment and restatement of our 2013 Plan will be effective, subject to shareholder approval, on May 18, 2022. The 2013 Plan will terminate on April 12, 2027. Our board of directors may terminate or amend the 2013 Plan at any time, subject to shareholder approval under certain circumstances as provided in the 2013 Plan. No amendment or termination of the 2013 Plan will adversely and materially affect the rights provided in any award made under the 2013 Plan prior to the plan amendment or termination. Neither our board nor the administrator has the authority to reduce the exercise price of any stock option after the date of grant, except in the case of an equitable adjustment required under the 2013 Plan. No award may be made under the 2013 Plan after the plan expiration date. Awards made prior to expiration of the 2013 Plan may extend beyond the plan expiration date.
U.S. Federal Income Tax Consequences
The discussion of federal income tax consequences that follows is based on an analysis of the Code as currently in effect, existing law, judicial decisions and administrative regulations and rulings, all of which are subject to change, and is applicable to optionees who are U.S. taxpayers.
Non-Qualified Options
Options that are designated as non-qualified options are not intended to qualify for treatment under Section 422 of the Code. Options otherwise qualifying as ISOs, to the extent the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar year exceeds $100,000, also will be treated as options that are not ISOs.
A non-qualified option ordinarily will not result in income to the optionee or a deduction for us for tax purposes at the time of grant. Instead, the optionee will recognize compensation income at the time of exercise of a non-qualified option in an amount equal to the excess of the fair market value of the shares at the time of exercise over the option exercise price. Any compensation income may be subject to withholding taxes, and a deduction may then be allowable to us in an amount equal to the optionee’s compensation income.
An optionee’s initial basis in shares so acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income. Any gain or loss as a result of a subsequent disposition of the shares so acquired will be capital gain or loss.
Incentive Stock Options
ISOs are intended to qualify for treatment under Section 422 of the Code. An ISO does not result in taxable income to the optionee or a deduction for us at the time it is granted or exercised, provided that the optionee does not dispose of the shares acquired pursuant to the option either within two years after the date of grant of the option or within one year after the shares are issued, referred to as the ISO holding period. However, the difference between the fair market value of the shares on the date of exercise and the option exercise price will be an
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item of tax preference that is included in alternative minimum taxable income. Upon disposition of the shares after the expiration of the ISO holding period, the optionee generally will recognize long-term capital gain or loss based on the difference between the disposition proceeds and the option exercise price paid for the shares. If the shares are disposed of prior to the expiration of the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction, in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option over the option exercise price. Any additional gain realized on the disposition normally will constitute capital gain. If the amount realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount of compensation income will be limited to the excess of the amount realized over the optionee’s adjusted basis in the shares.
Stock Grants
With respect to stock grants that result in the issuance of shares that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of shares received. Thus, deferral of the time of issuance generally will result in the deferral of the time the grantee will be liable for income taxes with respect to such issuance. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
With respect to stock grants involving the issuance of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee generally must recognize ordinary income equal to the fair market value of the shares received at the time the shares become transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. A grantee may elect to be taxed at the time of receipt of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the shares on which the grantee previously paid tax. The grantee must file any such election with the Internal Revenue Service within 30 days of the receipt of the shares. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee.
Our ability to deduct compensation is subject to limitations under the Code.
Plan Benefits
The granting of awards under the 2013 Plan is discretionary and we cannot now determine the number or type of awards to be granted in the future to any particular person or group. For further information on awards to non-employee directors, see the section “Non-Employee Director Compensation Program” beginning on page 31 of this proxy statement.
The following table sets forth the awards that were granted to our named executive officers, our executive officers as a group, our non-employee directors as a group, and our other employees (who are not executive officers) as a group under the 2013 Plan during the 2021 fiscal year.
| Name and Position | Number of Stock Options | Number of Restricted Stock Units (excluding Performance-Based Restricted Stock Units) | Number of Performance-Based Restricted Stock Units (assuming target performance) | |||
| Named Executive Officers | ||||||
| Dr. Reshma Kewalramani, Chief Executive Officer and President | — | 29,031 | 29,032 | |||
| Charles F. Wagner, Jr., EVP, Chief Financial Officer | — | 11,627 | 11,628 | |||
| Stuart A. Arbuckle, EVP, Chief Operating Officer | — | 13,952 | 13,952 | |||
| Dr. Jeffrey Leiden, Executive Chairman | — | 20,928 | 20,928 | |||
| Nia Tatsis, EVP, Chief Regulatory and Quality Officer | — | 13,952 | 13,952 | |||
| All executive officers as a group (10 persons) | — | 139,632 | 148,458 | |||
| All non-employee directors as a group (8 persons) | 27,302 | 7,836 | — | |||
| All other employees, as a group | — | 1,779,674 | 572,840 |
The affirmative vote of a majority of the shares represented and entitled to vote on this matter is required for the approval of this proposal.
Our board of directors unanimously recommends that you vote FOR the approval of an amendment and restatement of our 2013 stock and option plan to increase the number of shares authorized for issuance under this plan by 13.5 million shares.
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As of February 28, 2022, there were 6,810,418 shares remaining available for award under our 2013 Plan. Under our 2013 Plan, all awards may be granted as full value awards but count as 1.66 shares for each full value share awarded.
As of February 28, 2022, under our equity plans:
| Stock options covering 3,417,959 shares of our common stock, with a weighted average exercise price of $142.30 and a weighted average remaining term of 5.3 years, were outstanding; and |
| Unvested restricted stock units covering 4,348,128 shares of our common stock were outstanding. |
The following table provides aggregate information with respect to all of our equity compensation plans in effect as of December 31, 2021. We are required under applicable SEC rules to disclose in this table the number of shares remaining available for issuance under our equity plans as of December 31, 2021. Accordingly, the figures in the table below do not reflect the equity grants made to our employees under the 2013 Plan, since December 31, 2021.
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Restricted Stock Units and Rights | Weighted-Average Exercise Price of Outstanding Options and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in first column) | ||||
| Equity Compensation Plans Approved by Shareholders(1) | 7,597,354 | (2) | $ 141.76 | (3) | 11,335,271 | (4) | |
| Equity Compensation Plans Not Approved by Shareholders | — | — | — | ||||
| TOTAL | 7,597,354 | 11,335,271 |
| (1) | These plans consist of the 2013 Plan, the 2006 Plan and our Employee Stock Purchase Plan. No further shares of common stock will be issued or distributed under the 2006 Plan. |
| (2) | Represents the number of underlying shares of common stock associated with outstanding options, restricted stock units, performance stock units, and deferred stock units granted under shareholder approved plans, as of December 31, 2021, and includes 3,319,214 options granted under the 2013 Plan, 2,887,873 restricted stock units granted under the 2013 Plan, 1,077,830 performance stock units (“PSU”) (assuming the maximum number of PSUs will be earned) granted under the 2013 Plan, 20,646 deferred stock units attributable to compensation deferred by non-employee directors participating in the Director Plan and distributable in the form of shares of common stock under the 2013 Plan (and which are treated as outstanding “stock rights” under the 2013 Plan), and 291,791 options granted under the 2006 Plan. |
| (3) | Represents the weighted-average exercise price of options outstanding under the 2013 Plan and 2006 Plan. See note (2) above with respect to restricted stock units, PSUs and deferred stock units (credited under the Director Plan) outstanding under the 2013 Plan. The weighted-average exercise price does not take these awards into account. |
| (4) | Represents the number of shares available for future issuance under shareholder approved equity compensation plans and consists of 9,558,043 shares available for future issuance under the 2013 Plan and 1,777,228 shares available for future issuance under the Employee Stock Purchase Plan, including shares to be purchased at the end of the current offering period ending May 15, 2022. |
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Letter from Management Development and Compensation Committee to Our Shareholders
Dear Fellow Shareholders,
The Management Development and Compensation Committee’s stewardship of Vertex’s compensation programs is guided by Vertex’s mission of developing transformative medicines for people with serious diseases and, by so doing, creating value for our shareholders. Toward that end, we expect consistenthave designed the company’s compensation programs to closely align management’s incentives with Vertex’s strategic long- and short-term goals and with the interests of Vertex’s shareholders. We believe that this alignment has contributed to Vertex’s remarkable accomplishments over the last decade as it has significantly increased the number of patients benefiting from Vertex medicines each year, established a strong financial position with significant growth in revenues, continued delivery of strong operating margins and cash flows, and accelerated the advancement of its pipeline of small molecule drug candidates and cutting edge cell and genetic therapies, all in accordance with its core strategy of investing in scientific innovation to create transformative medicines for people with serious diseases. These accomplishments have been recognized by the company’s shareholders and have been reflected in the increasing value that the company’s shareholders have attributed to the company. Vertex’s market capitalization has increased from approximately $7 billion in early 2012 to approximately $56 billion at the end of 2021.
We take seriously our role in the governance of compensation programs and the importance of attracting, recruiting, and retaining critical executive talent. The success of the company and the execution of Vertex’s business strategy over the last several years has depended upon the stability and operational excellence of our senior executive team.
2021 was an important year for Vertex and the company continued to execute successfully on its business strategy. Vertex solidified its long-term leadership in CF in numerous ways and continued to treat more people with CF than ever before. Vertex obtained approval of TRIKAFTA for children with CF 6 to 11 years of age in the U.S. and entered into more than 20 new reimbursement agreements in 2021, securing access to our medicines for thousands of new patients. In early 2022, Vertex obtained approval of KAFTRIO for children with CF 6 to 11 years of age in Europe. Beyond CF, the research and development team advanced numerous programs, including completing enrollment for pivotal studies for CTX001, a one-time gene-editing therapy for patients with sickle cell disease and beta thalassemia; obtaining the first clinical data for VX-880, a fully differentiated pancreatic islet cell therapy; and establishing clinical proof-of-concept for VX-147, a small molecule targeting APOL1-mediated kidney disease. The team also initiated and has now completed and announced positive data for two Phase 2 proof-of-concept studies for VX-548, a small molecule NaV1.8 inhibitor for the treatment of acute pain. In addition, 2021 saw significant progress in our research pipeline for diseases, including DMD, DM1 and AAT deficiency. These advances position the company for multiple important milestones and significant value creation in 2022 and beyond.
The company delivered outstanding financial performance in 2021, achieving CF net product revenues of $7.57 billion, a 22% increase compared to 2020. This revenue growth drove significant growth in earnings and cash flow, and the company finished the year in a strong financial position with $7.5 billion in cash, cash equivalents, and marketable securities. The senior management team additionally strengthened its organizational capabilities, recruiting and onboarding top-tier talent across the organization, including filling critical hires with superior and diverse talent.
The company’s successes in 2021 reflect both the company’s strong performance in 2021 and the differentiated corporate strategy that its senior management team continues to champion. Consistent with these outstanding results, for 2021, our executives received above-target cash bonuses and payouts on performance stock unit awards based both on one-year business and financial goals and three-year research and development goals. We believe these outcomes are aligned with our commitment to directly linking pay to performance. Looking ahead, we will continue to focus on the strong link between Vertex’s compensation programs and execution of its corporate strategy. Central to executing our corporate strategy is the ability to attract and retain an outstanding and fully aligned executive team while also establishing an executive compensation approach with a strong performance orientation and focus on creating long-term shareholder value.
Sincerely,
Bruce I. Sachs (Chair)
Lloyd Carney
Terrence C. Kearney
Yuchun Lee
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This section discusses the principles underlying our policies and decisions with respect to the compensation of our NEOs for 2021 and the factors we believe are relevant to an analysis of these policies and decisions. Our NEOs for 2021 are listed below.
| Name | Position |
| Reshma Kewalramani | Chief Executive Officer and President |
| Charles F. Wagner, Jr. | Executive Vice President, Chief Financial Officer |
| Stuart A. Arbuckle | Executive Vice President, Chief Operating Officer |
| Jeffrey M. Leiden | Executive Chairman |
| Nia Tatsis | Executive Vice President, Chief Regulatory and Quality Officer |
Financial Performance
Our CF medicines, TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, ORKAMBI, and KALYDECO, are transforming the lives of eligible patients around the globe and driving our financial performance.
| Our CF net product revenues increased to $7.57 billion in 2021, up 22% or approximately $1.4 billion, from our 2020 net product revenues. |
| Our total R&D and SG&A expenses increased to $3.9 billion compared to $2.6 billion in 2020 primarily due to a $900 million upfront payment we made to CRISPR in connection with an amendment to our CTX001 collaboration in 2021, and incremental investments to support the advancement and expansion of our pipeline and to support the launches of our medicines globally. |
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Marketed Products
Our deliberate strategy of continuous serial innovation has significantly solidified our leadership position in CF and moved us ever closer to our goal of delivering highly effective treatments to all patients with CF. In January 2012, KALYDECO was first approved to treat approximately 1,000 patients with the G551D mutation in the U.S. Since then, we have focused on expanding the number of patients eligible for our medicines and seeking improved treatment options for all patients with CF.
Today, our four approved medicines are being used to treat the majority of the approximately 83,000 people with CF in North America, Europe and Australia. However, we believe that there willare more than 25,000 untreated patients in these geographies who could still benefit from our medicines. Over the next several years, we plan to reach these patients through continued uptake of our medicines, expansion of our TRIKAFTA/KAFTRIO label to lower age groups, and additional approvals and reimbursement agreements. In support of our goal of bringing transformative therapies to all people with CF, we also are pursuing genetic therapies for the remaining people with CF who may not be helped by our current CF medicines. During the last year, we have significantly advanced our pre-clinical mRNA program for these patients and expect to enter the clinic with this new therapy in 2022.
CONTINUED GROWTH AHEAD IN CF
Since the beginning of 2021, notable progress that has resulted from our efforts includes:
| The FDA approved the use of TRIKAFTA for children with CF 6 through 11 years of age who have at least one F508del mutation or at least one other mutation that is responsive to TRIKAFTA. |
| Health Canada granted marketing authorization for TRIKAFTA for people with CF 12 years of age and older who have at least one F508del mutation. Our application for approval of TRIKAFTA for children with CF 6 through 11 years of age has been accepted for priority review by Health Canada. |
| In January 2022, the European Commission and the Medicines and Healthcare products Regulatory Agency granted marketing authorization for KAFTRIO for the treatment of children with CF 6 through 11 years of age who have at least one F508del mutation in the CFTR gene. |
| More than 20 countries outside the U.S. have now approved and reimbursed or made accessible TRIKAFTA/KAFTRIO. |
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Research and Development
We invest in research and development to discover and develop transformative medicines for people with serious diseases with a further declinefocus on specialty markets. Our research and development strategy is to combine transformative advances in the dilutionunderstanding of human disease and the science of therapeutics to discover and develop new medicines. This approach has yielded a broad and deep pipeline and increases the speed and likelihood of successfully bringing medicines to patients. Our differentiated approach to drug discovery has been validated by our success in moving multiple novel small molecule drug candidates into clinical trials and obtaining marketing approvals for five transformative medicines in the past decade.
We continue to research and develop small molecule product candidates for the treatment of serious diseases, including CF, AMKD, pain, AAT deficiency, and DM1. Our research and development approach includes advancing multiple candidates into clinical trials, pursuing multiple modalities, and evaluating clinical and non-clinical data to inform drug discovery and development, with the goal of bringing best-in-class therapies to patients. In 2022, we expect to have several small molecule programs in pivotal development (AMKD, CF, pain). In addition to expanding our small molecule programs during the last seven years, we have also assembled an industry-leading portfolio of programs in cell and gene therapies. In collaboration with our partner, CRISPR, we have developed the first human gene editing approach for two serious genetic diseases, SCD and beta thalassemia. Based on our acquisition of Semma Therapeutics, we have recently reported unprecedented clinical data for the first stem cell-derived therapy for T1D. We also continue to advance our late-stage pre-clinical gene editing program for DMD.
We are advancing programs across multiple disease areas and modalities, including:
| Cystic Fibrosis. We are evaluating in Phase 3 clinical trials a new, once-daily investigational triple combination of VX-121/tezacaftor/VX-561 (deutivacaftor). We also are researching mRNA therapies as well as gene-editing approaches to treat the remaining people with CF who are not expected to benefit from our small molecule medicines. We expect to submit an IND for our CF mRNA program in 2022. |
| Sickle Cell Disease and Beta Thalassemia. We are evaluating in Phase 3 clinical trials CTX001, an investigational CRISPR/Cas9-based gene-editing therapy for severe sickle cell disease and transfusion-dependent beta thalassemia with CRISPR. Enrollment is complete, and we anticipate regulatory submissions for CTX001 in late 2022. |
| APOL1-Mediated Kidney Disease. Based on positive Phase 2 data for VX-147, our small molecule for the treatment of APOL1-mediated focal segmental glomerulosclerosis, we advanced VX-147 into pivotal development in a broader population of people with AMKD in the first quarter of 2022. |
| Type 1 Diabetes. We are evaluating VX-880, a stem-cell derived therapy involving the transplantation of fully differentiated pancreatic islet cells, for the treatment of T1D in a Phase 1/2 clinical trial, and announced positive Day 150 data for the first T1D patient in this clinical trial. Our trials in the U.S. and Canada are ongoing, and we continue to dose patients. We also are pursuing additional programs in T1D, in which the implanted islet cells are encapsulated in an immunoprotective device or modified to produce hypoimmune cells. We are conducting IND-enabling studies for the cells and device program and expect to submit an IND for this program in 2022. |
| Pain. We recently announced positive Phase 2 data for VX-548, a NaV 1.8 inhibitor, for the non-opioid treatment of acute pain. We expect to advance VX-548 into pivotal development in the second half of 2022. |
| Alpha-1 Antitrypsin Deficiency. We obtained proof-of-mechanism for VX-864 in a Phase 2 study of protein folding correction of the Z-AAT protein. We plan to advance into the clinic one or more novel small molecule correctors intended to address the lung and liver manifestations of AAT deficiency in 2022. |
| Duchenne muscular dystrophy and myotonic dystrophy type 1. We are focused on advancing gene-editing therapies aimed at treating the underlying cause of DMD and DM1. We are also exploring potential small molecule approaches to address the underlying causal biology for DM1. |
| In addition to the programs listed above, we have a number of early-stage research programs aimed at other targets that represent the causal human biology of serious diseases. |
We plan to continue investing in our research and development programs and fostering scientific innovation by identifying additional product candidates through our internal research efforts and investing in business development transactions to access emerging technologies, products, and product candidates.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 48
The following chart represents our pipeline programs by disease area, stage of development, and modality, for programs that have lead assets in the clinic.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 49
Increasing Shareholder Value
We believe that execution of our differentiated serial innovation strategy will continue to create shareholder value over the long term. The biotechnology sector is subject to short-term volatility and many biotechnology companies, including Vertex, experienced stock price fluctuations in 2021. Notwithstanding these short-term fluctuations, our executive team has outperformed on our CF business and successfully executed on our focused strategy, creating significant shareholder returns over the last several years. The following charts show our total shareholder return relative to the NBI and S&P 500 indices since the beginning of 2012, when KALYDECO was first approved, as well as our stock price performance over multiple periods.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 50
2021 Compensation Decisions and Pay-for Performance
In 2021, our executive compensation program received substantial support from our shareholders, approved by approximately 91% of the votes cast at the annual meeting of shareholders. We believe this support is consistent with our long-term shareholders’ understanding of our business model and the long-term value we are creating. Our executive compensation program is intended to align executive compensation with the company’s short- and long-term performance and to provide the compensation and incentives required to attract, motivate and retain our high-caliber executives who are crucial to Vertex’s long-term success. Our compensation program is highly performance-based, with more than 90% of our NEO compensation tied to performance. Retention of our talented executives is critical, as their outstanding performance has led to the company’s advancement and the creation of significant long-term shareholder value.
In 2021, our board of directors and MDCC reviewed our compensation programs and made the following key decisions:
| Program Design: We maintained our compensation program design that directly ties pay with performance and has contributed to our short- and long-term successes. |
| Base Salary: In 2021, based on a comparative analysis of companies in our Peer Group (described below), we increased compensation for Dr. Kewalramani and Mr. Wagner, and we increased Mr. Arbuckle’s compensation in connection with his promotion to Chief Operating Officer. Under his employment agreement, Dr. Leiden no longer receives a base salary for his role of Executive Chairman. |
| Annual Cash Bonus: We increased the target cash bonus of Mr. Arbuckle to 90% of his base salary in connection with his promotion to Chief Operating Officer. We maintained the target cash bonus, which is a percentage of base salary, for our other NEOs, except for Dr. Leiden who does not receive an annual cash bonus pursuant to his employment agreement. The company’s outstanding performance in 2021, as described above, resulted in the board determining that the company had achieved a leading rating (a company rating of 138 out of a potential 150) for 2021, with the payment of annual cash bonuses near the high end of the range for 2021. Please see “Overview of Company Performance Rating & Achievement in 2021.” |
| Long-Term Equity Program: | |
| – | In 2021, based on a comparative analysis of companies in our Peer Group, we increased the target equity grant for Dr. Kewalramani and, in connection with his promotion to Chief Operating Officer, Mr. Arbuckle. We maintained the target equity grants for our other NEOs based on a comparative analysis with companies in our Peer Group and our expectations of their future impact on, and contributions to, our long-term objectives. For his second year as Executive Chairman, Dr. Leiden received equity grants of $8.5 million pursuant to the terms of his employment agreement. Under his amended employment agreement, Dr. Leiden will continue to receive equity grants for the third and fourth years in his Executive Chairman role. | |
| – | We maintained our mix of equity granted under our compensation program with 50% consisting of PSUs that vest solely upon achievement of rigorous performance goals and 50% consisting of time-vesting restricted stock units that reward stock price appreciation but also serve as a retention and shareholder alignment tool. The number of restricted stock units awarded may be adjusted to reflect an executive officer’s individual performance for the relevant performance period, and are, thus, considered to be performance-based awards. | |
| – | We achieved all goals established for the 2019 non-financial based performance restricted stock unit awards and the 2021 financial-based PSU awards at the maximum level under these awards, resulting in a maximum payout under these awards in February 2022. | |
| – | In early 2022, the MDCC granted new awards of PSUs and established the financial and non-financial metrics that will determine whether and to what extent these awards become earned and vested. Fifty percent of the PSUs, which vest annually in installments over three years, are tied to CF net product revenues in 2022, while the remaining fifty percent, which cliff vest after three years, are tied to specific clinical and research milestones over a three-year period. | |
Shareholder Engagement
We believe that a robust shareholder outreach program is an important component of maintaining our strong corporate governance practices. We strive for a collaborative approach with shareholders to solicit and understand a variety of perspectives and interests, and our practice has been to engage with our top shareholders regularly over the course of the year.
During 2021, we solicited feedback regarding our corporate governance practices from our top 40 shareholders representing approximately 60% of our outstanding shares. Our integrated outreach team included leaders from our Investor Relations, Human Resources, Corporate Responsibility, and Legal teams, and we discussed numerous topics of shareholder interest, including our business strategy, research and development, our diversity initiatives and metrics, employee engagement and development, political and lobbying disclosures, executive compensation, sustainability and climate change matters, and COVID-related impacts to our shareholders fromemployees, patients, and our equity compensation program in 2016 as compared to 2015.business.
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Compensation Governance Practices
We continue to implement and maintain leading practices in our compensation program, shareholder outreach and related areas.
| What We Do | What We Don’t Do | |
| Caps on incentive awards | No excessive executive perquisites | |
| No single-trigger vesting in connection with a change-in-control for equity awards | ||
| Compensation | ||
| Balance of short- and long-term incentives (through annual cash bonuses and equity awards) | No re-pricing of equity awards without shareholder approval | |
| Executive and Non-Employee Director Stock Ownership Guidelines | No payment of dividends on unvested performance shares or units | |
| No | ||
Named Executive Officer | Salary | Annual Cash Bonus | Grant-Date Fair Equity Awards | Total Compensation | Total Realized Compensation | ||||||||||||||||
| Jeffrey M. Leiden | $ | 1,297,692 | $ | 3,463,200 | $ | 23,325,824 | $ | 28,099,826 | $ | 12,513,357 | |||||||||||
| Ian F. Smith | $ | 701,796 | $ | 832,500 | $ | 7,458,577 | $ | 9,005,983 | $ | 4,837,625 | |||||||||||
| David Altshuler | $ | 528,846 | $ | 552,628 | $ | 11,043,284 | $ | 12,387,868 | $ | 2,574,284 | |||||||||||
| Stuart A. Arbuckle | $ | 629,262 | $ | 721,500 | $ | 7,458,577 | $ | 8,822,449 | $ | 11,961,471 | |||||||||||
| Jeffrey Chodakewitz | $ | 615,231 | $ | 617,382 | $ | 6,582,549 | $ | 7,830,416 | $ | 2,355,296 | |||||||||||
| Robust shareholder outreach |
Our MDCC regularly reviews the elements of the individual compensation program is designed to attract, retain and motivate talented and experienced individuals across all areas of our business and to align the interests ofpackages for our executive officers withto ensure that they continue to support the interestsachievement of our shareholders as we seek to create value through the discovery, development and commercialization of transformative medicines. following primary objectives:
| attract, retain, and motivate talented, experienced, and high-performing individuals across all areas of our business; |
| align the interests of our executive officers with the interests of our shareholders as we seek to create value through the discovery, development, and commercialization of transformative medicines; and |
| ensure that the vast majority of compensation is tied to company and individual performance. |
Our NEOsexecutive officers have had long and varied careers and possess experiencesdiverse backgrounds and skills that make them extremely valuable members of our executive team and to our company as a whole. TheyThe stability and commitment of this team have been instrumental in building Vertex into the company it is today, with a leadership position in the treatment of CF, an advancinga pipeline of small molecule and cell and genetic therapies that has beenadvanced significantly broadened over the last several years, increasing revenues, and an establisheda strong financial profile.
Our MDCC and our board of directors seeksseek to connect the achievement of our strategic objectives with our compensation program in a number of ways, including through detailed and measurable company goals that underlie our annual cash bonuses and the performance goals whichthat are now included in our equity awards. Our company goals involve a mix of goals relating toaddress several key objectives, including increasing revenues from our current products, achievement of research and development objectives, ourenhancing organizational capabilitycapabilities, and maintenancemaintaining financial strength. We believe this mix of ourgoals provides an appropriate balance of near- and long-term objectives and financial strength.and organizational development objectives. We believe this mix provides an appropriate balance between near- and long-term objectives and financial and organizational development objectives. These objectives are selected specifically because they are considered by our board to be objectivemeasurable milestones that our company must achieve if it is to maintain its movement towards significant revenue growth, superior profitability, and sustainable profitability.ability to continue creating value over the long-term. Our MDCC and board of directors expects to continue to seek toseeking balance in the use of financial metrics and research and development goals in order to motivate our executive team to increase revenues and manage operating expenses,achieve financial objectives, while providing appropriate incentives for our management to continue to make appropriate investments in our business.
In determining compensation, we consider compensation paid toby similar companies as reference points, but do not strictly benchmark or target compensation at any particular level. Rather, theOur MDCC retains flexibility to structure compensation based on good governance practices, and our objectives of building our company and creating shareholder value.value for our shareholders, and, most importantly, discovering, developing, and delivering transformative medicines for patients who can benefit from them.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 52
Compensation Decision-Making Process
Role of MDCC and Chief Executive OfficerCEO in Setting Executive Compensation
The MDCC has responsibility for overseeing the design, development, and implementation of the compensation program for our chief executive officerCEO and other NEOs.executive officers. The MDCC evaluates the performance of our chief executive officerCEO and the performance of the other executive officers. Our chief executive officerCEO and our senior vice president, human resources group assist the MDCC in evaluating the performance of our other executive officers, including the named executive officersNEOs other than the chief executive officer.CEO. Our chief executive officerCEO does not make any recommendations to the MDCC regarding CEO compensation and does not participate in the portions of MDCC meetings or meetings of the board discussions relatingof directors when CEO compensation is discussed and determined. Similarly, our Executive Chairman does not make any recommendations to the MDCC regarding his compensation and does not participate in portions of MDCC meetings or meetings of the other NEOs do not play a role in their ownboard of directors when Executive Chairman compensation determination.
The members of the MDCC, each of whom is an independent director, together withmake a recommendation regarding executive compensation to the other independent directors of the board, who together make final compensation decisions for the CEO’sCEO and other executive officers’ compensation levelsofficers based on these performance assessments.
Role of Compensation Consultant
The MDCC (i) is directly responsible for the appointment and oversight of its compensation consultants, (ii) has the authority to determine the fees that we pay for services provided by such compensation consultants, and (iii) prior to engaging any compensation consultant, considers applicable factors potentially affecting the independence of the compensation consultant, including the factors set forth in Nasdaq Marketplace Rule 5605(d)(3).
Annually, the MDCC has engaged aengages an independent compensation consultant to conduct an analysis of all elements of compensation paid to our executive officers, including our NEOs,officer compensation program compared to similar elements paid to similarly situated executives at companies in our peer groupPeer Group (as defined below) and to provide a written report and presentation of findings at the meeting of the MDCC that occurs in Julythe summer each year. In 2015,The compensation consultant also provides guidance on other matters that may arise from time to time and participates in regular discussions with the MDCC selectedChair, as requested. In 2021, the MDCC continued its engagement with Pearl Meyer to conduct and present this analysis to the MDCC. In addition, our MDCC also engagedas its independent compensation consultant. Pearl Meyer in order to assist us in making significant modifications and improvements to our compensation program that were implemented in early 2016.
The MDCC considered the following information provided to it by Pearl Meyer:
Use of Peer Group Companies
In order to make judgments about elements of executive compensation on a competitive basis, the MDCC and our board of directors considers information about the compensation practices of a representative group of companies with whom we compete for executive talent or Peer Group.(our “Peer Group”). We conduct a detailed analysis to select companies for this Peer Group on the basis of similarity and complexity of business model. InSelecting a peer group for our company is difficult because of the limited number of companies that are similar in terms of complexity, including breadth of pipeline, variety of innovative therapies and level of revenues. As a result, we use a mix of quantitative and qualitative factors in order to assess business model similarity, we consider a number of factorsestablish our peers, including the following:
| Factor Considered | What |
| Similar industry | Biotechnology or pharmaceutical industry |
Importance of medicines to patients and society | Transformative medicines for serious diseases; therapeutics for unmet needs |
Recognized focus on innovation | Breakthrough Therapy designations, priority review and/or other markers indicating unmet need |
| Global operations | Significant operations outside the U.S. |
| Commercial operations | Marketing and selling approved medicines |
| Significant R&D investment | Greater than |
| Number of employees | Greater than 750 employees |
Market capitalization and significance to broader economy | Market cap at least ¼ our size and/or inclusion on S&P 500 or |
| Labor market competitor | Companies we compete with for executive talent |
| Companies that use Vertex as a peer | Inclusion of Vertex in proxy reported peer group |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 53
| Back to Contents |
Although we consider revenue but it is notas a factor, we do not emphasize becauseit, as we do not believe that revenue alone adequately reflectsindicates whether a company has a similar business model similarity or complexity, in the biotechnology industry.particularly at our stage of maturity. A company with similar revenues may not have global or commercial operations like we have, noror it may it focus on innovative therapies, but rather on generic medicines which we believe resultsrather than innovative therapies; either of these factors would result in a different business model requiring lessthat requires a relatively smaller investment in research and development investment.development. Moreover, a companycompanies with similar revenues may not focus on innovative therapies such as those designated as a Breakthrough TherapyTherapies by the Food and Drug Administration,FDA, a designation which expeditescan expedite the development and review of medicines that are intended to treat a serious condition andconditions where preliminary clinical evidence indicates that the medicine may demonstrate substantial improvement over available therapy on clinically significant endpoints.therapy. As a result, we believe the factors listed above provide a better way to assess similarity versus a reliance on the combination of revenue and industry. We also note that it is unlikely for companies to align on all the factors listed above, so we look for companies meeting a majority of the criteria although we place greater weight on companies focused on innovation and importance of medicines to patients and society as we believe these are the key drivers of our business model. We also focus on market capitalization because we believe it is an indicator of the complexity of a company's business model. On a regular basis, we review and revise the list of companies with the goal of maintaining a group of comparators comprised of at least twelve companies.
As a result of this analysis, and on the basis of the criteria listed above, the MDCC selectedapproved the following comparator companies for 2015.
| AbbVie Inc. | ||
| Alexion Pharmaceuticals, Inc. | Incyte Corporation | |
| Alkermes plc | ||
| Amgen Inc. | ||
| Biogen Inc. | ||
| BioMarin | ||
| United Therapeutics Corporation | ||
| Eli Lilly and Company | ||
Properties of Peer Group was modified in 2015 from 2014 to include three additional companies (Alkermes plc, Endo International plc and Incyte Corporation) to replace three prior peer companies: Allergan Inc. (which was acquired by Actavis plc), Cubist Pharmaceuticals, Inc. (which was acquired by Merck & Co), and Salix Pharmaceuticals, Ltd. (which was acquired by Valeant Pharmaceuticals).
We believe, based on our discussions with major shareholders, that the Peer Group identified by ourthe MDCC is consistent with our shareholders'shareholders’ views of our relevant peers in the biopharmaceuticalbiotechnology industry. In addition, the Peer Group companies have many of the business model characteristics that we seek in comparator companies as set forth in the following table.
| Company Information | R&D Expense (1) | Operational Focus | Innovative and Importance of Medicines | Market Position | |||||||||
| Company | Industry | $ (millions) | % of Revenue | Global | Commercial | Orphan/Unmet Clinical Need | Breakthrough Therapy Designations | Innovative Drugs in Last 5 Years (2) | Uses Vertex as Peer | Nasdaq 100 | S&P 500 | ||
| AbbVie | Biotech | $ | 4,101 | 18% | √ | √ | √ | 1 | 2 | √ | |||
| Alexion | Biotech | $ | 709 | 27% | √ | √ | √ | 1 | 2 | √ | √ | √ | |
| Alkermes | Biotech | $ | 336 | 54% | √ | √ | √ | 0 | 1 | √ | |||
| Amgen | Biotech | $ | 4,006 | 19% | √ | √ | √ | 1 | 3 | √ | √ | ||
| Biogen | Biotech | $ | 2,012 | 22% | √ | √ | √ | 0 | 2 | √ | √ | √ | |
| BioMarin | Biotech | $ | 635 | 71% | √ | √ | √ | 0 | 1 | √ | √ | ||
| Celgene | Biotech | $ | 2,090 | 23% | √ | √ | √ | 0 | 3 | √ | √ | ||
| Endo | Pharma | $ | 102 | 3% | √ | √ | 0 | 0 | √ | √ | √ | ||
| Gilead | Biotech | $ | 3,014 | 9% | √ | √ | √ | 3 | 4 | √ | √ | √ | |
| Incyte | Biotech | $ | 481 | 64% | √ | √ | 0 | 1 | √ | √ | |||
| Regeneron | Biotech | $ | 1,621 | 40% | √ | √ | √ | 1 | 4 | √ | √ | √ | |
| Shire | Pharma | $ | 920 | 14% | √ | √ | √ | 0 | 3 | ||||
| United Therapeutics | Biotech | $ | 245 | 17% | √ | √ | √ | 0 | 3 | √ | |||
| Vertex | Biotech | $ | 996 | 96% | √ | √ | √ | 4 | 3 | √ | √ | ||
| Innovative and Importance of Medicines | ||||||||||||||||||||||||||
| Company Information | R&D Expense(1) | Operational Focus | Orphan/ Unmet Clinical Need | Breakthrough Therapy Designations(2) | Innovative Approved Drugs in Last 10 Years(3) | Uses Vertex as Peer | Market Position | |||||||||||||||||||
| Company | Industry | $ (millions) | % of Revenue | Global | Commercial | Nasdaq 100 | S&P 500 | |||||||||||||||||||
| AbbVie | Biotech | $ | 8,046 | 14 | % | | | | 7 | 8 | | |||||||||||||||
| Alexion(4) | Biotech | $ | 1,284 | 21 | % | | | | 2 | 3 | | |||||||||||||||
| Alkermes | Biotech | $ | 407 | 35 | % | | | | — | 3 | ||||||||||||||||
| Amgen | Biotech | $ | 6,324 | 24 | % | | | | 2 | 9 | | | ||||||||||||||
| Biogen | Biotech | $ | 2,519 | 23 | % | | | | — | 6 | | | | |||||||||||||
| BioMarin | Biotech | $ | 629 | 34 | % | | | | 1 | 4 | | |||||||||||||||
| Eli Lilly | Pharma | $ | 7,901 | 28 | % | | | | 3 | 10 | | |||||||||||||||
| Gilead | Biotech | $ | 5,540 | 20 | % | | | | 4 | 8 | | | ||||||||||||||
| Incyte | Biotech | $ | 1,488 | 50 | % | | | | 1 | 4 | | | ||||||||||||||
| Jazz | Pharma | $ | 1,032 | 33 | % | | | | — | 4 | | |||||||||||||||
| Regeneron | Biotech | $ | 2,908 | 18 | % | | | | 6 | 7 | | | | |||||||||||||
| SeaGen | Biotech | $ | 1,229 | 78 | % | | | | 4 | 3 | | | ||||||||||||||
| United Therapeutics | Biotech | $ | 540 | 32 | % | | | | — | 3 | | |||||||||||||||
| Vertex | Biotech | $ | 3,051 | 40 | % | | | | 8 | 5 | | | ||||||||||||||
| (1) | R&D Expense (including certain expenses related to intangible assets) and R&D Expense as a % of Revenue reflect the trailing data for the most recent four quarters as of December 31, 2021 per the S&P Capital IQ database. |
| (2) | Per the Center for Drug Evaluation and Research (CDER) Breakthrough Therapy Approvals report, which lists approvals for breakthrough therapy designated drugs. |
| (3) | Innovative drugs in the last nine years include: VIEKIRA PAK, IMBRUVICA, VENCLEXTA, ORILISSA, MAVYRET, RINVOQ, SKYRIZI and QULIPTA (AbbVie), STRENSIQ, ULTOMIRIS and KANUMA (Alexion), ARISTADA, VUMERITY, and LYBALVI (Alkermes), AIMOVIG, BLINCYTO, XGEVA, PROLIA, KYPROLIS, PARSABIV, EVENITY, TEZSPIRE, and LUMAKRAS (Amgen), TECFIDERA, ALPROLIX, SPINRAZA, ELOCTATE, VUMERITY and ADUHELM (Biogen), BRINEURA, PALYNZIQ, VIMIZIM and VOXZOGO (BioMarin), CYRAMZA, EMGALITY, JARDIANCE, OLUMIANT, PORTRAZZA, RETEVMO, REYVOW, TALTZ, VERZENIO and BAMLANIVIMAB/ ETESEVIMAB (emergency use authorization) (Eli Lilly), YESCARTA, SOVALDI, HARVONI, VEMLIDY, CAYSTON, ZYDELIG, BIKTARVY and VEKLURY (Gilead), JAKAFI, OLUMIANT, PEMAZYRE and RUXOLITINIB (Incyte), VYXEOS, DEFITELIO, ZEPZELCA and RYLAZE (Jazz), DUPIXENT, LIBTAYO, PRALUENT, EYLEA, ZALTRAP, INMAZEB and EVKEEZA (Regeneron), PADCEV, TUKYSA and TIVDAK (Seagen) and REMODULIN, ORENITRAM and UNITUXIN (United Therapeutics). |
| (4) | Alexion data reflects the trailing data for the most recent four quarters prior to Alexion’s acquisition by AstraZeneca - financials reflect data as of March 31, 2021 per the S&P Capital IQ database. |
(VERTEX PHARMACEUTICALS INCORPORATED2) Innovative drugs in the last five years include: VIEKIRA PAK and IMBRUVICA (Abbvie), STRENSIQ and KANUMA (Alexion), ARISTADA (Alkermes), XGEVA, PROLIA and KYPROLIS (Amgen), TECFIDERA and ALPROLIX (Biogen), VIMIZIM (BioMarin), POMALYST, ABRAXANE and OTEZLA (Celgene), SOVALDI, HARVONI, CAYSTON and ZYDELIG (Gilead), JAKAFI (Incyte), PRALUENT, EYLEA, ZALTRAP and ELOCTATE (Regeneron), FIRAZYR, NATPARA and GATTEX (Shire) and REMODULIN, ORENITRAM and UNITUXIN (United Therapeutics).
We do not strictly benchmark to a particular level of compensation relative to compensation levels at the Peer Group companies, but rather make a judgment about where each executive should fall in comparison with executives with similar responsibilities at the Peer Group companies. The MDCC looks at Peer Group information to confirm that our compensation levels are competitive with those of the Peer Group companies and consistent with our compensation philosophy. In addition, the MDCC reviews broader industry specific executive compensation surveys published by Radford, Mercer SIRS, and Willis Towers Watson, but does not make any material compensation decisions based on any particular company participants in such surveys.
In support of Stuart Arbuckle’s promotion to Chief Operating Officer and the low representation of the Chief Operating Officer role within the Peer Group, Pearl Meyer supplemented the Peer Group with broader life science industry companies for purposes of analyzing competitive compensation for this role. Pearl Meyer reviewed companies within the broader life sciences industry and included all companies who maintained a chief operating officer or similar role that also had greater than $2 billion revenues and greater than $10 billion market capitalization. The MDCC reviewed the compensation practices for the following Peer Group and broader life science industry companies when considering Mr. Arbuckle’s expanded role:
| Peer Group Companies | Life Science Companies |
| Alkermes plc | Bio-Rad Laboratories, Inc. |
| Amgen Inc. | DexCom, Inc. |
| Jazz Pharmaceuticals plc | ResMed Inc. |
| United Therapeutics Corporation | Stryker Corporation |
| Thermo Fisher Scientific Inc. | |
| Zimmer Biomet Holdings Inc. |
Based on this discussion, for 2021, we increased Mr. Arbuckle’s base salary to $900,000, his target cash bonus to 90% of his base salary, and his target equity grant to $4.75 million.
Elements of Annual MeetingCompensation
Our practice is to target total direct compensation including base salary, target annual cash incentives, and target long-term incentive awards at market competitive levels depending upon the NEO’s responsibilities, expertise, and experience. At superior levels of Shareholders
Our executive compensation program is structured to useemphasizes a mix of base salary, annual performance-based cash bonus, and long-term equity compensation awards in the form of stock options and restricted stock/restricted stock unit awards to incentincentivize and reward those individuals who make the greatest contribution to our company performance over time. For the NEOs, this means compensation is primarily in the form of equity and directly tied to changes in shareholder value over time.
Compensation Program (Prior Share-based Program)
As shown in the following charts, under our new compensation program we have deemphasized options and introducedplaces significant weight on performance-based compensation, with more than 90% of our NEO compensation tied to performance, restricted stock units (based onor “at-risk” if performance is not achieved.
| CEO PAY MIX | OTHER NEOS’ PAY MIX |
 |  |
The charts above generally represent the values in the Summary Compensation Table for our NEOs using the target values):
VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 50
Performance-Based Value-Based Program
We have a performance-based program that is consistent with programs implemented by our peers and allows us to attract, retain, and motivate talented and highly experienced individuals across all areas of our business. We focus on the following performance-based elements:
| Compensation Element | Performance Link | |
| Annual Cash Bonus | Annual bonus dependent on both company and individual performance factors | |
| Grant date value of | ||
| Value of shares granted based on target set by MDCC and Board, adjusted for individual performance | ||
| Performance | 50% of PSUs with range of shares issued 0% to 200% of target based on one year financial 50% of PSUs with range of shares issued 0% to 200% of target based on three-year non-financial metrics (cliff-vesting after three years) | |
| Time-Based Restricted Stock Units | We consider our time-vesting restricted stock unit awards to be performance-based awards because the target number of restricted stock units awarded may be adjusted based on the corresponding executive’s individual performance for the relevant performance period as well as the resulting value dependent upon increases or decreases in our stock price over the three-year vesting period. |
More specifically:
| Performance Stock Units. Our CEO and executive vice presidents (“EVPs”) receive 50% of their annual target equity compensation in the form of PSUs. Fifty percent (50%) of the target number of PSUs are eligible to vest based on the achievement of financial goals and the remaining 50% of the target number of PSUs are eligible to vest based on the achievement of non-financial goals. The financial PSUs, if earned, vest in annual installments over a three-year period, and the non-financial PSUs, if earned, cliff vest after three years. The potential shares earned pursuant to these PSU awards range from 0% to 200% of the target number of shares, with the number of shares actually issued determined by the achievement of the financial and non-financial performance measures. The MDCC selected revenue and clinical development milestones because the MDCC determined that these milestones are important, measurable metrics, the achievement of which would indicate successful execution toward our short- and long-term strategic objectives and build considerable shareholder value. | |
| Time-based Restricted Stock |
Base Salary
The MDCC recommends base salaries for each of our executive officers based on the basis ofmultiple factors, including a competitive market analysis on a position-by-position basis. Annually, the MDCC reviews tables showing a comparison of each executive’s prior year base salary and cash bonus opportunity, measured at the target level, to salaries and cash bonuses reported for executives with similar responsibilities at comparablePeer Group companies. We do not strictly benchmark to a particular level of compensation relative to compensation levels at the Peer Group companies, but rather make acompanies. Instead, our judgment about where each executive should fall in comparison with executives with similar responsibilities at the Peer Group companies takingtakes into account the executive’s general level of experience and capability, the significance of his or her job responsibilities to the achievement of our business strategy and company goals, and general performance over time, including demonstration of the values and desirable behaviors under our core values program.corporate values. On the basis of that information, including compensation at Peer Group companies, and taking into consideration the executive’s base salary for the previous year or years, the MDCC recommends an appropriate base salary for each executive officer, subject to final approval by our independent directors. Our current base salaries for our named executive officers approximatereflect each individual executive’s past and expected future contributions, performance, experience, specific responsibilities relative to peer benchmarks, and competitive positioning within the range around the median base salaries for counterparts at companiesour Peer Group companies.
Dr. Kewalramani’s base salary for 2021, as our CEO and President, was increased to $1.32 million based on multiple factors, including her contributions as CEO and President since April 1, 2020, expected future contributions, experience, and knowledge, and based on a comparative analysis of CEO compensation in our Peer Group.
In December 2014, our board negotiated an extension2021, Stuart Arbuckle was promoted to the termChief Operating Officer in recognition of Dr. Leiden’s employment agreement, which includedhis expanded responsibilities including global commercial operations, manufacturing supply chain, corporate communications, and human resources. Based on his expanded role and a salary increase, effective January 1, 2015. Our board and MDCC considered, among other factors, our success during his tenure as our CEO and the salariescomparative analysis of the CEOs for companiesChief Operating Officer compensation in our Peer Group and the broader life science industry, as described above under “Properties of Peer Group,” we increased Dr. Leiden'sMr. Arbuckle’s base salary to $900,000.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 56
We also increased the medianbase salary for Mr. Wagner to $770,000 in recognition of the salarieshis contributions since becoming Chief Financial Officer in April of the CEOs2019, expected future contributions, experience, and knowledge, and based on a comparative analysis of Chief Financial Officer compensation in our Peer Group. In 2015, the MDCC reviewed2021, we maintained Ms. Tatsis’ base salary.
| Name | 2021 Base Salary | |||
| Reshma Kewalramani | $ | 1,320,000 | ||
| Charles F. Wagner, Jr. | $ | 770,000 | ||
| Stuart A. Arbuckle | $ | 900,000 | ||
| Jeffrey M. Leiden(1) | $ | — | ||
| Nia Tatsis | $ | 550,000 | ||
| (1) | Pursuant to his employment agreement, Dr. Leiden’s base salary was $1.0 million for his first year as Executive Chairman (from April 1, 2020 through March 31, 2021). As of April 1, 2021, Dr. Leiden does not receive a base salary for his role as Executive Chairman. |
Company and adjusted base salary levelsIndividual Ratings
The amounts for our other NEOs, other than Dr. Altshuler who joined us in early 2015, based on market data regarding salaries at our Peer Group companies. The following table sets forth our NEOs annual base salaries at the end of 2014 and 2015, together with information regarding a comparison of their base salaries to comparable executives at companies in our Peer Group.
| Name | 2014 Base Salary | % of Peer Group | 2015 Base Salary | % of Peer Group | % Change 2014 v 2015 |
| Jeffrey M. Leiden | $1,100,000 | 35th | $1,300,000 | 50th | 18% |
| Ian F. Smith | $650,000 | 35th | $750,000 | 50th | 15% |
| David Altshuler | na | na | $550,000 | 55th | na |
| Stuart A. Arbuckle | $600,000 | 40th | $650,000 | 50th | 8% |
| Jeffrey Chodakewitz | $600,000 | 60th | $618,000 | 60th | 3% |
Overview of Company Performance Rating & Achievement in 2015
At the beginning of each year, our board of directors, in consultation with our CEO, establishes company-wide goals for that year. OurWhile our performance against these goals is the most important factor considered by theour board in assessing our corporate performance, but our board considers additional accomplishments and shortcomings and may increase or decrease the performance scores. Althoughscores associated with these goals. The aggregate discretionary adjustment may not exceed 10% of the performance score and the total company score may not exceed 150. The MDCC and our board of directors discuss and analyze ourthe company’s performance, as a group, each director makes his or her own judgment aboutincluding specific performance factors and accomplishment of company goals, and ultimately approve the goals in reaching a conclusion.
For
Our
| Goal(s) | Maximum Score | Actual 2021 Performance Score | ||
| Marketed and Approval-Stage Products | 55 | 52 | ||
| ||||
| Pipeline Growth | 65 | 55 | ||
| ||||
| Organizational Development and Capability | 13 | 13 | ||
| ||||
| Financial Strength | 17 | 17 | ||
| Continue to manage operating expenses and achieve financial targets | ||||
| Additional Accomplishments and Shortcomings, Net (see page 59 of this proxy statement) | 1 | |||
| TOTAL | 150 | 138 |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 57
| Goal(s) | Maximum Score | Actual 2015 Performance Score |
| Marketed and Approval-Stage Products | 60 | 60 |
| • Expand KALYDECO label in U.S. and ex-U.S. markets and support adherence for KALYDECO patients through compliant marketing practices | ||
| • Support activities to obtain marketing approval for ORKAMBI in the U.S. by mid-2015 and in the European Union by end of 2015 | ||
| • Prepare for and launch ORKAMBI in U.S. and European Union pending regulatory approvals | ||
| Pipeline Growth | 45 | 38 |
| • Advance next-generation CFTR correctors into clinical development | ||
• Advance Phase 3 clinical trials of VX-661 | ||
| • Maintain high productivity in research and early-stage development to expand pipeline | ||
| • Execute collaborations to support and diversify the pipeline and monetize non-core pipeline assets | ||
| Organizational Development and Capability | 15 | 15 |
| • Attract, develop and retain Vertex expertise and key talent necessary to drive near- and long-term company growth | ||
| • Continue to implement our international expansion strategy | ||
| • Support U.S. and international efforts to support access to ORKAMBI | ||
| • Continue our leadership and commitment to the global CF community | ||
| • Continue to ensure a strong compliance mindset and enterprise-wide risk management program | ||
| Financial Strength | 30 | 30 |
| • Manage balance sheet to sustain financial capacity for future investment | ||
| Additional Factors (see page 57 of this proxy statement) | 5 | |
| Total | 150 | 148 |
Our
Detailed Discussion of Company Performance Rating Factors and Achievements
Goals - Marketed and Approval-Stage Products
In 2021, we made significant progress with respect to $631.7 million in 2015. The increase was due to additional patients being treated with KALYDECO as we completed reimbursement discussions in various jurisdictions,our marketed and increased the number of patients eligible to receive KALYDECO through label expansions and the maintenance of high compliance rates.
| CF net product revenues increased to $7.57 billion, up 22% as compared to 2020. Our CF net product revenues exceeded the mid-point of our initial CF net product revenues guidance by approximately $0.8 billion ($7.57 billion actual as compared to the mid-point of our initial guidance of $6.8 billion) as a result of the performance of TRIKAFTA in the U.S., including the launch for children with CF 6 to 11 years of age, and strong uptake of KAFTRIO in Europe. |
| We achieved strong commercial execution for KAFTRIO in Europe driven by new regulatory approvals and reimbursement agreements and by continued uptake in eligible patients and successfully launched TRIKAFTA for children with CF 6 to 11 years of age in the U.S. |
| We began execution of a long-term commercial manufacturing strategy and made advancements in our commercial manufacturing processes, including manufacturing partner discussions and selection. |
For marketed and approval-stage products goals, our board assigned the company a score of 6052 out of 60,55, due to (1) our success in expanding our KALYDECO revenues, which resulted in KALYDECOexceeding goals with respect to total CF net product revenues, that increased by 36% and (2) our achievements in obtaining approvalachieving the successful launch of TRIKAFTA for ORKAMBIchildren with CF 6 to 11 years of age in the U.S., and E.U, and commercializing ORKAMBI in the U.S. and preparing for the global launch of ORKAMBI.
Goals - Pipeline Growth (Late and Early-Stage)
Since the beginning of 2021, we built on our leadership position in the treatment of CF andmade significant progress advancing and broadening our pipeline. Specifically, we:
| We expanded the eligibility of TRIKAFTA in the U.S. to include children with CF 6 to 11 years of age. |
| |
| We initiated Phase 3 clinical trials evaluating a once-daily investigational triple combination of VX121/tezacaftor/VX-561 (deutivacaftor). |
| We advanced our mRNA program designed to address the patients |
We also made significant progress advancing a broad pipeline of potentially transformative small molecule, cell, and genetic therapies aimed at treating serious diseases. Since the beginning of 2021, we have made important progress in activities supporting these efforts.
| We delivered proof of concept for VX-147, our small molecule inhibitor of APOL1 function for patients with APOL1-mediated focal segmental glomerulosclerosis. |
| We completed enrollment in our pivotal studies for CTX-001 for patients with TDT and SCD. |
| We initiated and have now completed two Phase 2 dose-ranging acute pain clinical |
| We initiated our first in |
| We initiated IND-enabling studies for our T1D cells and device program. |
| We initiated various first in human studies and delivered numerous preclinical candidates in our areas of therapeutic focus. |
Partially offsetting these achievements were challenges and/or delays we encountered with respect to certainadvancing VX-864 into pivotal development, notwithstanding obtaining proof of our development programs, including VX-210, and with respect to the expansion of manufacturing infrastructure.
On the basis of the accomplishments in advancing our research and development programs and, in particular the achievement of proof-of-concept in AMKD, and the advancement of multiple small molecule drug candidates and our CF programs across multiple initiativescell and genetic therapies, and also taking into account shortcomings including research and business development, partially offset by delays with respect to certain activities, the discontinuance of VX-864 for the treatment of AAT deficiency, our board assigned the company a score of 3855 out of
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 58
Goals - Organizational Development and Capability
Talent and expertise. S
We strengthened our organizational capabilities by attracting, developing, and retaining the key talent necessary to operate our business, including the advancementfilling all critical hires with superior and diverse talent.
Systems and Infrastructure
We continued improvement of leadership development programs and diversity initiatives.
Ethics and to support clinical operations.
We continued to promote effective governance, communication, and training to support our company-wide compliance and risk management programs.
Corporate Social Responsibility
We continued to grow and make part of our culture our corporate social responsibility programs and enhance patient engagement and community affairs.
To reflect the improvements to our organizational structure, processes, and systems achieved in 2015, the2021, our board assigned the company a score of 1513 out of
Goals - Financial Strength
We met all ofexceeded our financial strength goals in 2015.2021. We increased our net product revenues to $7.57 billion, a 22% increase from 2020, and managed our operating expenses to the low endresulting in a GAAP operating margin of our guidance allowing us to maintain our balance sheet strength37% and exit 2015a non-GAAP operating margin of 57% (see Appendix B for a reconciliation of non-GAAP figures). As a result, we ended 2021 with cash, cash equivalents, and marketable securities of $1.04 billion.
As a result of our success in maintaining ourstrong financial strength byperformance, including increasing revenues and managing our operating expenses, and securing a strong cash position, theour board assigned the company a score of 2017 out of
Additional Factors
In connection with determining our 20152021 company rating, our board of directors made a net positive five point adjustmentand negative adjustments based on additional factors that were not anticipated in ourwhen the company’s original goals including positive factors such as execution of our regulatory strategy for KALYDECO label expansion, our overall financial performance, advancement of VX-970 through engagement with2021 were established. By design, potential adjustments are capped at ±10% (or ±15 points) and used by the National Cancer Instituteboard to address and implementation of initiatives to foster innovation, partially offset by certain negative factorshighlight important achievements and or shortcomings. Positive adjustments were related to our operations, includingsuccess in significantly exceeding our forecasted net product revenue goal, advancing additional novel, non-CF molecules and therapies, and making additional progress with respect to T1D clinical development. Overall, the slower than expected enrollmentboard of certain clinical trials.
2021 Individual Performance Ratings - Overview
The MDCC evaluates executives’each executive’s individual performance on a “results-based, values-tempered” basis, which takes into account not only “what” was accomplished, but “how” it was accomplished. The results-based component evaluates the executive officer’s performance in his or her individual role and as a leader of our company in achieving our objectives. The possible individual results-based performance ratings are “not building,” “building,” “strong”“strong,” or “leading.” The values-tempered component of the individual evaluations builds upon our company core values: “uncompromising commitment to patients;” “innovation is our lifeblood;” “fearless pursuit of excellence” and “we wins” and are based on whether the decisions made by the executives were consistentconsidered along with theseour leadership competencies, which reflect our core values and what is in the best interestsleadership behaviors that we believe lead to successful execution of the company in the long term. Under our Values Into Practice program, westrategy and continued emphasis on innovation and collaboration. We expect all employees to demonstrate our company core values and leadership behaviors in all aspects of job performance. We further expect that our executives will be stewards of our core values,company culture, and the performance ratings assigned to them incorporate our board’s assessment of the strength of their leadership with respect to, and demonstration of, values-based behavior. This evaluation results in ratings of “not demonstrating,“inconsistent demonstration,” “living the values”values,” or “exemplary demonstration.” The possible individual performance ratings under this program are as set forth in the following table:
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 59
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Annual Performance Ratings
The
In light of Dr. Leiden’s employment agreement, which reduced his base salary and bonus to zero following his first year as Executive Chairman, the MDCC did not assign an individual performance rating for Dr. Leiden.
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| 2021 Actual Individual Ratings for Named Executive Officers | ||||||
| Dr. Reshma Kewalramani | 2021 Rating: | Leading | ||||
| CEO and President | 2021 Salary: | $ 1,320,000 | ||||
| 2021 Bonus: | $ 3,016,570 | |||||
| LTI Equity Grants (Feb 2022): | $ 14,187,500 | |||||
On the basis of the MDCC’s recommendation, our independent directors rated Dr. Leiden’sKewalramani’s overall performance for 20152021 as “leading/exemplary”“Leading,” with an individual performance factor of 150%138%. The performance rating for Dr. LeidenKewalramani combined a “leading”“strong” results-based rating with an “exemplary demonstration” values-basedbehaviors-based rating. TheDr. Kewalramani’s rating derived principally from hisher leadership of our executive team as we executed our strategy for 2015, which was highlighted by:
| Leadership in executing our corporate strategy to develop transformative medicines for serious diseases and achieving our business goals |
| Leadership and execution in growing, transforming, and preparing the company for diversification in multiple new disease areas |
| The substantial over-achievement of our financial goals, including significantly increasing CF net product revenues, strengthening our balance sheet, and continued delivery of strong operating margins |
| The advancement of our CF programs, including indication expansions throughout the world, and progress with respect to the CF pipeline |
| Leadership in the advancement of our non-CF pre-clinical and clinical development pipeline, including the progress in the CTX001, AMKD, T1D, and pain clinical programs, as well as the expansion of our pre-clinical pipeline |
| Exhibiting outstanding leadership qualities and advancing Vertex’s values, including exemplary management and coordination throughout the COVID-19 pandemic, successful recruitment of top-tier talent across the organization, including filling critical hires with superior and diverse talent, and fostering our values and culture of innovation |
| Charles F. Wagner, Jr. | 2021 Rating: | Leading | ||||
| EVP, Chief Financial Officer | 2021 Salary: | $ 770,000 | ||||
| 2021 Bonus: | $ 1,078,539 | |||||
| LTI Equity Grants (Feb 2022): | $ 5,000,000 |
The MDCC recommended a “leading/exemplary”and the board adopted an overall rating of “Leading” for Mr. SmithWagner based on a results-based rating of “leading” and a values-basedbehaviors-based rating of “living the values” with an individual performance factor of 145%. Mr. Wagner’s rating derived from his leadership of the finance, accounting, investor relations, and facilities and real estate functions, including the following:
| Overseeing an outstanding financial year for Vertex, including managing operating expenses in accordance with our budget and guidance and successfully managing our capital allocation |
| Leading the execution of an amended agreement with CRISPR, under which we now lead the worldwide development, manufacturing, and commercialization of CTX001 |
| Successfully completing the construction of our new cell and genetic therapy facility on time and within budget |
| Recruiting and developing multiple new senior members of the finance organization |
| Exhibiting outstanding leadership qualities throughout the COVID-19 pandemic, including as an executive leader of our COVID Management Team |
| Stuart A. Arbuckle | 2021 Rating: | Leading Exemplary | ||||
| EVP, Chief Operating Officer | 2021 Salary: | $ 900,000 | ||||
| 2021 Bonus: | $ 1,676,700 | |||||
| LTI Equity Grants (Feb 2022): | $ 7,125,000 | |||||
The MDCC recommended and the board adopted an overall rating of “Leading Exemplary” for Mr. Arbuckle based on a results-based rating of “leading” and a behaviors-based rating of “exemplary demonstration” with an individual performance factor of 150%. Mr. Smith’s rating was due to his overall contributions to the execution of our strategy with a focus on performance of the finance/accounting, business development, information systems and investor relations functions. More specifically, Mr. Smith was responsible for:
| Delivering CF net product revenues of $7.57 billion in 2021, an increase of 22% compared to 2020 and exceeding our initial revenue forecast by approximately $0.8 billion |
| Leading continued strong commercial execution across the entire portfolio, driven by new regulatory approvals, reimbursement agreements, and by continued uptake in eligible patients, including the successful launch of TRIKAFTA for children with CF 6 to 11 years of age in the U.S. |
| Enhancement of the commercial manufacturing function, including progress with respect to the company’s long-term commercial manufacturing strategy |
| Successful evolution of the Human Resources organization to enable growth while sustaining our values and culture of innovation |
| Successful leadership of the Corporate Communications team, including the company’s Corporate Social Responsibility efforts |
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| Ourania “Nia” Tatsis | 2021 Rating: | Leading | ||||
| EVP, Chief Regulatory and Quality Officer | 2021 Salary: | $ 550,000 | ||||
| 2021 Bonus: | $ 743,820 | |||||
| LTI Equity Grants (Feb 2022): | $ 5,000,000 |
The MDCC recommended and the board adopted an overall rating of “leading/exemplary”“Leading” for Mr. ArbuckleMs. Tatsis based on a results-based rating of “leading” and a values-basedbehaviors-based rating of “exemplary demonstration”“living the values” with an individual performance factor of 150%140%. The MDCC noted Mr. Arbuckle’s leadership with respect to the following:
| Successfully leading numerous approvals and label expansions for our CF portfolio globally, including the approval of TRIKAFTA for children with CF 6 to 11 years of age in the U.S. |
|
| pipeline assets | |
|
| numerous clinical development programs, including T1D | |
| Leading key discussions with regulatory authorities across the globe regarding advancement of pipeline programs, including with respect to VX-147, VX-880, and CTX001 |
| Successful reorganization of the quality organization, including recruiting and developing multiple new senior members of the team |
Annual Cash Bonus
The 2021 cash bonus for each NEO (referred to in the
Summary Compensation Tableon page| Target Cash Bonus |  | Performance Factors |  | Cash Bonus | ||||||||||||
| Base Salary | | Individual Incentive Target (expressed as a percentage of base | | Company Performance Factor (expressed as a percentage of target bonus) | | Individual Performance Factor (expressed as a percentage of the target bonus) | | Annual Cash Bonus Award | ||||||||
| 70%-120% based on role | 0% | 0-150% | ||||||||||||||
The individual incentive targets were established, and are reviewed annually, by the MDCC based on available data about Peer Group company compensation. TheseFor 2021, Dr. Kewalramani’s individual incentive targets havetarget remained unchanged since we modifiedat 120% of her base salary while Mr. Arbuckle’s incentive target was increased to 90% of his base salary in connection with his promotion to Chief Operating Officer. The individual incentive target for each of our other NEOs remained at 70% of such other NEO’s base salary during 2021; Dr. Leiden does not receive an annual cash compensation program in 2012.bonus pursuant to his employment agreement. The resulting target annual cash bonuses of our executives approximate the median target annual cash bonuses for comparable executives at companies in our Peer Group.
Company performance factors are determined annually and range from 0% to 150%. The possible individual ratings and corresponding individual performance factor ranges for our executive officers in 20152021 are set forth in the table below:
| Individual Rating | Individual Performance Factor |
| Not Building | 0% |
| Building | 50%-80% |
| Strong | 80%-120% |
| Leading | 120%-150% |
| Leading/Exemplary |
On the basis of the factors described above, our MDCC recommended, and our independent directors approved, upon the MDCC’s recommendation, individual performance factors and annual bonus awards for each of the NEONEOs, on account of 20152021 performance, as set forth in the table below.
| Name | 2015 Target Bonus | Company Performance Factor | Individual Performance Factor | Proration Factor | 2015 Performance Cash Bonus | ||||||||
| Jeffrey M. Leiden | $ | 1,560,000 | x | 148% | x | 150% | x | 100% | = | $ | 3,463,200 | ||
| Ian F. Smith | $ | 375,000 | x | 148% | x | 150% | x | 100% | = | $ | 832,500 | ||
| David Altshuler | $ | 275,000 | x | 148% | x | 140% | x | 97% | = | $ | 552,628 | ||
| Stuart A. Arbuckle | $ | 325,000 | x | 148% | x | 150% | x | 100% | = | $ | 721,500 | ||
| Jeffrey Chodakewitz | $ | 309,000 | x | 148% | x | 135% | x | 100% | = | $ | 617,382 | ||
| Name | 2021 Base Salary | Individual Incentive Target | 2021 Target Bonus | Company Performance Factor | Individual Performance Factor | 2021 Performance Cash Bonus | ||||||||||||||||||||||
| Reshma Kewalramani | $ | 1,320,000 | x | 120% | = | $ | 1,584,000 | x | 138% | x | 138% | = | $ | 3,016,570 | ||||||||||||||
| Charles F. Wagner, Jr. | $ | 770,000 | x | 70% | = | $ | 539,000 | x | 138% | x | 145% | = | $ | 1,078,539 | ||||||||||||||
| Stuart A. Arbuckle | $ | 900,000 | x | 90% | = | $ | 810,000 | x | 138% | x | 150% | = | $ | 1,676,700 | ||||||||||||||
| Jeffrey M. Leiden | $ | — | x | —% | = | $ | — | x | —% | x | —% | = | $ | — | ||||||||||||||
| Nia Tatsis | $ | 550,000 | x | 70% | = | $ | 385,000 | x | 138% | x | 140% | = | $ | 743,820 | ||||||||||||||
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Annual Equity Awards
Value-Based Guidelines for Annual NEO Equity Grants
Under our compensation program, our CEO and EVPs were eligible for awards with the following target values based on 2021 performance:
| Performance Ratings | ||||||||||||||||||||
| Not Building | Building | Strong (target) | Leading | Leading Exemplary | ||||||||||||||||
| CEO | $ | — | $ | 6,250,000 | $ | 12,500,000 | $ | 14,187,500 | $ | 15,875,000 | ||||||||||
| COO | $ | — | $ | 2,375,000 | $ | 4,750,000 | $ | 5,937,500 | $ | 7,125,000 | ||||||||||
| EVP (excluding the COO) | $ | — | $ | 2,000,000 | $ | 4,000,000 | $ | 5,000,000 | $ | 6,000,000 | ||||||||||
Based on a comparative analysis of our Peer Group companies, the MDCC set a target equity value for Dr. Kewalramani and Mr. Arbuckle of $12.5 million and $4.75 million, respectively, and maintained the target equity value of $4.0 million for our other EVPs. The annual equity awards grantednumber of shares subject to our named executive officers are determinedthe time-vested restricted stock units and PSUs is based on the executives' individual rating (i) in 2015 underfair value of our share-based guidelines and (ii) in 2016 under our new value-based guidelines.
| Building | Strong | Leading | Leading and Exemplary | |||||
| Restricted Stock | Stock Options | Restricted Stock | Stock Options | Restricted Stock | Stock Options | Restricted Stock | Stock Options | |
| Chief Executive Officer | 21,500 | 106,500 | 43,000 | 213,000 | 53,750 | 266,250 | 64,500 | 319,500 |
| Executive Vice President | 6,900 | 34,000 | 13,800 | 68,000 | 17,250 | 85,000 | 20,700 | 102,000 |
| Stock Options | Restricted Stock | Value | |||
| Jeffrey M. Leiden | 319,500 | 64,500 | $ | 23,325,824 | |
| Ian F. Smith | 102,000 | 20,700 | $ | 7,458,577 | |
| David Altshuler | 34,000 | 75,000 | $ | 11,043,284 | |
| Stuart A. Arbuckle | 102,000 | 20,700 | $ | 7,458,577 | |
| Jeffrey Chodakewitz | 91,500 | 17,250 | 6,582,549 | ||
| Not Building | Building | Strong | Leading | Leading/Exemplary | |||||||||||
| CEO | $ | — | $ | 5,500,000 | $ | 11,000,000 | $ | 12,500,000 | $ | 14,000,000 | |||||
| EVP | $ | — | $ | 1,500,000 | $ | 3,000,000 | $ | 3,750,000 | $ | 4,500,000 | |||||
February 2022 Grants Based on 2021 Performance
In February 2016,2022, upon the MDCC’s recommendation, our independent directors approved upon the MDCC’s recommendation, individual performance factors and 2016 equity awards for 2021 performance for each of the NEOs as set forth in the table below. Dr. Leiden’s equity awards were determined by his employment agreement as described above.
| Name | Individual Performance Rating | Performance- Based RSU (50%) | Time-based RSU (50%) | Total Equity Value | ||||||||||
| Reshma Kewalramani | Leading | $ | 7,093,750 | $ | 7,093,750 | $ | 14,187,500 | |||||||
| Charles F. Wagner, Jr. | Leading | $ | 2,500,000 | $ | 2,500,000 | $ | 5,000,000 | |||||||
| Stuart A. Arbuckle | Leading Exemplary | $ | 3,562,500 | $ | 3,562,500 | $ | 7,125,000 | |||||||
| Nia Tatsis | Leading | $ | 2,500,000 | $ | 2,500,000 | $ | 5,000,000 | |||||||
Performance Units Results Table
We annually grant one-year financial-based performance restricted stock unit awards and three-year non-financial based performance restricted stock unit awards. We believe the combination of the one-year financial and three-year non-financial PSUs provides an appropriate balance of near- and long-term incentives for our management team. Our near-term objective of growing our CF business through increasing the number of patients eligible and able to receive our medicines complements our long-term strategic objectives, which require the reinvestment of revenues into research and development to develop additional transformative medicines for serious diseases.
The final performance multipliers for our 2021 financial-based performance restricted stock unit awards were determined by the MDCC and applied to the target units granted to determine the actual units earned and eligible to vest with a payout of 200% in February 2022. The following chart shows the pre-established financial goals and the actual results for the financial-based performance restricted stock unit awards granted in 2021:
| Award | Below Threshold | Threshold | Target | Max | Results | |||||||||||||||||
| Year | Company Goal | 0% Payout | 50% Payout | 100% Payout | 200% Payout | CF Revenue | Payout | |||||||||||||||
| 2021 | 2021 CF Net Product Revenues | <$6.595 billion | $ | 6.595 billion |
| $ $ | 6.770 to 6.840 billion | $ | 7.0 billion | $ | 7.57 billion | 200.0% | ||||||||||
Consistent with our philosophy of aligning compensation with performance, for 2021, a year in which we substantially exceeded our CF net product revenue expectations, the payout on our one-year financial PSU awards achieved the maximum level.
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| Name | Individual Performance Rating | Performance-Based RSU (35%) | Options (30%) | Time-based RSU (35%) | Total Equity Value |
| Jeffrey M. Leiden | Leading Exemplary | $4,900,000 | $4,200,000 | $4,900,000 | $14,000,000 |
| Ian F. Smith | Leading Exemplary | $1,575,000 | $1,350,000 | $1,575,000 | $4,500,000 |
| David Altshuler | Leading | $1,312,500 | $1,125,000 | $1,312,500 | $3,750,000 |
| Stuart A. Arbuckle | Leading Exemplary | $1,575,000 | $1,350,000 | $1,575,000 | $4,500,000 |
| Jeffrey Chodakewitz | Leading | $1,312,500 | $1,125,000 | $1,312,500 | $3,750,000 |
The performance goals for valuethe 2019 non-financial PSUs were established in February 2019 and our performance against these goals was determined in the first quarter of 2016 equity-based2022. There were three non-financial goals and achievement of one goal would have resulted in a 50% payout, achievement of two goals would have resulted in a 100% payout and achievement of three goals resulted in a payout of 200%.
| 2019 | CF Portfolio Milestone - Approval of triple combination in both the U.S. and E.U. | Achieved | ||
| Complete a clinical trial that establishes proof-of-concept for a drug candidate in a disease area other than pain, cystic fibrosis, sickle cell disease, and beta-thalassemia | Achieved | |||
| First subject is dosed in a pivotal clinical trial for a nucleic acid therapy | Achieved |
The performance multiples for the 2020, 2021 and 2022 non-financial based performance restricted stock unit awards will be determined in the first quarter of 2023, 2024 and 2025, respectively, based on performance over the relevant three-year performance period. The non-financial goals contained in our three-year performance restricted stock unit awards for 2020, 2021 and 2022 are based on our methodology for determining the grant-date fair value, including underlying assumptions for calculating these values as set forth in Note N to our consolidated financial statements included in our 2015 Annual Report on Form 10-Kmultiple clinical milestones, and are subject to adjustment.
Other Compensation Arrangements
Benefits
Our executives are eligible to participate in all of our benefit plans and programs on the terms made generally available to our employees, including medical insurance, dental insurance, payment of life insurance premiums, disability coverage, equity programs, including a career employment/retirement provision and participation in our employee stock purchase plan.plan, and eligibility for matching contributions, subject to an annual $25,000 limit, to qualified charitable organizations pursuant to the Vertex Foundation Matching Gift Program. We have a defined contribution—a 401(k)—plan, in which all of our eligible employees, including our NEOs, are eligible tomay participate. We make matching contributions to the 401(k) plan. The formula for determining the amount of our matching contributions is the same for our NEOs as for our other employees (and the contributions are subject to the same statutory maximum), but the actual contributions made to the accounts of our NEOs generally are at the top end of the range, due to the executives’ higher salaries and correspondingly higher cash contribution levels. WeOther than the retirement provision under our equity program available to all employees, we do not provide any other retirement benefits to our executive officers.
Employment Agreements and Post-Termination Compensation and Benefits
The initial compensation terms for newly hired members of our executive team are the result of negotiations between us, in consultation with the MDCC and our board of directors, and the executive being recruited. Accordingly, the initial employment terms for each of the executive officers may vary significantly because they take into account both our interests and the executive’s interests under the circumstances at the time of negotiation, and depend on the level of job responsibility, the market for the executive’s services, the value of other opportunities then available to the executive and similar considerations. Executives who join us from other companies may sacrifice potential bonuses and/or equity payouts, and may request compensation elements of similar value. More experienced individuals may seek higher compensation than individuals who are still establishing their careers. We seek to balance the need to be competitive in a competitive market against the need for the executive’s compensation to be comparable with the executive’s peers at the company.hired. In general, each newly hired executive team member enters into an employment agreement and a change of control agreement and is awarded a stock option grant and a restricted stock grant,granted an equity award, and in some cases a cash sign-on bonus, reimbursement of moving expenses, and other benefits. We also enter into employment and change of control agreements with executivesEVPs who are promoted to our executive team, on the basis of standard terms and conditions that have been recommended by our MDCC and approved by our board for such circumstances. We have entered into agreements providing for severance and change of control payments with each of the members ofEVP on our executive team including all of the NEOs, because we believe that they are a fair and effective way to allow our executives to maintain focus on our business in the face of market and other volatility in our industry.
In general, each employment arrangement provides for cash severance and continuation of certain employee benefits in the event that an executive’s employment is terminated by us without cause or is terminated by the executive for good reason.
We use a “double trigger” with respect to benefits that are to be provided in connection with a change of control. A change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability, or by the executive for good reason, during a specified period before or after a change of control. We believe a “double trigger” benefit maximizes shareholder value because it prevents a windfall to executives in the event of a change of control in which the executive retains significant responsibility as defined in his or her individual agreement, while still providing our executives appropriate incentives to cooperate in negotiating any change of control transaction that may put their jobs at risk.
We offer a company-wide program that provides for accelerated vesting of equity awards held by qualified retirement-eligible participants. Equity awards granted, including those granted to our NEOs, contain a retirement vesting provision, under which a “qualified” participant who retires under the terms of the provision will receive accelerated vesting of an additional number of shares underlying the award, equal to the sum of (x) 50% plus 10% for each year of service in excess of five full years of service multiplied by (y) the number of unvested shares subject to the award. A “qualified” participant is a participant who is at least age 55 and has completed at least five full years of service or whose age plus full years of service is 65 or greater and who, has completed a mandatory transitional period of employment with the company following notice of his or her planned termination of service.
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In addition to the benefits that only accrue in connection with a change of control, our agreements with our executive officers provide benefits if we terminate their employment with us without cause or they terminate their employment with us for good reason, as such terms are defined in the applicable agreement with the executive officer. A further discussion of the terms and projected payments under each of theseour agreements with our NEOs is set forth below under the heading Employment Contracts and Change of Control Arrangements.
Tax Considerations
Under Section 162(m) of the Internal Revenue Code, publicly held corporations generally may not deduct compensation in excess of $1 million paid to certain executive officers, subject to limited transition relief for certain arrangements in place as of November 2, 2017. We would likecontinue to grant performance-based compensation as important elements of our compensation program to be reasonably costthat align corporate shareholder and tax effective. To the extent consistent with our other goals, we seek to preserve corporate tax deductions, while maintaining the flexibility to approve compensation arrangements that we believe are in the bestcompany interests, of the company and our shareholders. The approach doeseven though these awards may not always result in full tax deductibility.
Compensation Practices
Equity Grant Practices
Our board of directors generally grants employee options two times per year, on the date of its mid-summerannual equity awards to NEOs at a board meeting usuallyscheduled in July, and on the date of its first meeting of each new year, usually in late January oradvance for early February. Beginning in 2016, our named executive officers will no longer receive mid-year equity grants. Supplemental equity grants, if any, are made at board meetings at the time when the board determines they are appropriate in order to meet the objectives of our compensation program. Board and committee meetings generally are scheduled at least a year in advance, and schedulingScheduling decisions are made without regard to anticipated earnings or other major announcements by the company.
Newly hired employees, including executive officers, are sometimes granted options and/or restricted stockequity awards effective on the first day of employment, with the options having an exercise price set at the average of the high and low price for our common stock on the employment start date.employment. The employees’ start dates are scheduled without regard to anticipated earnings or other major announcements by the company.
Compensation Recoupment (“Clawback”) Policy
We have adopted a recoupment or claw-backclawback policy providing that, if our board of directors determines that an executive officer engaged in fraud or intentional misconduct that resulted in an incorrect determination that an incentive compensation performance goal had been achieved, the board may take appropriate action to recover from such executive officer any compensation that resulted from such determination. The board may require reimbursement forrepayment of any bonus, equity or incentive compensation awarded to an executive officer who engaged in the fraud or intentional misconduct to the extent it was based on such incorrect determination.
Stock Ownership Guidelines
We have stock ownership guidelines for our chief executive officer and NEOs and in 2014 adopted stock ownership guidelines for our non-employee directors, as discussed in
| Employee | |
| Minimum Shareholding Requirement | |
| 6X base salary | |
| Executive | 30% of annual equity grant |
| EVPs | 4X base salary |
Individual holdings, and holdings of immediate family members, of (a) common stock, including(b) unvested restricted stock, (b) restricted stock units, and (c) shares held through our 401(k) plan count toward meeting these guidelines. EachAs of March 31, 2022, each of our NEOs including our chief executive officer, currently satisfiessatisfied the individual holding requirements.
Anti-Hedging and Pledging Policy
Our Insider Trading Policy prohibits all of our directors and employees, including our named executive officers,NEOs, from (i)(a) short selling or hedging our securities, (ii)(b) purchasing or selling derivative securities based on our securities, and (iii)(c) pledging our securities.
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Risk Mitigation
Our MDCC reviews the risks and rewards associated with our compensation programs. The programs are designed with features that mitigate risk without diminishing the incentive nature of the compensation. We believe our compensation programs encourage and reward prudent business judgment and appropriate risk-taking over the short term and the long term. Our MDCC regularly evaluates the risks involved with our compensation programs and does not believe that any of our compensation programs create risks that are reasonably likely to have a material adverse effect on our company.
Risk Mitigation Factors
We believe that our annual cash bonus and long-term equity compensation programs, which account for most of our executive officers’ compensation, contain appropriate risk mitigation factors, as summarized below:
Emphasis on Long-term Value Creation and Mitigation of Short-term Risk Taking
Our board believes that a key element of its risk oversight responsibilities is ensuring that our executive compensation program encourages implementation of our corporate strategy of investing in scientific innovation to create transformative medicines for people with serious diseases and discourages decisions focused on creating short-term financial gains at the expense of long-term value creation. The board reviews our business performance, focusing on financial metrics and non-financial metrics, as well as other strategic factors including talent development and diversity to ensure our leaders are focusing on long-term growth in a manner aligned with our values.
Our MDCC reviews the performance of our executive officers using the above metrics. It also oversees the design of our executive compensation programs to ensure that our executive compensation program does not incentivize our executive officers, either individually or as a group, to make excessively risky business decisions that could maximize short-term results at the expense of long-term value. The independent directors who serve on the MDCC are informed of our most significant risks, including those associated with research and development of new medicines, competition, and the pricing of our medicines. Our MDCC, in consultation with its independent compensation consultant, ensures that our executive compensation programs are aligned with our long-term strategy and do not incentivize overly risky behavior.
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The Management Development and Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and its discussions with management, the Management Development and Compensation Committee recommended to Vertex’s Board of Directors that the Compensation Discussion and Analysis be included in Vertex’s proxy statement for its
Bruce I. Sachs (Chair)
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The following table provides summary information concerning the compensation earned byfor each of our chief executive officer; our chief financial officer;NEOs for 2021, 2020, and our other three most highly compensated employees who were serving2019 (or such shorter period of the NEO’s service, as executive officers on December 31,
| Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | ||||||||||||||||||||
| Jeffrey M. Leiden | 2015 | $ | 1,297,692 | $ | — | $ | 7,038,885 | $ | 16,286,939 | $ | 3,463,200 | $ | 13,110 | $ | 28,099,826 | |||||||||||||
| Chairman, President & CEO | 2014 | $ | 1,100,000 | $ | — | $ | 19,883,350 | $ | 12,669,261 | $ | 2,970,000 | $ | 12,857 | $ | 36,635,468 | |||||||||||||
| 2013 | $ | 1,038,462 | $ | — | $ | 1,773,963 | $ | 7,529,374 | $ | 2,772,000 | $ | 12,675 | $ | 13,126,474 | ||||||||||||||
| Ian F. Smith | 2015 | $ | 701,796 | $ | — | $ | 2,258,991 | $ | 5,199,586 | $ | 832,500 | $ | 13,110 | $ | 9,005,983 | |||||||||||||
| EVP & Chief Financial Officer | 2014 | $ | 650,000 | $ | — | $ | 9,865,110 | $ | 4,044,646 | $ | 731,250 | $ | 12,857 | $ | 15,303,863 | |||||||||||||
| 2013 | $ | 582,959 | $ | — | $ | 544,988 | $ | 2,361,640 | $ | 682,500 | $ | 12,675 | $ | 4,184,762 | ||||||||||||||
| David Altshuler | 2015 | $ | 528,846 | $ | 250,000 | $ | 9,078,750 | $ | 1,964,534 | $ | 552,628 | $ | 13,110 | $ | 12,387,868 | |||||||||||||
| EVP & Chief Scientific Officer | ||||||||||||||||||||||||||||
| Stuart A. Arbuckle | 2015 | $ | 629,262 | $ | — | $ | 2,258,991 | $ | 5,199,586 | $ | 721,500 | $ | 13,110 | $ | 8,822,449 | |||||||||||||
| EVP & Chief Commercial | 2014 | $ | 600,000 | $ | — | $ | 9,865,110 | $ | 4,044,646 | $ | 675,000 | $ | 12,857 | $ | 15,197,613 | |||||||||||||
| Officer | 2013 | $ | 553,846 | $ | — | $ | 544,988 | $ | 3,077,513 | $ | 630,000 | $ | 12,675 | $ | 4,819,022 | |||||||||||||
| Jeffrey Chodakewitz | 2015 | $ | 615,231 | $ | — | $ | 1,882,493 | $ | 4,700,056 | $ | 617,382 | $ | 15,254 | $ | 7,830,416 | |||||||||||||
| EVP & Chief Medical Officer | 2014 | $ | 539,077 | $ | 250,000 | $ | 8,963,250 | $ | 3,171,829 | $ | 630,000 | $ | 241,936 | $ | 13,796,092 | |||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Stock Awards(1) | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | ||||||||||||||||||||||
| Reshma Kewalramani(2) CEO and President | 2021 | $ | 1,221,923 | $ | — | $ | 10,924,599 | $ | — | $ | 3,016,570 | $ | 35,764 | $ | 15,198,856 | |||||||||||||||
| 2020 | $ | 1,097,308 | $ | — | $ | 5,250,411 | $ | — | $ | 2,723,292 | $ | 40,348 | $ | 9,111,359 | ||||||||||||||||
| 2019 | $ | 702,308 | $ | — | $ | 3,215,952 | $ | 1,575,011 | $ | 1,260,000 | $ | 63,665 | $ | 6,816,936 | ||||||||||||||||
| Charles F. Wagner, Jr.(3) EVP & Chief Financial Officer | 2021 | $ | 729,615 | $ | — | $ | 4,375,430 | $ | — | $ | 1,078,539 | $ | 40,348 | $ | 6,223,932 | |||||||||||||||
| 2020 | $ | 726,923 | $ | — | $ | 4,375,585 | $ | — | $ | 946,680 | $ | 41,202 | $ | 6,090,390 | ||||||||||||||||
| 2019 | $ | 492,692 | $ | 140,000 | $ | 1,225,383 | $ | 600,039 | $ | 992,250 | $ | 36,849 | $ | 3,487,213 | ||||||||||||||||
| Stuart A. Arbuckle EVP & Chief Operating Officer | 2021 | $ | 842,308 | $ | — | $ | 5,250,173 | $ | — | $ | 1,676,700 | $ | 40,960 | $ | 7,810,141 | |||||||||||||||
| 2020 | $ | 830,769 | $ | — | $ | 5,250,411 | $ | — | $ | 1,159,200 | $ | 42,598 | $ | 7,282,978 | ||||||||||||||||
| 2019 | $ | 770,962 | $ | — | $ | 3,215,952 | $ | 1,575,011 | $ | 1,260,000 | $ | 37,608 | $ | 6,859,533 | ||||||||||||||||
| Jeffrey M. Leiden(4) Executive Chairman | 2021 | $ | 242,308 | $ | — | $ | 7,875,259 | $ | — | $ | — | $ | 39,672 | $ | 8,157,239 | |||||||||||||||
| 2020 | $ | 1,121,539 | $ | — | $ | 13,335,168 | $ | — | $ | 1,973,400 | $ | 43,138 | $ | 16,473,245 | ||||||||||||||||
| 2019 | $ | 1,300,000 | $ | — | $ | 9,334,681 | $ | 4,572,039 | $ | 3,510,000 | $ | 73,265 | $ | 18,789,985 | ||||||||||||||||
| Nia Tatsis EVP & Chief Regulatory and Quality Officer | 2021 | $ | 550,000 | $ | — | $ | 5,250,173 | $ | — | $ | 743,820 | $ | 40,035 | $ | 6,584,028 | |||||||||||||||
| (1) | Pursuant to applicable SEC rules, the grant-date fair values of the equity awards granted in February 2021 for 2020 performance are included in 2021 compensation. Equity awards granted in February 2022 to Dr. Kewalramani, Mr. Wagner, Mr. Arbuckle, and Ms. Tatsis for 2021 performance and the equity awards granted in February 2022 to Dr. Leiden pursuant to his employment agreement are not reflected in the Summary Compensation Table above. |
| (2) | Dr. Kewalramani was our EVP and Chief Medical Officer through March 2020. |
| (3) | Mr. Wagner joined Vertex as our EVP and Chief Financial Officer in April 2019. |
| (4) | Dr. Leiden was our CEO and President through March 2020. |
Bonus
Pursuant to applicable SEC rules, the annual cash bonuses earned by our named executive officersNEOs are set forthincluded under the caption “Non-Equity Incentive Plan Compensation.” Other bonuses, such as sign-on bonuses, are listedincluded separately under the caption “Bonus.”
Stock Awards and Options Awards
The amounts set forth under the captions “Stock Awards” and “Option Awards” in the table above represent the grant-date fair value of awards granted during the applicable fiscal year. In general, the equity awards reflected in the Summary Compensation Table for a specific year reflect equity grants made earlier in that calendar year based on the executive’s performance in the year prior to the year the equity grants are awarded. Because a majority of our executive’s compensation is in the form of equity awards, the total compensation reflected in each executive’s compensation for 2021 in the table above is significantly affected by his or her performance during 2020. Our methodology for determining the grant-date fair value, including underlying estimates and assumptions for calculating these values and specifically the estimates used to apply the Black-Scholes option pricing model in 2019, is set forth in Note
N to our consolidated financial statements included in ourThe "Stock Awards"“Stock Awards” for 20152021, 2020, and 2019 consist of performance-acceleratedPSU awards and time-vested restricted stock or PARS,unit awards granted in February 2015 and a sign-on equity grant for Dr. Altshuler in February 2015. The "Stock Awards" for 2014 consist of PARS awards granted in February 2014, a sign-on equity grant for Dr. Chodakewitz in January 2014 and one-time performance-contingent retention awards granted in the fourth quarter of 2014 toeach year. In each of our named executive officers (other than Dr. Altshuler).
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| 2021 | 2020 | 2019(1) | |||||||||
| Reshma Kewalramani | $ | 18,728,038 | $ | 9,000,877 | $ | 5,513,196 | |||||
| Charles F. Wagner, Jr. | $ | 7,500,890 | $ | 7,501,175 | $ | 2,100,794 | |||||
| Stuart A. Arbuckle | $ | 9,000,297 | $ | 9,000,877 | $ | 5,513,196 | |||||
| Jeffrey M. Leiden | $ | 13,500,444 | $ | 22,860,288 | $ | 16,002,311 | |||||
| Nia Tatsis | $ | 9,000,297 | $ | — | $ | — |
| (1) | The “Stock Awards” for 2019 consist of PSU awards and time-vested restricted stock unit awards granted to Mr. Wagner as a sign-on award in April 2019 and to the other executive officers in February 2019. |
Non-Equity Incentive Plan Compensation—Annual Cash Bonus
The amounts set forth under the caption “Non-Equity Incentive Plan Compensation” in the table above represent annual cash bonuses for
| Name | Base Salary | Individual Incentive Target | 2015 Target Bonus | Company Performance Factor | Individual Performance Factor | Proration Factor | 2015 Performance Cash Bonus | ||||||||||||
| Jeffrey M. Leiden | $ | 1,300,000 | x | 120% | = | $ | 1,560,000 | x | 148% | x | 150% | x | 100% | = | $ | 3,463,200 | |||
| Ian F. Smith | $ | 750,000 | x | 50% | = | $ | 375,000 | x | 148% | x | 150% | x | 100% | = | $ | 832,500 | |||
| David Altshuler | $ | 550,000 | x | 50% | = | $ | 275,000 | x | 148% | x | 140% | x | 97% | = | $ | 552,628 | |||
| Stuart A. Arbuckle | $ | 650,000 | x | 50% | = | $ | 325,000 | x | 148% | x | 150% | x | 100% | = | $ | 721,500 | |||
| Jeffrey Chodakewitz | $ | 618,000 | x | 50% | = | $ | 309,000 | x | 148% | x | 135% | x | 100% | = | $ | 617,382 | |||
| Individual | 2021 | Company | Individual | 2021 | |||||||||||||||||||
| Incentive | Target | Performance | Performance | Performance | |||||||||||||||||||
| Name | Base Salary | Target | Bonus | Factor | Factor | Cash Bonus | |||||||||||||||||
| Reshma Kewalramani | $ | 1,320,000 | x | 120% | = | $ | 1,584,000 | x | 138% | x | 138% | = | $ | 3,016,570 | |||||||||
| Charles F. Wagner, Jr. | $ | 770,000 | x | 70% | = | $ | 539,000 | x | 138% | x | 145% | = | $ | 1,078,539 | |||||||||
| Stuart A. Arbuckle | $ | 900,000 | x | 90% | = | $ | 810,000 | x | 138% | x | 150% | = | $ | 1,676,700 | |||||||||
| Jeffrey M. Leiden | $ | — | x | —% | = | $ | — | x | —% | x | —% | = | $ | — | |||||||||
| Nia Tatsis | $ | 550,000 | x | 70% | = | $ | 385,000 | x | 138% | x | 140% | = | $ | 743,820 | |||||||||
All Other Compensation
The amounts set forth under the caption “All Other Compensation” in the table for
| 401(k) | Life Insurance | Matching Gift | ||||||||||||||||||
| Name | Match | Premiums | Program | Other | Total | |||||||||||||||
| Reshma Kewalramani | $ | 13,050 | $ | 1,810 | $ | 20,168 | $ | 736 | (1) | $ | 35,764 | |||||||||
| Charles F. Wagner, Jr. | $ | 13,050 | $ | 1,247 | $ | 25,000 | $ | 1,051 | (1) | $ | 40,348 | |||||||||
| Stuart A. Arbuckle | $ | 13,050 | $ | 1,372 | $ | 25,000 | $ | 1,538 | (1) | $ | 40,960 | |||||||||
| Jeffrey M. Leiden | $ | 13,050 | $ | 1,622 | $ | 25,000 | $ | — | (1) | $ | 39,672 | |||||||||
| Nia Tatsis | $ | 13,050 | $ | 1,060 | $ | 25,000 | $ | 925 | (1) | $ | 40,035 | |||||||||
| (1) | Tax reimbursements. |
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The following table provides information with respect to grants of awards to each of our NEOs during 2021. Pursuant to SEC rules, (i) the threshold, target and maximum amounts payable pursuant to our 2021 annual cash bonus program are set forth in columns under “Estimated Possible Payouts under Non-Equity Incentive Plan Awards,” (ii) the threshold, target, and maximum number of shares that could vest pursuant to PSUs granted in 2021 are set forth in columns under “Estimated Future Payouts under Equity Incentive Plan Awards,” and (iii) the number of shares granted pursuant to other restricted stock unit awards in 2021 is set forth under “All Other Stock Awards: Number of Shares of Stock or Units.”
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards (shares) | All Other Stock Awards: Number of Shares of Stock or | Grant-Date Fair Value of Stock and Option | |||||||||||||||||||||||||||||||||
| Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Units (#) | Awards ($) | |||||||||||||||||||||||||||
| Reshma Kewalramani | (1) | $ | 0 | $ | 1,584,000 | $ | 3,564,000 | |||||||||||||||||||||||||||||
| (2a) | 2/3/2021 | — | 14,516 | 29,032 | $ | 3,121,375 | ||||||||||||||||||||||||||||||
| (2b) | 2/3/2021 | — | 14,516 | 29,032 | $ | 1,560,688 | ||||||||||||||||||||||||||||||
| (3) | 2/3/2021 | 29,031 | $ | 6,242,536 | ||||||||||||||||||||||||||||||||
| Charles F. Wagner, Jr. | (1) | $ | 0 | $ | 539,000 | $ | 1,212,750 | |||||||||||||||||||||||||||||
| (2a) | 2/3/2021 | — | 5,814 | 11,628 | $ | 1,250,184 | ||||||||||||||||||||||||||||||
| (2b) | 2/3/2021 | — | 5,814 | 11,628 | $ | 625,092 | ||||||||||||||||||||||||||||||
| (3) | 2/3/2021 | 11,627 | $ | 2,500,154 | ||||||||||||||||||||||||||||||||
| Stuart A. Arbuckle | (1) | $ | 0 | $ | 810,000 | $ | 1,822,500 | |||||||||||||||||||||||||||||
| (2a) | 2/3/2021 | — | 6,976 | 13,952 | $ | 1,500,049 | ||||||||||||||||||||||||||||||
| (2b) | 2/3/2021 | — | 6,976 | 13,952 | $ | 750,025 | ||||||||||||||||||||||||||||||
| (3) | 2/3/2021 | 13,952 | $ | 3,000,099 | ||||||||||||||||||||||||||||||||
| Jeffrey M. Leiden | (1) | $ | 0 | $ | — | $ | — | |||||||||||||||||||||||||||||
| (2a) | 2/3/2021 | — | 10,464 | 20,928 | $ | 2,250,074 | ||||||||||||||||||||||||||||||
| (2b) | 2/3/2021 | — | 10,464 | 20,928 | $ | 1,125,037 | ||||||||||||||||||||||||||||||
| (3) | 2/3/2021 | 20,928 | $ | 4,500,148 | ||||||||||||||||||||||||||||||||
| Nia Tatsis | (1) | $ | 0 | $ | 385,000 | $ | 866,250 | |||||||||||||||||||||||||||||
| (2a) | 2/3/2021 | — | 6,976 | 13,952 | $ | 1,500,049 | ||||||||||||||||||||||||||||||
| (2b) | 2/3/2021 | — | 6,976 | 13,952 | $ | 750,025 | ||||||||||||||||||||||||||||||
| (3) | 2/3/2021 | 13,952 | $ | 3,000,099 | ||||||||||||||||||||||||||||||||
(1) Annual Cash Bonus.The amounts in the “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” column represent the minimum threshold, target and maximum amounts that our NEOs were eligible to earn pursuant to our 2021 annual cash bonus program. Actual amounts paid to each of the NEOs under this program for 2021 performance are set forth in the Summary Compensation Table above.
(2) PSU.The amounts in the “Estimated Future Payouts Under Equity Incentive Plan Awards” column represent the minimum threshold, target and maximum number of shares that could be earned and vest pursuant to PSUs granted in 2021. Pursuant to U.S. GAAP, the grant date value of the financial PSU awards (2a) was based on 100% of the fair value of the target shares and the grant date value of the non-financial PSU awards (2b) was based on 50% of the fair value of the target shares in 2021. These awards vest if, and only if, performance objectives are achieved, as described in the footnotes to the table Outstanding Equity Awards at Fiscal Year-End for 2021 below.
(3) Time-Based Restricted Stock Units.The amounts in the “All Other Stock Awards: Number of Shares of Stock or Units” column represent the number of time-based restricted stock units granted to the NEOs in 2021, which generally vest annually over three years.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Each NEO has entered into an employment agreement with the company, which provides the executives the right to participate in all of the company’s compensation and benefits plans and equity programs, as described in Compensation Discussion & Analysis.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 70
| Name | 401(k) Match | Life Insurance Premiums | Relocation Expense | Total | ||||||||
| Jeffrey M. Leiden | $ | 11,925 | $ | 1,185 | $ | — | $ | 13,110 | ||||
| Ian F. Smith | $ | 11,925 | $ | 1,185 | $ | — | $ | 13,110 | ||||
| David Altshuler | $ | 11,925 | $ | 1,185 | $ | — | $ | 13,110 | ||||
| Stuart A. Arbuckle | $ | 11,925 | $ | 1,185 | $ | — | $ | 13,110 | ||||
| Jeffrey Chodakewitz | $ | 11,925 | $ | 1,185 | $ | 2,144 | $ | 15,254 | ||||
| Back to Contents |
The following table provides information with respect to outstanding equity awards held by each of our NEOs on December 31, 2021, based on the closing price of $219.60 per share of our common stock on December 31, 2021:
| Option Awards | Stock Awards | |||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (shares)(1) | Number of Securities Underlying Unexercised Options Unexercisable (shares)(1) | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (shares) | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (shares) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||||||||||
| Reshma Kewalramani | Time-based RSU | |||||||||||||||||||||||||
| 3,267 | (2) | $ | 717,433 | |||||||||||||||||||||||
| 8,258 | (3) | $ | 1,813,457 | |||||||||||||||||||||||
| 29,031 | (4) | $ | 6,375,208 | |||||||||||||||||||||||
| Performance-based RSU | ||||||||||||||||||||||||||
| 3,268 | (5) | $ | 717,653 | |||||||||||||||||||||||
| 8,260 | (6) | $ | 1,813,896 | |||||||||||||||||||||||
| 9,800 | (7) | $ | 2,152,080 | |||||||||||||||||||||||
| 29,032 | (8) | $ | 6,375,427 | |||||||||||||||||||||||
| 6,194 | (9) | $ | 1,360,202 | |||||||||||||||||||||||
| 14,516 | (10) | $ | 3,187,714 | |||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||
| 2,548 | 510 | $ | 155.57 | 2/5/2028 | ||||||||||||||||||||||
| 7,821 | 7,821 | $ | 187.53 | 2/5/2029 | ||||||||||||||||||||||
| Charles F. Wagner | Time-based RSU | |||||||||||||||||||||||||
| 1,233 | (2) | $ | 270,767 | |||||||||||||||||||||||
| 6,882 | (3) | $ | 1,511,287 | |||||||||||||||||||||||
| 11,627 | (4) | $ | 2,553,289 | |||||||||||||||||||||||
| Performance-based RSU | ||||||||||||||||||||||||||
| 1,234 | (5) | $ | 270,986 | |||||||||||||||||||||||
| 6,884 | (6) | $ | 1,511,726 | |||||||||||||||||||||||
| 3,698 | (7) | $ | 812,081 | |||||||||||||||||||||||
| 11,628 | (8) | $ | 2,553,509 | 5,162 | (9) | $ | 1,133,575 | |||||||||||||||||||
| 5,814 | (10) | $ | 1,276,754 | |||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||
| 5,957 | 3,575 | $ | 189.38 | 4/9/2029 | ||||||||||||||||||||||
| Stuart A. Arbuckle | Time-based RSU | |||||||||||||||||||||||||
| 3,267 | (2) | $ | 717,433 | |||||||||||||||||||||||
| 8,258 | (3) | $ | 1,813,457 | |||||||||||||||||||||||
| 13,952 | (4) | $ | 3,063,859 | |||||||||||||||||||||||
| Performance-based RSU | ||||||||||||||||||||||||||
| 3,268 | (5) | $ | 717,653 | |||||||||||||||||||||||
| 8,260 | (6) | $ | 1,813,896 | |||||||||||||||||||||||
| 9,800 | (7) | $ | 2,152,080 | |||||||||||||||||||||||
| 13,952 | (8) | $ | 3,063,859 | 6,194 | (9) | $ | 1,360,202 | |||||||||||||||||||
| 6,976 | (10) | $ | 1,531,930 | |||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||
| 7,338 | 1,223 | $ | 155.57 | 2/5/2028 | ||||||||||||||||||||||
| 9,385 | 7,821 | $ | 187.53 | 2/5/2029 | ||||||||||||||||||||||
| Jeffrey M. Leiden | Performance-based RSU | |||||||||||||||||||||||||
| 28,444 | (7) | $ | 6,246,302 | |||||||||||||||||||||||
| 20,928 | (8) | $ | 4,595,789 | |||||||||||||||||||||||
| 15,731 | (9) | $ | 3,454,528 | |||||||||||||||||||||||
| 10,464 | (10) | $ | 2,297,894 | |||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||
| 93,866 | 0 | $ | 91.05 | 2/1/2026 | ||||||||||||||||||||||
| 103,550 | 0 | $ | 86.52 | 2/2/2027 | ||||||||||||||||||||||
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 71
| Back to Contents |
| Option Awards | Stock Awards | |||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (shares)(1) | Number of Securities Underlying Unexercised Options Unexercisable (shares)(1) | Option Exercise Price (per share) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (shares) | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (shares) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||||||||||
| Nia Tatsis | Time-based RSU | |||||||||||||||||||||||||
| 1,167 | (2) | $ | 256,273 | |||||||||||||||||||||||
| 4,130 | (3) | $ | 906,948 | |||||||||||||||||||||||
| 13,952 | (4) | $ | 3,063,859 | |||||||||||||||||||||||
| Performance-based RSU | ||||||||||||||||||||||||||
| 1,168 | (5) | $ | 256,493 | |||||||||||||||||||||||
| 4,130 | (6) | $ | 906,948 | |||||||||||||||||||||||
| 3,500 | (7) | $ | 768,600 | |||||||||||||||||||||||
| 13,952 | (8) | $ | 3,063,859 | |||||||||||||||||||||||
| 3,097 | (9) | $ | 680,101 | |||||||||||||||||||||||
| 6,976 | (10) | $ | 1,531,930 | |||||||||||||||||||||||
| Stock Options | ||||||||||||||||||||||||||
| 2,446 | 408 | $ | 155.57 | 2/5/2028 | ||||||||||||||||||||||
| 3,351 | 2,794 | $ | 187.53 | 2/5/2029 | ||||||||||||||||||||||
| (1) | Unvested stock options vest in 16 quarterly installments during the first four years of their ten-year terms. The option expiration dates listed above reflect the final expiration date for each of the listed options. If the NEO’s service with us is terminated, the options would expire, subject to certain exceptions, 90 days after the termination of service. |
| (2) | These time-based restricted stock unit awards vest in three annual installments. The shares listed on the table above represent the third annual installment, which vested on February 24, 2022. |
| (3) | These time-based restricted stock unit awards vest in three annual installments. The shares listed on the table above represent the second and third annual installments, which vested on February 10, 2022 and are scheduled to vest February 10, 2023, respectively. |
| (4) | These time-based restricted stock unit awards vest in three annual installments. The shares listed on the table above represent the three annual installments, which vested on February 17, 2022, and are scheduled to vest in two remaining annual installments on February 17, 2023 and 2024. |
| (5) | This performance stock unit award was based on the achievement of one-year financial performance metrics tied to our net product revenue for medicines for the treatment of CF during 2019. In February 2020, our MDCC certified as to the level of performance at 200% of the number of target shares with the earned shares vesting in annual installments on February 24, 2020, 2021 and 2022. The shares listed on the table above represent the final installment of the earned shares, which vested on February 24, 2022. |
| (6) | This performance stock unit award was based on the achievement of one-year financial performance metrics tied to our net product revenue for medicines for the treatment of CF during 2020, with vesting of the earned shares in three equal installments on each of February 10, 2021, 2022 and 2023. In February 2021, our MDCC certified as to the level of performance at 200% of the number of target shares. The shares listed on the table above represent the second and third installments of earned shares, which vested on February 10, 2022 and are scheduled to vest on February 10, 2023, respectively. |
| (7) | This performance stock unit award is based on the achievement of three-year non-financial performance metrics. The performance conditions associated with the awards consist of multiple clinical and research milestones, with a payout range of zero to 200%. In February 2022, our MDCC certified as to the level of performance at 200% of the number of target shares, with the number and value of shares reported above reflected as such. The earned shares vested on February 24, 2022. |
| (8) | This performance stock unit award was based on the achievement of one-year financial performance metrics tied to our net product revenue for medicines for the treatment of CF during 2021, with vesting of the earned shares generally occurring in three equal installments scheduled for each of February 17, 2022, 2023 and 2024. In February 2022, our MDCC certified as to the level of performance at 200% of the number of target shares, with the number and value of shares reported above reflected as such. |
| (9) | This performance stock unit award is based on the achievement of three-year non-financial performance metrics, with the number and value of shares reported assuming target performance (100%). The performance conditions associated with the awards consist of multiple clinical and research milestones, with a payout range of zero to 200%. The specific clinical and research milestones are not disclosed for competitive reasons. Performance against these goals will be certified by our MDCC in early 2023. |
| (10) | This performance stock unit award is based on the achievement of three-year non-financial performance metrics, with the number and value of shares reported assuming target performance (100%). The performance conditions associated with the awards consist of multiple clinical and research milestones, with a payout range of zero to 200%. The specific clinical and research milestones are not disclosed for competitive reasons. Performance against these goals will be certified by our MDCC in early 2024. |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 72
The following table sets forth the value realized by our named executive officersNEOs from options to purchase common stock exercised by the named executive officersNEOs during
| Option Awards | Stock Awards | |||||||||||
| Name | Number of Shares Acquired on Exercise | Value Realized on Exercise | Number of Shares Acquired on Vesting | Value Realized on Vesting | ||||||||
| Jeffrey M. Leiden | — | $ | — | 64,500 | $ | 7,739,355 | ||||||
| Ian F. Smith | — | $ | — | 26,742 | $ | 3,290,219 | ||||||
| David Altshuler | 20,000 | $ | 1,229,700 | — | $ | — | ||||||
| Stuart A. Arbuckle | 94,211 | $ | 6,826,163 | 33,117 | $ | 3,771,436 | ||||||
| Jeffrey Chodakewitz | 17,188 | $ | 838,864 | 2,375 | $ | 268,565 | ||||||
| Name | Year | Salary | Annual Cash Bonus | All Other Compensation/Bonus | Value Realized from Vesting of Restricted Stock | Value Realized from Stock Options | Total Realized Compensation | ||||||||||||
| Jeffrey M. Leiden | 2015 | $ | 1,297,692 | $ | 3,463,200 | $ | 13,110 | $ | 7,739,355 | $ | — | $ | 12,513,357 | ||||||
| 2014 | $ | 1,100,000 | $ | 2,970,000 | $ | 12,857 | $ | 5,988,035 | $ | 18,793,100 | $ | 28,863,992 | |||||||
| 2013 | $ | 1,038,462 | $ | 2,772,000 | $ | 12,675 | $ | 4,289,766 | $ | — | $ | 8,112,903 | |||||||
| Ian F. Smith | 2015 | $ | 701,796 | $ | 832,500 | $ | 13,110 | $ | 3,290,219 | $ | — | $ | 4,837,625 | ||||||
| 2014 | $ | 650,000 | $ | 731,250 | $ | 12,857 | $ | — | $ | 7,598,771 | $ | 8,992,878 | |||||||
| 2013 | $ | 582,959 | $ | 682,500 | $ | 12,675 | $ | 393,878 | $ | 34,925,940 | $ | 36,597,952 | |||||||
| David Altshuler | 2015 | $ | 528,846 | $ | 552,628 | $ | 263,110 | $ | — | $ | 1,229,700 | $ | 2,574,284 | ||||||
| Stuart A. Arbuckle | 2015 | $ | 629,262 | $ | 721,500 | $ | 13,110 | $ | 3,771,436 | $ | 6,826,163 | $ | 11,961,471 | ||||||
| 2014 | $ | 600,000 | $ | 675,000 | $ | 12,857 | $ | 1,396,788 | $ | 2,935,124 | $ | 5,619,769 | |||||||
| 2013 | $ | 553,846 | $ | 630,000 | $ | 12,675 | $ | 1,338,439 | $ | — | $ | 2,534,960 | |||||||
| Jeffrey Chodakewitz | 2015 | $ | 615,231 | $ | 617,382 | $ | 15,254 | $ | 268,565 | $ | 838,864 | $ | 2,355,296 | ||||||
| 2014 | $ | 539,077 | $ | 630,000 | $ | 491,936 | $ | — | $ | 248,291 | $ | 1,909,304 | |||||||
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards (shares) | ||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Closing Price of Stock on Grant Date ($/Sh) | Grant-Date Fair Value of Stock and Option Awards ($) | |||||||||||||||||||||
| Jeffrey M. | $ | 0 | $ | 1,560,000 | $ | 3,510,000 | |||||||||||||||||||||||||||
| Leiden | 2/3/2015 | 64,500 | $ | 7,038,885 | |||||||||||||||||||||||||||||
| 2/3/2015 | 213,000 | $ | 109.14 | $ | 108.72 | $ | 10,133,326 | ||||||||||||||||||||||||||
| 7/21/2015 | 106,500 | $ | 131.89 | $ | 130.97 | $ | 6,153,613 | ||||||||||||||||||||||||||
| Ian F. | $ | 0 | $ | 375,000 | $ | 843,750 | |||||||||||||||||||||||||||
| Smith | 2/3/2015 | 20,700 | $ | 2,258,991 | |||||||||||||||||||||||||||||
| 2/3/2015 | 68,000 | $ | 109.14 | $ | 108.72 | $ | 3,235,052 | ||||||||||||||||||||||||||
| 7/21/2015 | 34,000 | $ | 131.89 | $ | 130.97 | $ | 1,964,534 | ||||||||||||||||||||||||||
| David | $ | 0 | $ | 275,000 | $ | 618,750 | |||||||||||||||||||||||||||
| Altshuler | 1/12/2015 | — | 75,000 | 75,000 | $ | 9,078,750 | |||||||||||||||||||||||||||
| 7/21/2015 | 34,000 | 131.89 | 130.97 | $ | 1,964,534 | ||||||||||||||||||||||||||||
| Stuart A. | $ | 0 | $ | 325,000 | $ | 731,250 | |||||||||||||||||||||||||||
| Arbuckle | 2/3/2015 | 20,700 | $ | 2,258,991 | |||||||||||||||||||||||||||||
| 2/3/2015 | 68,000 | $ | 109.14 | $ | 108.72 | $ | 3,235,052 | ||||||||||||||||||||||||||
| 7/21/2015 | 34,000 | $ | 131.89 | $ | 130.97 | $ | 1,964,534 | ||||||||||||||||||||||||||
| Jeffrey | $ | 0 | $ | 309,000 | $ | 695,250 | |||||||||||||||||||||||||||
| Chodakewitz | 2/3/2015 | 17,250 | $ | 1,882,493 | |||||||||||||||||||||||||||||
| 2/3/2015 | 57,500 | $ | 109.14 | $ | 108.72 | $ | 2,735,522 | ||||||||||||||||||||||||||
| 7/21/2015 | 34,000 | $ | 131.89 | $ | 130.97 | $ | 1,964,534 | ||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||
| Number of Shares | Value Realized on | Number of Shares | Value Realized on | |||||||||||||
| Name | Acquired on Exercise | Exercise | Acquired on Vesting | Vesting | ||||||||||||
| Reshma Kewalramani | — | $ | — | 19,477 | $ | 4,182,170 | ||||||||||
| Charles F. Wagner, Jr. | — | $ | — | 9,345 | $ | 2,009,284 | ||||||||||
| Stuart A. Arbuckle | 1,554 | $ | 197,693 | 28,854 | $ | 6,167,750 | ||||||||||
| Jeffrey M. Leiden | — | $ | — | 83,888 | $ | 17,907,751 | ||||||||||
| Nia Tatsis | — | $ | — | 11,151 | $ | 2,384,751 | ||||||||||
VERTEX PHARMACEUTICALS INCORPORATED
| Back to Contents |
| Option Awards | Stock Awards | ||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (shares) (1) | Number of Securities Underlying Unexercised Options Unexercisable (shares) (1) | Option Exercise Price (per share) | Option Expiration Date (2) | Number of Shares or Units of Stock That Have Not Vested (shares) | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (shares) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||
| Jeffrey M. Leiden | Restricted Stock | ||||||||||||||||||
| 19,667 | (3) | $ | 2,474,699 | ||||||||||||||||
| 64,500 | (4) | $ | 8,116,035 | ||||||||||||||||
| 125,000 | (5) | $ | 15,728,750 | ||||||||||||||||
| Stock Options | |||||||||||||||||||
| 213,108 | 0 | $29.98 | 12/13/2021 | ||||||||||||||||
| 30,000 | 0 | $34.05 | 7/5/2019 | ||||||||||||||||
| 20,000 | 0 | $34.24 | 5/31/2020 | ||||||||||||||||
| 1,527 | 0 | $34.39 | 12/14/2020 | ||||||||||||||||
| 121,687 | 55,313 | $45.11 | 2/4/2023 | ||||||||||||||||
| 95,875 | 22,125 | $48.74 | 7/24/2022 | ||||||||||||||||
| 22,500 | 0 | $53.85 | 5/31/2021 | ||||||||||||||||
| 93,187 | 119,813 | $77.31 | 2/4/2024 | ||||||||||||||||
| 59,906 | 46,594 | $83.36 | 7/29/2023 | ||||||||||||||||
| 33,281 | 73,219 | $96.87 | 7/14/2024 | ||||||||||||||||
| 39,937 | 173,063 | $109.14 | 2/2/2025 | ||||||||||||||||
| 6,656 | 99,844 | $131.89 | 7/20/2025 | ||||||||||||||||
| Ian F. Smith | Restricted Stock | ||||||||||||||||||
| 6,042 | (6) | $ | 760,265 | ||||||||||||||||
| 6,042 | (3) | $ | 760,265 | ||||||||||||||||
| 20,700 | (4) | $ | 2,604,681 | ||||||||||||||||
| 75,000 | (5) | $ | 9,437,250 | ||||||||||||||||
| Stock Options | |||||||||||||||||||
| 20,390 | 3,399 | $37.86 | 2/1/2022 | ||||||||||||||||
| 10,195 | 0 | $38.80 | 2/2/2021 | ||||||||||||||||
| 20,391 | 16,992 | $45.11 | 2/4/2023 | ||||||||||||||||
| 11,327 | 6,797 | $48.74 | 7/24/2022 | ||||||||||||||||
| 9,062 | 0 | $51.75 | 7/12/2021 | ||||||||||||||||
| 29,750 | 38,250 | $77.31 | 2/4/2024 | ||||||||||||||||
| 19,125 | 14,875 | $83.36 | 7/29/2023 | ||||||||||||||||
| 10,625 | 23,375 | $96.87 | 7/14/2024 | ||||||||||||||||
| 12,750 | 55,250 | $109.14 | 2/2/2025 | ||||||||||||||||
| 2,125 | 31,875 | $131.89 | 7/20/2025 | ||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable (shares) (1) | Number of Securities Underlying Unexercised Options Unexercisable (shares) (1) | Option Exercise Price (per share) | Option Expiration Date (2) | Number of Shares or Units of Stock That Have Not Vested (shares) | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (shares) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||
| David Altshuler | Restricted Stock | |||||||||||||||||
| 75,000 | (5) | $ | 9,437,250 | |||||||||||||||
| Stock Options | ||||||||||||||||||
| 3,750 | 3,750 | $63.14 | 5/23/2022 | |||||||||||||||
| 7,500 | 0 | $72.14 | 5/31/2024 | |||||||||||||||
| 20,000 | 0 | $81.54 | 5/31/2023 | |||||||||||||||
| 2,125 | 31,875 | $131.89 | 7/20/2025 | |||||||||||||||
| Stuart A. Arbuckle | Restricted Stock | |||||||||||||||||
| 2,416 | (7) | $ | 304,005 | |||||||||||||||
| 6,042 | (3) | $ | 760,265 | |||||||||||||||
| 20,700 | (4) | $ | 2,604,681 | |||||||||||||||
| 75,000 | (5) | $ | 9,437,250 | |||||||||||||||
| Stock Options | ||||||||||||||||||
| 0 | 28,320 | $45.11 | 2/4/2023 | |||||||||||||||
| 0 | 13,594 | $53.74 | 9/3/2022 | |||||||||||||||
| 0 | 38,250 | $77.31 | 2/4/2024 | |||||||||||||||
| 19,125 | 14,875 | $83.36 | 7/29/2023 | |||||||||||||||
| 10,625 | 23,375 | $96.87 | 7/14/2024 | |||||||||||||||
| 12,750 | 55,250 | $109.14 | 2/2/2025 | |||||||||||||||
| 2,125 | 31,875 | $131.89 | 7/20/2025 | |||||||||||||||
| Jeffrey Chodakewitz | Restricted Stock | |||||||||||||||||
| 7,125 | (8) | $ | 896,539 | |||||||||||||||
| 17,250 | (4) | $ | 2,170,568 | |||||||||||||||
| 75,000 | (5) | $ | 9,437,250 | |||||||||||||||
| Stock Options | ||||||||||||||||||
| 3,437 | 30,938 | $73.51 | 1/1/2024 | |||||||||||||||
| 5,156 | 18,907 | $96.87 | 7/14/2024 | |||||||||||||||
| 10,781 | 46,719 | $109.14 | 2/2/2025 | |||||||||||||||
| 2,125 | 31,875 | $131.89 | 7/20/2025 | |||||||||||||||
The amounts shown in the following table are calculated based on the amounts that would have been payable by us had the listed named executive officercurrent NEO experienced an employment termination on
| Voluntary Termination or Retirement/ Termination for Cause | Separate From a Change of Control, Involuntary Termination Other Than for Cause/ Termination by Executive for Good Reason | In Connection With a Change of Control, Involuntary Termination Other Than for Cause/ Termination by Executive for Good Reason | Disability | Death | ||||||||||||||||
| Reshma Kewalramani | ||||||||||||||||||||
| Cash Severance Benefits | $ | — | $ | 7,392,000 | $ | 10,266,960 | $ | 1,584,000 | $ | 1,584,000 | ||||||||||
| Continuation of Employee Benefits | — | 45,756 | 45,756 | — | — | |||||||||||||||
| Accelerated Vesting of Stock Options | — | 233,285 | 283,475 | 283,475 | 283,475 | |||||||||||||||
| Accelerated Vesting of Restricted Stock Units | — | 7,512,443 | 20,249,316 | 20,249,316 | 20,249,316 | |||||||||||||||
| TOTAL | $ | — | $ | 15,183,484 | $ | 30,845,507 | $ | 22,116,791 | $ | 22,116,791 | ||||||||||
| Charles F. Wagner, Jr. | ||||||||||||||||||||
| Cash Severance Benefits | $ | — | $ | 1,309,000 | $ | 1,848,000 | $ | — | $ | — | ||||||||||
| Continuation of Employee Benefits | — | 27,579 | 27,579 | — | — | |||||||||||||||
| Accelerated Vesting of Stock Options | — | — | 108,037 | 108,037 | 108,037 | |||||||||||||||
| Accelerated Vesting of Restricted Stock Units | — | — | 10,211,178 | 10,211,178 | 10,211,178 | |||||||||||||||
| TOTAL | $ | — | $ | 1,336,579 | $ | 12,194,794 | $ | 10,319,215 | $ | 10,319,215 | ||||||||||
| Stuart A. Arbuckle | ||||||||||||||||||||
| Cash Severance Benefits | $ | — | $ | 1,710,000 | $ | 2,520,000 | $ | — | $ | — | ||||||||||
| Continuation of Employee Benefits | — | 30,504 | 30,504 | — | — | |||||||||||||||
| Accelerated Vesting of Stock Options | — | — | 329,128 | 329,128 | 329,128 | |||||||||||||||
| Accelerated Vesting of Restricted Stock Units | — | — | 13,626,399 | 13,626,399 | 13,626,399 | |||||||||||||||
| TOTAL | $ | — | $ | 1,740,504 | $ | 16,506,031 | $ | 13,955,527 | $ | 13,955,527 | ||||||||||
| Jeffrey M. Leiden | ||||||||||||||||||||
| Cash Severance Benefits | $ | — | $ | 15,000,000 | $ | 15,000,000 | $ | 8,500,000 | $ | 8,500,000 | ||||||||||
| Continuation of Employee Benefits | — | 30,747 | 30,747 | — | — | |||||||||||||||
| Accelerated Vesting of Stock Options | — | — | — | — | — | |||||||||||||||
| Accelerated Vesting of Restricted Stock Units | — | — | — | — | — | |||||||||||||||
| TOTAL | $ | — | $ | 15,030,747 | $ | 15,030,747 | $ | 8,500,000 | $ | 8,500,000 | ||||||||||
| Nia Tatsis | ||||||||||||||||||||
| Cash Severance Benefits | $ | — | $ | 935,000 | $ | 1,320,000 | $ | — | $ | — | ||||||||||
| Continuation of Employee Benefits | — | 19,559 | 19,559 | — | — | |||||||||||||||
| Accelerated Vesting of Stock Options | — | — | 115,728 | 115,728 | 115,728 | |||||||||||||||
| Accelerated Vesting of Restricted Stock Units | — | — | 9,518,781 | 9,518,781 | 9,518,781 | |||||||||||||||
| TOTAL | $ | — | $ | 954,559 | $ | 10,974,068 | $ | 9,634,509 | $ | 9,634,509 | ||||||||||
VERTEX PHARMACEUTICALS INCORPORATED. - 2022 Proxy Statement 74
| Voluntary Termination or Retirement/Termination for Cause | Separate From a Change of Control Involuntary Termination Other Than for Cause/ Termination by Executive With Good Reason | In Connection With a Change of Control Involuntary Termination Other Than for Cause/ Termination by Executive for Good Reason | Disability | Death | |||||||||||
| Jeffrey M. Leiden | |||||||||||||||
| Cash Severance Benefits | $ | — | $ | 7,280,000 | $ | 10,111,400 | $ | 1,560,000 | $ | 1,560,000 | |||||
| Continuation of Employee Benefits | — | 27,553 | 35,504 | — | — | ||||||||||
| Accelerated Vesting of Stock Options | — | — | 18,971,499 | 10,651,733 | 18,971,499 | ||||||||||
| Continued Vesting of Stock Options | — | 12,898,752 | — | — | — | ||||||||||
| Accelerated Vesting of Restricted Stock | — | 2,474,699 | 26,319,484 | 6,961,748 | 26,319,484 | ||||||||||
| Total | $ | — | $ | 22,681,004 | $ | 55,437,887 | $ | 19,173,481 | $ | 46,850,983 | |||||
| Ian F. Smith | |||||||||||||||
| Cash Severance Benefits | $ | — | $ | 1,500,000 | $ | 1,500,000 | $ | 937,500 | $ | 937,500 | |||||
| Continuation of Employee Benefits | — | 18,369 | 18,369 | — | — | ||||||||||
| Accelerated Vesting of Stock Options | — | 4,768,173 | 6,281,279 | 3,636,003 | 6,281,279 | ||||||||||
| Accelerated Vesting of Restricted Stock | — | 8,123,554 | 13,562,461 | 7,020,374 | 13,562,461 | ||||||||||
| 280G Excise Tax | — | — | — | — | — | ||||||||||
| Total | $ | — | $ | 14,410,096 | $ | 21,362,109 | $ | 11,593,877 | $ | 20,781,240 | |||||
| David Altshuler | |||||||||||||||
| Cash Severance Benefits | $ | — | $ | 825,000 | $ | 1,100,000 | $ | — | $ | — | |||||
| Continuation of Employee Benefits | — | 23,669 | 23,669 | — | — | ||||||||||
| Accelerated Vesting of Stock Options | — | — | 235,088 | — | 235,088 | ||||||||||
| Accelerated Vesting of Restricted Stock | — | — | 9,437,250 | — | 9,437,250 | ||||||||||
| Total | — | 848,669 | 10,796,007 | — | 9,672,338 | ||||||||||
| Stuart A. Arbuckle | |||||||||||||||
| Cash Severance Benefits | $ | — | $ | 975,000 | $ | 1,300,000 | $ | — | $ | — | |||||
| Continuation of Employee Benefits | — | 23,669 | 23,669 | — | — | ||||||||||
| Accelerated Vesting of Stock Options | — | — | 7,352,676 | — | 7,352,676 | ||||||||||
| Accelerated Vesting of Restricted Stock | — | — | 13,106,201 | — | 13,106,201 | ||||||||||
| Total | $ | — | $ | 998,669 | $ | 21,782,546 | $ | — | $ | 20,458,877 | |||||
| Jeffrey Chodakewitz | |||||||||||||||
| Cash Severance Benefits | $ | — | $ | 927,000 | $ | 1,236,000 | $ | — | $ | — | |||||
| Continuation of Employee Benefits | — | 23,420 | 23,420 | — | — | ||||||||||
| Accelerated Vesting of Stock Options | — | — | 2,945,963 | — | 2,945,963 | ||||||||||
| Accelerated Vesting of Restricted Stock | — | 896,539 | 12,504,356 | — | 12,504,356 | ||||||||||
| Total | $ | — | $ | 1,846,959 | $ | 16,709,739 | $ | — | $ | 15,450,319 | |||||
The amounts in the table above do not include any life insurance payments or disability insurance payments that the executive or the executive’s estate may receive under existing insurance policies. The assumptions underlying the calculations in the table include:
| The value of each share subject to an option to purchase common stock that would be accelerated or continue to vest in the circumstances described below under Employment Contracts and Change of Control Arrangements equals $219.60 per share (the closing price on the last trading day of 2021), minus the exercise price per share. |
| The value of each share of restricted stock unit that would be accelerated or continue to vest, in each case in the circumstances described below, equals $219.60 per share (the closing price on the last trading day of 2021). The value of any PSUs that have not been certified as to the level of performance by the MDCC as of December 31, 2021 are reported above assuming target performance (100%). |
| Appropriate provision for the continuation of all then-outstanding options would be made in connection with a change of control. |
| Our board of directors would elect not to pay a pro rata portion of an executive’s target bonus for the year of termination in cases where the executive’s employment is terminated voluntarily by the executive (for any reason, including retirement) or for cause, under our policy that cash bonuses are payable only to employees who are otherwise eligible and who remain employed by us on the date of bonus payment, typically in February of the next year. |
| Our board of directors would have assigned the same 2021 individual and company performance ratings on December 31, 2021 as they assigned in the first quarter of 2022. |
| PSUs granted to Dr. Leiden while in his role as CEO, as well as his current role as Executive Chairman, are not subject to service-based vesting conditions and will remain eligible to vest following certification of the corresponding performance criteria. |
| No NEO who has met the age and service requirements for retirement has provided the required notice for a termination of employment to qualify as a retirement as of December 31, 2021. |
The actual amounts that the named executive officerscurrent NEOs could receive in the future as a result of a termination of employment would likely differ materially from the amounts set forth above as a result of, among other things, changes in our stock price, changes in theirthe officers’ base salary, target bonus amounts and actual bonus amounts, and the vesting and grants of additional equity awards.
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 75
Executive Severance Arrangements
We have entered into agreements and maintain plans that will require us to provide to our named executive officersNEOs cash compensation, benefits, and/or acceleration of the vesting of equity awards in the event of termination of employment or service as a director under specified circumstances. The following summary descriptions of such agreements with our named executive officers are qualified by the complete terms and conditions set forth in each of the agreements. In addition to the agreements described below, outstanding options granted under our stock and option plans provide that, in the event of certain changes of control, either appropriate provision for the continuation of all then-outstanding options must be made, or the vesting of those options will be accelerated and they will become fully exercisable immediately prior to such change of control. As described below, the benefits that are to be provided in connection with a change of control are subject to a “double trigger.” A change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the executive is terminated by us other than for cause, death or disability or by the executive for good reason during a specified period before or after a change of control.
In addition to the benefits described below, under programs applicable to all employees, if a named executive officerNEO dies while an employee, his or her estate and/or beneficiaries would receive full acceleration of all outstanding stock optionsequity awards, and restricted stock awards.
Agreements with Reshma Kewalramani
Dr. Leiden’s employment are governed by aKewalramani’s written employment contract, which was entered into on December 14, 2011, as amended on December 10, 2014, and expires on December 31, 2017, provided that, if Dr. Leiden’s employment with us extends beyond the contract expiration date, certain provisions providing for severance benefits upon a “not-for-cause” employment termination by the company survive the contract expiration. Dr. Leiden’s employment agreement provides that heshe is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Dr. LeidenKewalramani has agreed not to engage in specified competitive activities for 1812 months after hisher employment with us terminates.
Under our arrangements with Dr. Leiden’sKewalramani, if (i) Dr. Kewalramani’s employment is terminated by us without cause or he(ii) she terminates hisher employment for good reason, heshe would be entitled to receive:
| Severance Payment: | A) | 200% of the sum of |
B) | Any annual bonus for the year prior to the year in which the termination occurs, if not yet paid C)A pro-rated bonus for the year in which the termination occurs based on | |
| Outstanding options and restricted stock units unvested on the termination date would receive partial vesting based on the portion of | ||
| Employee Benefits: | Continuation of certain employee benefits for up to 18 months | |
If (i) Dr. Leiden’sKewalramani’s employment is terminated by us without cause or he(ii) she terminates hisher employment for good reason, in each case, within two years90 days prior to or 12 months after a change of control of Vertex, hethe company, she would instead be entitled to receive:
| Severance Payment: | A) | 299% of the sum of |
B) | A pro-rated bonus for the year in which the termination occurs C) All cash incentive awards earned by Dr. Kewalramani, if not yet paid | |
| Full vesting of all outstanding options | ||
| Employee Benefits: | Continuation of certain employee benefits for up to 18 months | |
Severance payments to Dr. LeidenKewalramani in connection with a change of control may be reduced to increase their value to Dr. LeidenKewalramani if such payments would be subject to an excise tax under Section 4999 of the Code.
If Dr. Kewalramani’s employment is terminated as a result of death or disability, she would be entitled to receive:
| a pro-rated bonus for the year of employment termination; | |
| for equity awards not covered by the company-wide equity program described above, vesting of any options then unvested at the time of termination. |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 76
Agreement with Jeffrey Leiden
Dr. Leiden’s amended employment agreement has a four-year term that commenced on April 1, 2020 and provides for (i) annual equity grants over the four-year term, and (ii) eligibility to receive the other benefits generally made available to our executives. In February 2022, Dr Leiden’s employment agreement was amended to provide for an annual payment of $65,000 in each of February 2022, 2023, and 2024 to facilitate his participation in the company’s benefit plans. In addition, Dr. Leiden has agreed not to engage in specified competitive activities for 18 months after his employment with us terminates.
If (a) Dr. Leiden’s employment agreement does not provide for a so-called Section 4999 excise tax “gross-up.”
If Dr. Leiden’s employment is terminated as a result of death or disability, he would be entitled to receive:
Consistent with a program applicable to all our employees, in March 2020, when he completed his service to us as CEO and
Agreements with Mr. Arbuckle, Ms. Tatsis, and Dr. Leiden shall comply with any such request. If Dr. Leiden is not renominated, or resigns at our request between January 1, 2018 and December 31, 2018, his service will be deemed to continue through December 31, 2018 for the purposes of vesting
Employment Agreements
The terms and conditions of Mr. Smith’sArbuckle’s, Ms. Tatsis’ and Mr. Wagner’s employment are governed by a written employment contract, which wascontracts that were entered into in 2001, amended and restated in 2004 and amended in 2008. Mr. Smith’sat the time the respective officers joined our company. Each of these officer’s employment agreement provides that he or she is entitled to receive compensation as determined by our board of directors and is eligible to receive the benefits generally made available to our executives. In addition, Mr. Smitheach officer has agreed not to engage in specified competitive activities for a period of one year after the termination of his or her employment with us.
Under each employment agreement, (i) if the officer’s employment is terminated without cause or if he(ii) the officer terminates his or her employment with us of his own initiative for good reason within 30 days of the event giving rise to his or we do not renew his agreement, other than in connection with a change of control as described below,her right to terminate for good reason, subject to notice and cure provisions, he or she would be entitled to receive:
| Severance Payment: | The sum of his or her (i) base salary at the time of termination and (ii) target bonus for the year in which his | |
| Employee Benefits: | Continuation of certain employee benefits for up to 12 months |
Change of Control Agreement
We have a change of control agreement with Dr. Altshuler, whicheach of Mr. Arbuckle, Ms. Tatsis and Mr. Wagner that was entered into in December 2014.at the time the respective officer joined our company. Under this agreement and the executive’s equity agreements, if we terminate Dr. Altshuler’sthe employment of the officer without cause on a date within the 90 days prior to or the 12 months after a change of control or heany of these individuals terminates his or her employment within 30 days of an event giving rise to a right to terminate for good reason, subject to notice and cure provisions, and the event occurs on a date within the 90 days prior to or the 12 months after a change of control, he or she would be entitled to receive:
| Severance Payment: | A) | The sum of his or her (i) base salary at the time of termination and (ii) target bonus for the year in which his or her employment is terminated |
B) | A pro rata portion of his or her target bonus for the year in which the termination occurs | |
| Full vesting of all outstanding options | ||
| Employee Benefits: | Continuation of certain employee benefits for up to 12 months | |
Severance payments to Dr. Altshulerthe officer in connection with a change of control may be reduced to increase their value to Dr. Altshulerthe applicable officer if such payments would be subject to an excise tax under Section 4999 of the Code. Dr. Altshuler’s agreements do not provide for a so-called Section 4999 excise tax “gross-up.”
Notice of Annual Meeting of Shareholders VERTEX PHARMACEUTICALS INCORPORATEDand 2016 - 2022 Proxy Statement | 80
CEO Pay Ratio
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC requires annual disclosure of the ratio of the annual total compensation of our CEO to that of our median employee. Based on these requirements, the median employee may be identified once every three years if there is no significant impact to the pay ratio disclosure during the fiscal year.
We have determined that the pay ratio calculated using the same median employee identified in 2020 (the “Median Employee”) best represents the ratio in effect for our 2021 fiscal year. We believe there has been no significant change during 2021 to our employee population or employee compensation arrangements that would significantly affect the pay ratio disclosure. In 2021, the Median Employee’s compensation included recognition awards consistent with awards made to similar employees; however, there were no changes to the Median Employee’s compensation arrangements that would significantly affect the pay ratio disclosure.
In 2020, we identified the Median Employee using target total annual compensation. Our measure of compensation for identifying the median employee was consistently applied to all employees (converting all non-USD currencies into USD based on 12-month foreign exchange rates for the 12-month period ending October 1, 2020) and includes:
| Base salary | |
| ||
| Target long-term equity awards | |
The methodology included all 3,388 company employees as of October 1, 2020, and included employees in 21 countries.
We calculated the median employee’s annual total compensation using the same methodology used to calculate Dr. Kewalramani’s annual total compensation for the Summary Compensation Table. In 2021, the total annual compensation for the Median Employee equaled $234,107.
In 2021, Dr. Kewalramani’s total annual compensation was $15,198,856. The ratio of total annual compensation for Dr. Kewalramani to our median employee’s total annual compensation was 65:1.
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 78
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| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options | Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in first column) | ||
| Equity Compensation Plans Approved by Shareholders (1) | 11,145,334 | $75.99 | 15,288,603 | ||
| Equity Compensation Plans Not Approved by Shareholders | — | — | — | ||
| Total | 11,145,334 | 15,288,603 | |||
The following table sets forth information regarding beneficial ownership of our common stock as of
| Name and Address | Shares Beneficially Owned (1) | Percentage of Total (2) | ||
| T. Rowe Price Associates, Inc. (3) | 25,345,121 | 10.2 | % | |
| 100 E. Pratt Street | ||||
| Baltimore, Maryland 21202 | ||||
| Capital World Investors (4) | 20,737,911 | 8.4 | % | |
| 333 South Hope Street | ||||
| Los Angeles, California 90071 | ||||
| BlackRock, Inc. (5) | 18,229,864 | 7.4 | % | |
| 55 East 52nd Street | ||||
| New York, New York 10055 | ||||
| FMR LLC (6) | 15,009,184 | 6.1 | % | |
| 245 Summer Street | ||||
| Boston, Massachusetts 02210 | ||||
| Wellington Management Group LLP (7) | 14,863,986 | 6.0 | % | |
| 280 Congress Street | ||||
| Boston, Massachusetts 02210 | ||||
| The Vanguard Group (8) | 14,503,469 | 5.9 | % | |
| 100 Vanguard Blvd. | ||||
| Malvern, Pennsylvania 19355 | ||||
| JPMorgan Chase & Co. (9) | 12,630,441 | 5.1 | % | |
| 270 Park Ave. | ||||
| New York, New York 10017 | ||||
| Sangeeta N. Bhatia (10) | 7,500 | * | ||
| Joshua Boger (10) | 1,374,970 | * | ||
| Terrence C. Kearney (10) | 61,875 | * | ||
| Yuchun Lee (10) | 82,500 | * | ||
| Jeffrey M. Leiden (10) | 1,326,254 | * | ||
| Margaret G. McGlynn (10) | 81,088 | * | ||
| Bruce I. Sachs (10) | 141,699 | * | ||
| Elaine S. Ullian (10) | 72,765 | * | ||
| William D. Young (10) | 55,000 | * | ||
| Ian F. Smith (10) | 406,377 | * | ||
| David Altshuler (10) | 207,586 | * | ||
| Stuart A. Arbuckle (10) | 310,897 | * | ||
| Jeffrey Chodakewitz (10) | 254,647 | * | ||
| All directors and executive officers as a group (16 persons) (10) | 4,797,821 | 1.9 | % | |
| each shareholder known by us to be the beneficial owner of more than 5% of our common stock on that date; | |
| each of our directors and our director nominee; | |
| each NEO; and | |
| all directors and executive officers as a group. |
| Name and Address | Shares Beneficially Owned(1) | Percentage of Total(2) | |
| BlackRock, Inc.(3) | 23,944,931 | 9.4% | |
| 55 East 52nd Street | |||
| New York, New York 10055 | |||
| The Vanguard Group(4) | 20,155,842 | 7.9% | |
| 100 Vanguard Blvd. | |||
| Malvern, Pennsylvania 19355 | |||
| Sangeeta N. Bhatia(5) | 9,036 | * | |
| Lloyd Carney(5) | 5,401 | * | |
| Alan Garber(5) | 26,100 | * | |
| Terrence C. Kearney(5) | 44,929 | * | |
| Reshma Kewalramani(5) | 60,763 | * | |
| Yuchun Lee(5) | 96,526 | * | |
| Jeffrey M. Leiden(5) | 287,805 | * | |
| Margaret G. McGlynn(5) | 48,341 | * | |
| Diana McKenzie(5) | 4,278 | * | |
| Bruce I. Sachs(5) | 132,732 | * | |
| Suketu Upadhyay(5) | — | * | |
| Stuart A. Arbuckle(5) | 44,794 | * | |
| Nia Tatsis(5) | 21,682 | * | |
| Charles F. Wagner, Jr.(5) | 20,702 | * | |
| All directors and executive officers as a group (18 persons)(5) | 955,927 | 0.4% |
| * | Less than 1% | |
| (1) | Beneficial ownership of shares for purposes of this proxy statement is determined in accordance with applicable SEC rules and includes shares of common stock as to which a person has or shares voting power and/or investment power, including dispositive power. The persons and entities named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them, except as noted below. Information with respect to persons other than directors and executive officers is based solely upon Schedules 13G and amendments thereto filed with the SEC in the first quarter of |
| (2) | Percentage ownership is based on |
| March 24, 2022. |
| (3) | Reflects |
| (4) |
VERTEX PHARMACEUTICALS INCORPORATED - 2022 Proxy Statement 79
| Includes shares that may be acquired upon the exercise of options exercisable within 60 days after |
| Stock Options Exercisable Within 60 Days of April 20, 2016 | Unvested Shares of Restricted Stock as of April 20, 2016 | Deferred Stock Units as of April 20, 2016 | ||||
| Sangeeta N. Bhatia | 7,500 | — | — | |||
| Joshua Boger | 973,700 | — | — | |||
| Terrence C. Kearney | 60,375 | — | — | |||
| Yuchun Lee | 81,459 | — | — | |||
| Jeffrey M. Leiden | 874,429 | 189,500 | — | |||
| Margaret G. McGlynn | 80,000 | — | — | |||
| Bruce I. Sachs | 120,000 | — | 489 | |||
| Elaine S. Ullian | 67,500 | — | — | |||
| William D. Young | 55,000 | — | — | |||
| Ian F. Smith | 192,372 | 95,700 | — | |||
| David Altshuler | 43,170 | 75,000 | — | |||
| Stuart A. Arbuckle | 96,920 | 98,116 | — | |||
| Jeffrey Chodakewitz | 45,044 | 97,000 | — | |||
| All directors and executive officers as a group (16 persons) | 2,920,435 | 643,116 | 489 | |||
| Stock Options Exercisable Within 60 Days of March 24, 2022 | Unvested Restricted Stock Units Vesting Within 60 Days of March 24, 2022 | Deferred Stock Units as of March 24, 2022 | ||||
| Sangeeta N. Bhatia | 3,845 | 1,842 | — | |||
| Lloyd Carney | — | 1,842 | — | |||
| Alan Garber | 20,210 | — | — | |||
| Terrence C. Kearney | 39,118 | — | — | |||
| Reshma Kewalramani | 14,007 | — | — | |||
| Yuchun Lee | 92,850 | — | 1,801 | |||
| Jeffrey M. Leiden | 197,416 | — | — | |||
| Margaret G. McGlynn | 42,554 | — | 5,609 | |||
| Diana McKenzie | — | — | 2,636 | |||
| Bruce I. Sachs | 77,850 | — | 13,672 | |||
| Suketu “Suky” Upadhyay | — | — | — | |||
| Stuart A. Arbuckle | 21,074 | — | — | |||
| Nia Tatsis | 7,323 | — | — | |||
| Charles F. Wagner, Jr. | 7,149 | 1,233 | — | |||
| All directors and executive officers as a group (18 persons) | 609,765 | 9,673 | 23,718 |
Delinquent Section 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, officers and persons who are beneficial owners of more than 10% of our common stock to file with the SEC reports of their ownership of our securities and of changes in that ownership. To our knowledge, based upon a review of copies of reports filed with the SEC with respect to the fiscal year ended
VERTEX PHARMACEUTICALS INCORPORATED
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The
In order to be considered for inclusion in the proxy statement for our
If a shareholder wishes to nominate a candidate for election to our board of directors at the
| the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; | |
| a representation that the shareholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; | |
| a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; | |
| the other information regarding each nominee proposed by the shareholder that would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC; and | |
| the consent of each nominee to serve on our board of directors if so elected. |
If a shareholder wishes to nominate a candidate for election to our board of directors at the 20172023 annual meeting of shareholders, and is eligible and elects to have such candidate included in the proxy statement for our 20172023 annual meeting of shareholders pursuant to our proxy access by-law, such nomination maymust be submitted to our corporate secretary no later than MarchFebruary 17, 20172023 and must include, in addition to the information set forth for above for other shareholder nominees, the information set forth in Section 8(e) of Article II of our by-laws.
Generally, shareholders who have questions or concerns should contact our investor relations department at (617) 341-6100. However, any shareholder who wishes to address questions regarding our business directly with our board of directors, or any individual director,director(s), should direct his or her questions, in writing, in care of our corporate secretary, to our offices at 50 Northern Avenue, Boston, Massachusetts 02210. Under procedures approved by our board, including a majority of our independent directors, all substantive communications shall be reviewed by our corporate secretary and forwarded or reported to the chair of the corporate governance and nominating committee,CGNC, the independent directors and/or our full board, as deemed appropriate, with the exception of those communications relating to ordinary or routine business affairs, personal grievances, or matters as to which we tend to receive repetitive or duplicative communications.
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| Back to Contents |
Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports.materials. This means that only one copy of our Notice of Internet Availability of Proxy Materials or proxy statement and annual report may have been sent to multiple shareholders in your household. We will promptly deliver a separate copy of these documents to you if you write or call our corporate secretary at the following address or phone number: 50 Northern Avenue, Boston, Massachusetts 02210, telephone (617) 341-6100. If you want to receive separate copies of the annual report and proxy statementmaterials in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker, or other nominee
We will bear the cost of soliciting proxies, including expenses in connection with preparing and mailing this proxy statement.statement and hosting the virtual annual meeting. We have retained MacKenzie Partners, Inc.Morrow Sodali to assist in the solicitation of proxies at an estimated cost of approximately $20,000. Proxies also may be solicited by our directors and employees by mail, by telephone, in person or otherwise. EmployeesNeither directors nor employees will not receive additional compensation for solicitation efforts. In addition, we will request banks, brokers and other custodians, nominees and fiduciaries to forward proxy material to the beneficial owners of common stock and to obtain voting instructions from the beneficial owners. We will reimburse those firms for their reasonable expenses in forwarding proxy materials and obtaining voting instructions.
This proxy statement contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including, without limitation, statements regarding our medicines, statements with respect to potential regulatory approval of our drugproducts and product candidates, and expected clinical development plans and timing, as well as statements with respect to Vertex'sVertex’s potential future financial performance.performance and our beliefs regarding the number of people with CF and those potentially eligible for our medicines. While we believe the forward-looking statements contained in this proxy statement are accurate, these forward-looking statements represent the our beliefs only as of the date of this proxy statement and there are a number of factorsrisks and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, includingstatements. Those risks and uncertainties include, among other things, that the company’s expectations regarding its future financial performance may be incorrect (including because one or more of the company’s assumptions underlying its expectations may not be realized), that data from preclinical testing or clinical trials, especially if based on a limited number of patients, may not be indicative of final results, that regulatory authorities may not approve regulatory filings for our pipeline products on a timely basis, or at all, that data from the company’s developmental programs may not support registration or further development programs may not support registration or further development of its potential medicines in a timely manner, or at all, due to safety, efficacy or other reasons, and other risks listed under Risk Factorsthe heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
Website references are provided throughout this document for convenience. The content on the referenced website does not constitute part of and is not incorporated by reference into this proxy statement.
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What is the Purpose of the Annual Meeting?
At the annual meeting, shareholders will act upon the matters outlined in the Notice of Annual Meeting of Shareholders. These include:
| The election of directors; | |
| The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm; | |
| An advisory vote on our 2021 named executive officer compensation; and | |
| The approval of an amendment and restatement of our 2013 Stock and Option Plan to increase the number of shares authorized for issuance under this plan by 13.5 million shares. |
Management, members of our board and representatives of Ernst & Young LLP are expected to attend the annual meeting and be available to respond to appropriate questions from shareholders.
What is a Proxy?
It is your legal designation of another person to vote the stock you own in the manner you direct. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. The board of directors has designated Jeffrey Leiden, Reshma Kewalramani, Joy Liu, and Sabrina Yohai to serve as proxies at the annual meeting.
What is a Proxy Statement?
It is a document that provides certain information about a company and matters to be voted upon at a meeting of shareholders. The rules of the SEC and other applicable laws require us to give you, as a shareholder, the information in this proxy statement and our Annual Report when we are soliciting your vote.
Why did I receive a “Notice of Internet Availability of Proxy Materials” but no proxy materials?
We are distributing our proxy materials to shareholders via the Internet under the “Notice and Access” approach permitted by rules of the SEC. This approach provides a timely and convenient method of accessing the materials and voting. On or about April 7, 2022, we will begin mailing a “Notice of Internet Availability of Proxy Materials” to shareholders. This notice includes instructions on how to access our notice of annual meeting of shareholders, this proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2021 and how to vote your shares. The Notice of Internet Availability of Proxy Materials also contains instructions on how to receive a paper copy of the proxy materials and our Annual Report, if you prefer.
What is the Difference between a Shareholder of Record and a Shareholder Who Holds Stock in Street Name?
Shareholders
of Record. If your shares are registered in your name with our transfer agent, Computershare, you are a shareholder of record with respect to those shares, andStreet Name Holders. If you hold your shares in an account at a bank, broker or other nominee, then you are the beneficial owner of shares held in “street name.” The Notice of Internet Availability of Proxy Materials was forwarded to you by your bank, broker or other nominee. As a beneficial owner, you have the right to direct your bank or broker how to vote the shares held in your account.
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How May I Attend the Annual Meeting?
In light of continued concerns related to the COVID-19 pandemic, we will hold a virtual annual meeting this year. The virtual meeting will facilitate shareholder attendance and participation by enabling all shareholders to attend and participate in the annual meeting from any location and at no cost. Visit https://meetnow.global/MYNFZZ5 to attend and submit questions during the meeting. No physical meeting will be held this year.
To attend the virtual meeting, shareholders of record will not need to register in advance but will need the control number included on their Notice of Internet Availability of Proxy Materials or proxy card, or within the body of the email sending the proxy statement. Shareholders whose shares are held in street name may attend the annual meeting by registering and obtaining a control number in advance using the instructions below under the heading “How do I Register to Attend the Virtual Annual Meeting on the Internet.” The control number will be required to attend and participate in the virtual annual meeting, including voting your shares electronically and submitting questions. The meeting webcast will begin promptly at 9:30 a.m. (Eastern Time). We encourage you to access the meeting prior to the start time. You should allow for ample time for the check-in procedures.
If you would like to submit a question related to the business of the meeting, you may do so during the meeting by logging into the virtual annual meeting website and entering the control number included on your Notice of Internet Availability of Proxy Materials, proxy card, voting instruction form or electronic notification when prompted. We will respond to these questions during the meeting.
How do I Register to Attend the Virtual Annual Meeting on the Internet?
If you are a registered shareholder (i.e., you hold your shares through our transfer agent, Computershare), you do not need to register in advance to attend the virtual annual meeting on the Internet. Please follow the instructions on the Notice of Internet Availability of Proxy Materials or the proxy card that you received.
If you hold your shares in street name through an intermediary, such as a bank or broker, you must register and obtain a control number in advance to attend the virtual annual meeting on the Internet.
To register to attend the virtual annual meeting you will need to obtain a legal proxy from your bank, broker or other nominee. Once you have received a legal proxy from them, you must send an email attaching an image of your legal proxy from your bank, broker or other nominee to legalproxy@computershare.com, along with your name and email address. Alternatively, you may mail your legal proxy to the following address: Computershare, Vertex Pharmaceuticals Incorporated Legal Proxy, P.O. Box 43001, Providence, RI 02940-3001. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m., Eastern Time, on May 13, 2022. After Computershare receives your registration materials, you will receive an email from Computershare confirming your registration and providing your control number which will allow you to fully participate in the virtual annual meeting.
What if I have Trouble Accessing the Virtual Annual Meeting?
The virtual meeting platform is fully supported across browsers (MS Edge, Firefox, Chrome and Safari) and devices (desktops, laptops, tablets and cell phones) running the most up-to-date version of applicable software and plugins. Please note that Internet Explorer is not a supported browser. You should ensure that you have a strong WiFi connection wherever you intend to participate in the meeting. We encourage you to access the meeting prior to the start time. For further assistance should you need it you may call 1-888-724-2416.
How Many Shares Must be Represented in Order to Hold the Annual Meeting?
In order for us to conduct the annual meeting, holders of a majority of the shares entitled to vote as of the close of business on the record date must be present in person or by proxy. This constitutes a quorum. Shares present virtually during the annual meeting will be considered shares of common stock represented in person at the meeting. If you are a shareholder of record, your shares are counted as present if you properly vote by Internet, telephone, return a proxy card by mail or if you attend the annual meeting online. If you are the beneficial owner of shares held in street name, you must follow the instructions of your bank or broker in order to direct them how to vote the shares held in your account or obtain a legal proxy to vote online at the annual meeting. Abstentions and broker non-votes will be counted as present for purposes of establishing a quorum. If a quorum is not present, we will adjourn the annual meeting until a quorum is obtained.
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How Can I Vote My Shares?
If you are a shareholder of record, you may vote your shares by one of the following methods:
| 1. | Vote by Internet by going to the web address www.envisionreports.com/VRTX before the annual meeting and following the instructions for Internet voting on the Notice of Internet Availability or proxy card. Have the Notice of Internet Availability of Proxy Materials, which contains your control number, available when voting by Internet. |
| 2. | Vote by proxy card, if you have received written proxy materials, by completing, signing, dating, and mailing your proxy card in the envelope provided. If you vote by Internet, please do not mail your proxy card. |
| 3. | Vote by telephone by following the instructions on the Notice of Internet Availability of Proxy Materials or proxy card. |
| 4. | By attending the annual meeting online. During the annual meeting, you may vote online by following the instructions at https://meetnow.global/MYNFZZ5. Have the Notice of Internet Availability of Proxy Materials, which contains your control number, available when you access the virtual meeting webpage. |
If you are a street name holder, your bank, broker or other nominee will provide you with a form seeking instruction on how your shares should be voted.
What is the Record Date and What Does it Mean?
The record date for the annual meeting is March 24, 2022 and was established by our board of directors. On the record date, there were 255,533,949 shares of our common stock outstanding, each of which is entitled to one vote on each matter properly brought before the annual meeting. Owners of record of common stock at the close of business on the record date are entitled to:
| receive notice of the annual meeting; and | |
| vote at the annual meeting and any adjournment or postponement of the annual meeting. |
If I Submit a Proxy, May I Later Revoke it and/or Change my Vote?
Shareholders may revoke a proxy and/or change their vote prior to the completion of voting at the annual meeting by:
| subsequently submitting a vote by Internet at www.envisionreports.com/VRTX or by telephone by following the directions on the Notice of Internet Availability of Proxy Materials, voting instruction form or your proxy card; | |
| signing another proxy card with a later date and delivering it to our corporate secretary at 50 Northern Avenue, Boston, Massachusetts 02210, before the annual meeting; or | |
| voting at the annual meeting online, if you are a shareholder of record or hold your shares in street name and have obtained a legal proxy from your bank or broker. |
What if I do not Specify a Choice for a Matter when Returning a Proxy?
Shareholders should specify their choice for each matter following the directions described on their Notice of Internet Availability of Proxy Materials or proxy card. If no specific instructions are given, proxies that are signed and returned will be voted:
| FOR the election of each director nominee; | |
| FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2022; | |
| FOR our 2021 named executive officer compensation; | |
| FOR the approval of an amendment and restatement of our 2013 Stock and Option Plan to increase the number of shares authorized for issuance under this plan by 13.5 million shares. |
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Are My Shares Voted if I Do Not Provide a Proxy?
If you are a shareholder of record and do not provide a proxy, you must attend the annual meeting in order to vote. If you hold shares through an account with a bank or broker, your shares may be voted by the bank or broker on certain matters if you do not provide voting instructions. Banks and brokers have the authority under applicable rules to vote shares on routine matters for which their customers do not provide voting instructions. The ratification of Ernst & Young LLP as our independent registered public accounting firm is considered a routine matter. Each of the other proposals, including the election of directors, the advisory vote with respect to our executive compensation program, and the approval of an amendment and restatement of our 2013 Stock and Option plan are considered not routine, and banks and brokers cannot vote shares without instruction on those matters. Shares that banks and brokers are not authorized to vote on those matters are counted as “broker non-votes” and will have no effect on the results of those votes.
What Vote is Required to Approve Each Proposal and How are Votes Counted?
Proposal No. 1: Election of Directors
To be elected, the number of votes cast “FOR” each director nominee must exceed the number of votes cast “AGAINST” that nominee. Abstentions will have no effect on the results of this vote. Our Corporate Governance Principles contain procedures to be followed in the event that one or more directors do not receive a majority of the votes cast “FOR” his or her election.
Proposal No. 2: Ratification of the Appointment of Independent Registered Public Accounting Firm
To be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Proposal No. 3: Advisory Vote to Approve Named Executive Officer Compensation
To be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Proposal No. 4: Approval of an Amendment and Restatement of our 2013 Stock and Option Plan
To be approved, this proposal must receive an affirmative vote from shareholders present in person or represented by proxy at the annual meeting representing a majority of the votes cast on the proposal. Abstentions will have no effect on the results of this vote.
Where Can I Find More Information About My Voting Rights as a Shareholder?
The SEC has an informational website that provides shareholders with general information about how to cast their vote and why voting should be an important consideration for shareholders. You may access that website at sec.gov/spotlight/proxymatters.shtml.
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| 1. | Definitions |
Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Vertex Pharmaceuticals Incorporated Amended and Restated 2013 Stock and Option Plan, have the following meanings:
Accounting Rules means Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision.
Administrator means the Board of Directors and/or a committee of the Board of Directors to which the Board of Directors has delegated power to act on its behalf in administering this Plan in whole or in part.
Affiliate means a corporation that, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as amended.
Common Stock means shares of the Company’s common stock, $.01 par value.
Company means Vertex Pharmaceuticals Incorporated, a Massachusetts corporation.
Disability means a disability entitling the Participant to benefits under the Company’s long-term disability program, as in effect from time to time. With regard to any payment considered to be nonqualified deferred compensation under Section 409A of the Code, to the extent applicable, that is payable upon a Termination of Service due to Disability, to avoid the imposition of an additional tax, interest or penalty under Section 409A of the Code, no amount will be payable unless such Disability constitutes a disability or becoming disabled within the meaning of Section 1.409A-3(i)(4) of the Treasury Regulations.
Employee means an employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), who is designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value of a share of Common Stock on a particular date shall be the mean between the highest and lowest quoted selling prices on such date (the “valuation date”) on the securities market where the Common Stock is traded, or if there were no sales on the valuation date, on the next preceding date within a reasonable period (as determined in the sole discretion of the Administrator) on which there were sales. If there were no sales in such a market within a reasonable period, the Fair Market Value shall be as determined in good faith by the Administrator in its sole discretion. The Fair Market Value as determined in this paragraph shall be rounded down to the next lower whole cent if the foregoing calculation results in fractional cents.
Full Value Award means any Stock Grant or Stock-Based Award other than Options and Stock Appreciation Rights.
ISO means an option entitling the holder to acquire Shares upon payment of the exercise price that is intended to qualify as an incentive stock option under Section 422 of the Code.
Non-Employee Director means a member of the Board of Directors who is not an employee of the Company or any Affiliate.
Non-Qualified Option means an option entitling the holder to acquire Shares upon payment of the exercise price that is not an ISO.
Option means an ISO or Non-Qualified Option.
Participant means an Employee, Non-Employee Director, consultant or advisor of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” and a Participant’s permitted transferees where the context requires.
Participant’s Survivors means a deceased Participant’s legal representatives and/or any person or persons who acquires the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.
Plan means this Vertex Pharmaceuticals Incorporated Amended and Restated 2013 Stock and Option Plan, as amended from time to time.
Restricted Stock Units means an unfunded and unsecured promise, denominated in shares of Common Stock, to deliver Common Stock or cash measured by the value of Common Stock in the future, subject to the satisfaction of specified performance or other vesting conditions.
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Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of the Plan.
Stock Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan with respect to a Stock Right, in such form as the Administrator shall approve.
Stock Appreciation Right means a right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Common Stock of equivalent value) equal to the excess of the Fair Market Value of the shares of Common Stock subject to the right over the base value (i.e., the exercise price) from which appreciation under the Stock Appreciation Right is to be measured.
Stock-Based Award means Restricted Stock Units, Stock Appreciation Rights or any other grant by the Company under the Plan of an equity award, equity-based award or other award that is convertible into Common Stock that is not an Option or Stock Grant.
Stock Grant means a grant by the Company of Shares under the Plan that may or may not be subject to restrictions requiring that the Shares underlying the Stock Grant be redelivered or offered for sale to the Company if specified service or performance-based conditions are not satisfied.
Stock Right means an Option (including an ISO or a Non-Qualified Stock Option), Stock Grant, or Stock-Based Award.
Substitute Stock Rights means Stock Rights issued under the Plan in substitution for equity awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition.
Termination of Service means that a Participant ceases to be an Employee, Non-Employee Director, consultant or advisor with the Company and its Affiliates (for any reason other than death). A change in a Participant’s form of service (e.g., from Employee to Non-Employee Director, consultant or advisor) shall not be a Termination of Service hereunder. Notwithstanding the foregoing, in construing the provisions applicable to any Stock Right relating to the payment of “nonqualified deferred compensation” (subject to Section 409A of the Code) upon a termination or cessation of employment or service, references to termination or cessation of employment or service, separation from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as that term is defined in Section 1.409A-1(h) of the Treasury Regulations, after giving effect to the presumptions contained therein) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service recipient” with the Company under Section 1.409A-1(h (3) of the Treasury Regulations.
| 2. | Purposes of the Plan |
The Plan is intended to encourage ownership of Shares by Employees, Non-Employee Directors and certain consultants and advisors to the Company in order to attract such persons, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of Stock Rights to Employees, Non-Employee Directors, consultants and advisors of the Company.
| 3. | Shares Subject to the Plan |
The number of Shares subject to this Plan as to which Stock Rights may be granted from time to time shall be equal to the sum of:
| a. | 54,375,861 shares of Common Stock; and |
| b. | the number of shares subject to awards granted under the Company’s Amended and Restated 2006 Stock and Option Plan (the “2006 Plan”) which expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, however, in the case of ISOs, to any limitations under the Code), or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Section 17 of this Plan. Subject to Section 17 of this Plan, and the provisions of the second paragraph of this Section 3, the number of Shares remaining subject to this Plan shall be reduced by (i) one Share for each Share subject to a Stock Right granted under this Plan that is not a Full Value Award and (ii) 1.66 Shares for each Share (each, a “Full-Value Award Share”) subject to a Stock Right granted under this Plan that is a Full Value Award. |
If an Option granted hereunder ceases to be outstanding, in whole or in part (other than by exercise), or if the Company shall reacquire (at no more than its original issuance price) any Shares issued pursuant to a Stock Grant, or if any Stock Right expires or is forfeited, cancelled or otherwise terminated or results in any Shares not being issued, the unissued Shares that were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan; provided, however, that, the following Shares may not again be made available for issuance under the Plan: (i) Shares that are not issued or delivered because they are applied to the payment of the exercise or purchase price of any Stock Right or to satisfy the tax withholding requirements with respect to any Stock Right, (ii) the full number of Shares underlying any Stock Appreciation Right any portion of which is settled in Shares (and not only the number of Shares delivered in settlement of the Stock Right) and (iii) any Shares that have been repurchased by the Company using proceeds directly attributable to the exercise of Options. To the extent that Shares are returned to the Plan pursuant to this Section 3, (i) 1.66 Shares, for each Full Value Award Share granted under this Plan, and (ii) one Share, for all other Shares (including Shares returned from the 2006 Plan in accordance with clause (b) above), shall again be available for issuance from time to time pursuant to this Plan. The maximum number of Shares that may be issued in satisfaction of ISOs is 27,875,861 Shares.
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The Administrator may grant Substitute Stock Rights under the Plan. To the extent consistent with the requirements of Section 422 of the Code and the regulations thereunder (if applicable) and other applicable legal requirements (including applicable stock exchange requirements), Common Stock issued under Substitute Stock Rights will be in addition to and will not reduce the number of Shares available for Stock Rights under the Plan set forth in this Section 3, but, notwithstanding anything in this Section 3 to the contrary, if any Substitute Stock Right is settled in cash or expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company without the issuance of Common Stock, the Shares previously subject to such Stock Right will not be available for future grants under the Plan. The Administrator will determine the extent to which the terms and conditions of the Plan apply to Substitute Stock Rights, if at all, provided, however, that Substitute Stock Rights will not be subject to the last sentence of Section 6.1 or the per-Participant annual limits on grants of Stock Rights described in Section 13 below.
| 4. | Administration of the Plan |
The Administrator shall administer the Plan. Subject to the provisions of the Plan, the Administrator is authorized to:
| a. | Interpret the provisions of the Plan and of any Stock Right or Stock Agreement and to make all rules and determinations that it deems necessary or desirable for the administration of the Plan; |
| b. | Determine which Employees, Non-Employee Directors, consultants and advisors of the Company and its Affiliates shall be granted Stock Rights; |
| c. | Determine the number of Shares and exercise price for which a Stock Right shall be granted; |
| d. | Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted; |
| e. | In its discretion, accelerate: |
| i. | the date of exercise of any installment of any Option; or | |
| ii. | the date or dates of vesting of Shares, or lapsing of Company repurchase rights with respect to any Shares, under any Stock Rights; and |
| f. | In its discretion, extend the period during which an Option may be exercised (but not beyond the earlier of the expiration date of the Option and the 10th anniversary of the date the Option was granted); |
provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs (unless the holder of any such Option otherwise agrees). Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final.
The Administrator may employ attorneys, consultants, accountants or other persons, and the Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon the Company, all Participants, and all other interested persons. Neither the Administrator, nor the Company, nor any person acting on behalf of the Administrator or the Company shall be personally liable for any action, determination, or interpretation made in good faith with respect to this Plan or grants hereunder or for any acceleration of income or additional tax (including interest and penalties) asserted by reason of the failure of a Stock Right to satisfy the requirements of Section 422 of the Code, Section 409A of the Code or by reason of Section 4999 of the Code, or otherwise with respect to a Stock Right. Each member of the Administrator shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him or her or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with this Plan unless arising out of such member’s own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the members of the Administrator may have as directors or otherwise under the by-laws of the Company, or any agreement, vote of shareholders or disinterested directors, or otherwise.
| 5. | Eligibility for Participation |
The Administrator shall, in its sole discretion, select the individuals to be the Participants in the Plan; provided, however, that each Participant must be an Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall not be effective until such person becomes eligible to be a Participant. ISOs may be granted only to Employees. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in other grants of Stock Rights.
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| 6. | Terms and Conditions of Options |
| 6.1 | General |
Each Option shall be set forth in writing in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. Each Stock Agreement shall state the exercise price (per share) of the Shares covered by each Option, the number of Shares to which it pertains, the date or dates on which it first is exercisable and the date after which it may no longer be exercised (subject to Sections 11 and 12 of this Plan). Options may vest or become exercisable in installments over a period of time, or upon the achievement of certain conditions or the attainment of stated goals or events. The exercise price per share of Shares covered by an Option (including both ISOs and Non-Qualified Options) shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock on the date of grant.
| 6.2 | ISOs |
Each Option intended to be an ISO shall be issued only to an Employee. In addition to the provisions set forth in Section 6.1, ISOs shall be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:
| 6.2.1 | ISO Exercise Price |
In addition to the limitation set forth in Section 6.1, the exercise price per share of the Shares covered by each ISO granted to a Participant who owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate shall not be less than one hundred ten percent (110%) of the Fair Market Value on the date of grant.
| 6.2.2 | Term of ISO |
Each ISO shall expire not more than ten (10) years from the date of grant; provided, however, that an ISO granted to a Participant who owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code, more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate shall expire not more than five (5) years from the date of grant.
| 6.2.3 | Annual Limit on Incentive Stock Options |
To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the Shares with respect to which ISOs granted under this Plan and any other plan of the Company or its Affiliate become exercisable for the first time by a Participant during any calendar year shall not exceed the aggregate threshold for ISOs established by the Code ($100,000 as of January 1, 2018). To the extent that any Option exceeds this limit, it shall constitute a Non-Qualified Option.
| 6.3 | Non-Employee Directors’ Options |
Each Non-Employee Director, upon first being elected or appointed to the Board of Directors, shall, in addition to any other Stock Rights as may be determined by the Board of Directors, be granted a Non-Qualified Option to purchase that number of Shares as shall be established for such Option grants from time to time by the Board of Directors. In addition, unless otherwise determined by the Board of Directors, on June 1 of each year, each Non-Employee Director shall, in addition to any other Stock Rights as may be determined by the Board of Directors, be granted a Non-Qualified Option to purchase that number of Shares as shall be established for such Option grants from time to time by the Board of Directors. If a Non-Employee Director ceases to be any of an Employee, Non-Employee Director, consultant or advisor of the Company, Options granted under this Section 6.3 shall remain exercisable to the extent such Options are exercisable on the date of such Termination of Service, for their full term, and the provisions of Sections 11 and 12 below shall not apply to any such Options.
| 6.4 | Term of Options |
No Option will be granted with a term in excess of ten (10) years.
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| 7. | Terms and Conditions of Stock Grants |
Each Stock Grant shall be set forth in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Stock Agreement shall be in the form approved by the Administrator, with such changes and modifications to such form as the Administrator, in its discretion, shall approve with respect to any particular Participant or Participants. The Stock Agreement shall contain terms and conditions that the Administrator determines to be appropriate. Each Stock Agreement shall state the number of Shares to which the Stock Grant pertains and the terms of any right of the Company to reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, and any restrictions on the transferability of such Shares.
| 8. | Terms and Conditions of Stock-Based Awards |
The Administrator shall have the right to grant Stock-Based Awards having such terms and conditions as the Administrator may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of Stock Appreciation Rights or Restricted Stock Units. The principal terms of each Stock-Based Award shall be set forth in a Stock Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Stock Agreement shall be in a form approved by the Administrator and shall contain terms and conditions that the Administrator determines to be appropriate. No Stock Appreciation Right will be granted with a term in excess of ten (10) years. The base value (i.e., exercise price) of any Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Common Stock on the date of grant.
| 9. | Exercise of Options and Stock Appreciation Rights and Issuance of Shares |
Options and Stock Appreciation Rights (or any part or installment thereof) shall be exercised by delivery to the Company, or its designee, of a notice of exercise in any form (which may be electronic) approved by the Company, together, in the case of an Option, with provision for payment of the full purchase price in accordance with this Section for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Stock Agreement. Payment of the exercise price for the Shares as to which such Option is being exercised shall be made (a) in cash or by check acceptable to the Administrator, or (b) at the discretion of the Administrator, (i) through delivery of shares of Common Stock not subject to any restriction under any plan and having a Fair Market Value equal as of the date of exercise to the exercise price of the Option, (ii) in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Company, (iii) by any other means (excluding, however, delivery of a promissory note of the Participant) that the Administrator determines to be consistent with the purpose of this Plan and applicable law, or (iv) by any combination of the foregoing. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.
Subject to the last paragraph of Section 13, if on the date the term of a Non-Qualified Option expires or on the last date such Non-Qualified Option is exercisable in accordance with Section 11 or Section 12, the Fair Market Value of a share of Common Stock exceeds the exercise price per share of the Non-Qualified Option, then the Non-Qualified Option shall automatically be exercised with respect to all then vested Shares underlying such Non-Qualified Option and, upon such automatic exercise, such Non-Qualified Option shall immediately terminate. Payment of the exercise price for the Shares as to which such Non-Qualified Option is being exercised and all tax withholding requirements shall be satisfied by a “net exercise,” as a result of which the Participant shall receive (i) the number of shares underlying the portion of the Non-Qualified Option so being exercised, less (ii) such whole number of shares (rounded up to the nearest share) that is equal to (A) the aggregate exercise price for the portion of the Non-Qualified Option that is so being exercised plus the amount of all applicable tax withholdings associated with such exercise divided by (B) the Fair Market Value of a share of Common Stock on the date of exercise. For the avoidance of doubt, this paragraph shall not apply to any Non-Qualified Stock Options that were granted to “covered employees” (within the meaning of Section 162(m) of the Code) or to the Company’s Chief Financial Officer, in each case, that were outstanding on November 2, 2017.
Following the exercise of an Option or Stock Appreciation Right, and, in the case of an Option, the payment of the exercise price, in each case in accordance with this Section 9, and the satisfaction of any tax withholding as contemplated by Section 21, the Company shall, as soon as is reasonably practicable, deliver the Shares as to which such Option or Stock Appreciation Right was exercised to the Participant (or to the Participant’s Survivors, as the case may be). It is expressly understood that the Company may delay the delivery of the Shares in order to comply with any law or regulation that requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares.
| 10. | Assignability and Transferability of Stock Rights |
By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than by will or by the laws of descent and distribution or pursuant to a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder or as approved by the Administrator in its discretion and set forth in the applicable Stock Agreement; provided, however, that the Administrator shall not approve any transfer of a Stock Right for consideration. Except as provided in the preceding sentence or as otherwise
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permitted under a Stock Agreement, a Stock Right shall be exercisable, during the Participant’s lifetime only by such Participant (or by his or her legal representative), and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.
| 11. | Effect on Stock Rights of Termination of Service |
| 11.1 | Except as otherwise provided in the applicable Stock Agreement or as otherwise provided in Section 12, all Options and Stock Appreciation Rights held by a Participant, if any, immediately prior to the Participant’s Termination of Service, to the extent then exercisable, will remain exercisable for ninety (90) days after the date of the Participant’s Termination of Service, unless otherwise provided in the applicable Stock Agreement, but in no event after the expiration of the term of the Stock Right. |
| 11.2 | The provisions of this Section, and not the provisions of Section 12, shall apply to a Participant who subsequently dies after the Termination of Service. In the event of the death of a Participant within ninety (90) days after the Participant’s Termination of Service, all Options and Stock Appreciation Rights held by the Participant, if any, immediately prior to such death, to the extent then exercisable, will remain exercisable for one (1) year after the date of the Participant’s death, but in no event after the expiration of the term of the Stock Right. |
| 11.3 | Absence from work with the Company or an Affiliate because of temporary disability or a leave of absence for any purpose, shall not, during the period of any such absence in accordance with Company policies, be deemed, by virtue of such absence alone, a Termination of Service, except as the Administrator may otherwise expressly provide or except as otherwise provided by law. |
| 11.4 | Except as required by law or as set forth in a Participant’s Stock Agreement and, in the case of any Stock Right that constitutes “non-qualified deferred compensation” subject to Section 409A of the Code, only to the extent consistent with Section 409A of the Code, Stock Rights granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an Employee, Non-Employee Director, consultant or advisor of the Company or any Affiliate. |
| 12. | Effect on Stock Rights of Death or Disability While an Employee, Director, Consultant or Advisor |
Except as otherwise provided in a Participant’s Stock Agreement, in the event (a) of the death of a Participant while the Participant is an Employee, Non-Employee Director, consultant or advisor of the Company or of an Affiliate, or (b) that a Participant’s employment or service with the Company or an Affiliate is terminated by the Company due to his or her Disability, then in the case of each of clauses (a) and (b), (i) vesting of all unvested Shares subject to outstanding Stock Rights (other than ISOs) shall be accelerated and (ii) all Non-Qualified Options and Stock Appreciation Rights held by the Participant, if any, immediately prior to such death or termination due to Disability, to the extent then exercisable, will remain exercisable for a period of one (1) year after the date of death or Termination of Service by the Company due to Disability, as applicable, of the Participant but in no event after the date of expiration of the term of the Stock Right. Notwithstanding the foregoing, clause (b) above shall not apply to any Stock Rights that were granted to “covered employees” (within the meaning of Section 162(m) of the Code) or to the Company’s Chief Financial Officer, in each case, that were outstanding on November 2, 2017.
| 13. | Annual Limits on Stock Rights; Performance Awards |
| 13.1 | Annual Limits |
Notwithstanding anything in this Plan to the contrary, no Participant shall be granted Stock Rights under this Plan in any calendar year for more than an aggregate of 1,000,000 Shares (subject to adjustment pursuant to Section 17 to the extent consistent with Section 162(m) of the Code). For purposes of the foregoing limitation, each Share subject to a Stock Right shall be counted as one Share of Common Stock (including each Share subject to a Full-Value Award). To the extent applicable, the foregoing provisions will be construed in a manner consistent with Section 162(m) of the Code, including, without limitation, where applicable, the rules under Section 162(m) of the Code pertaining to permissible deferrals of exempt awards.
| 13.2 | Performance Awards |
Stock Grants and Stock-Based Awards may be made subject to the achievement of performance goals pursuant to this Section 13.2 (“Performance Awards”). Grants of Performance Awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code (“Performance-Based Compensation”) shall be made only by a “Committee” comprised solely of two or more directors eligible to serve on a committee making awards intended to qualify as “performance-based compensation” under Section 162(m) of the Code. For any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee shall specify that the degree of granting, vesting and/ or payout of the Performance Award shall be based on the relative or absolute attainment of one or any combination of the following objective
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performance measures: (i) revenue targets or revenue growth targets, (ii) achievement of specified milestones in the discovery, development or regulatory approval of one or more of the Company’s drug candidates, (iii) achievement of specified milestones in the commercialization of one or more of the Company’s products, (iv) achievement of specified milestones in the manufacturing of one or more of the Company’s products, (v) cost reduction or other expense control targets, (vi) personal management objectives, (vii) stock price targets (including, but not limited to, growth measures), (viii) total shareholder return, (ix) income per share, (x) operating efficiency measures, (xi) operating margin, (xii) gross margin, (xiii) return measures (including, but not limited to, return on assets, capital, equity or sales), (xiv) net or total revenue levels, (xv) productivity ratios, (xvi) operating income, (xvii) net operating profit, (xviii) net earnings or net income (before or after taxes), (xix) cash flow (including, but not limited to, operating cash flow, free cash flow and cash flow return on capital), (xx) earnings or operating income before interest, taxes, depreciation, amortization and/or stock-based compensation expense, (xxi) mergers, acquisitions or divestitures objectives, (xxii) market share, (xxiii) customer satisfaction, (xxiv) working capital targets, (xxv) budget objectives and (xxvi) achievement of other balance sheet or statement of operations objectives.
Each objective performance measure that is a financial measure may be determined pursuant to generally accepted accounting principles (“GAAP”) or on a non-GAAP basis, as determined by the Committee. Such objective performance measures may reflect absolute entity or business unit performance or a relative comparison to the performance of a peer group of entities, an index or indices or other external measure of the selected performance criteria and may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated. The objective performance measures and any targets with respect thereto need not be based on an increase, a positive or improved result or the avoidance of loss.
The Committee may specify that such performance measures shall be adjusted to exclude or provide for appropriate adjustment for one or more of the following items: (A) asset impairments or write-downs; (B) litigation and governmental investigation expenses and judgments, verdicts or claim settlements; (C) the effect of changes in tax law, accounting principles or other laws, regulations or provisions affecting reported results; (D) the effect of exchange rates for non-U.S. dollar denominated net sales or goals based on operating profit, earnings or income; (E) accruals for reorganization and restructuring programs; (F) any non-GAAP adjustments as described in the Company’s earnings releases or in the management’s discussion and analysis of financial condition and results of operations appearing in the Company’s periodic reports; (G) items of income, gain, loss or expense attributable to the operations of any business acquired by the Company or any parent or subsidiary or of any joint venture established by the Company or any parent or subsidiary; (H) costs and expenses incurred in connection with mergers and acquisitions; (I) items of income, gain, loss or expense attributable to one or more business operations divested by the Company or any parent or subsidiary or the gain or loss realized upon the sale of any such divested business or the assets thereof; or (J) the effect of any change in the outstanding shares of Common Stock effected by reason of a stock split, stock dividend, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change or any distributions to the Company’s shareholders other than regular cash dividends.
Such performance measures: (1) may vary by Participant and may be different for different Stock Rights; (2) may be particular to a Participant or the department, branch, line of business, subsidiary or other unit in which a Participant works and may cover such performance period as may be specified by the Committee; and (3) shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code.
With respect to any Performance Award that is intended to qualify as Performance-Based Compensation, the Committee may adjust downwards, but not upwards, the number of shares payable pursuant to such Performance Award, and the Committee may not waive the achievement of the applicable performance measures except in the case of the death or disability of the Participant or a change in control of the Company or as otherwise determined by the Committee.
The Committee shall have the power to impose such other restrictions on Performance Awards as it may deem necessary or appropriate to ensure that such Performance Awards satisfy all requirements for Performance-Based Compensation.
Notwithstanding anything to the contrary in the Plan, except as otherwise determined by the Administrator or as permitted by Internal Revenue Service guidance, the provisions of this 13.2 that relate to Performance-Based Compensation shall not apply to Stock Rights granted on or after May 17, 2018 (the “May Amendment Date”), provided, however, that the terms of this Section 13.2 and the terms of the Plan, as in effect on November 2, 2017, which were those same terms in effect as of immediately prior to the May Amendment Date, shall continue to govern the terms of any Performance Awards and Stock Options granted prior to the May Amendment Date. It is the intent of the Company that the amendment and restatement of the Plan on the May Amendment Date not constitute a “material modification” of the Plan or Stock Rights granted under it prior to the May Amendment Date within the meaning of Section 162(m) of the Code (and any Internal Revenue Service guidance issued thereunder) and the Plan shall be interpreted in accordance with the foregoing intent. In furtherance of the foregoing, the terms of the Plan, as amended and restated as of the May Amendment Date, shall only apply to Stock Rights granted after the May Amendment Date. Other than with respect to the second sentence of this paragraph, references to “Section 162(m) of the Code” in this Section 13 shall refer to Section 162(m) of the Code as in effect prior to December 22, 2017, including the regulations thereunder and other applicable Internal Revenue Service guidance, whether promulgated or issued before or after December 22, 2017.
| 14. | Rights as a Shareholder |
No Participant to whom a Stock Right (other than a Stock Grant) has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except as to Shares actually issued under the Plan.
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| 15. | Employment or Other Relationship |
Nothing in this Plan or any Stock Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, or to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time. The loss of existing or potential profit from a Stock Right will not constitute an element of damages in the event of a termination of employment or service for any reason, even if the termination is in violation of an obligation of the Company or any Affiliate.
| 16. | Dissolution or Liquidation of the Company |
Upon the dissolution or liquidation of the Company (other than in connection with a transaction subject to the provisions of Section 17.2), all Stock Rights granted under this Plan which as of such date have not been exercised will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise any Stock Right to the extent that such Stock Right is exercisable as of the date immediately prior to such dissolution or liquidation. Upon the dissolution or liquidation of the Company, any outstanding Stock Rights shall immediately terminate unless otherwise determined by the Administrator or specifically provided in the applicable Stock Agreement.
| 17. | Adjustments |
Upon the occurrence of any of the following events, a Participant’s rights with respect to any outstanding Stock Right shall be adjusted as hereinafter provided, unless otherwise specifically provided in the Stock Agreement or in any employment agreement between a Participant and the Company or an Affiliate:
| 17.1 | Stock Dividends and Stock Splits |
If the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock subject to or deliverable upon the vesting or exercise of a Stock Right shall be appropriately increased or decreased, and appropriate adjustments shall be made in the purchase or exercise price per Share to reflect such event. The number of Shares subject to the limitation in Section 13.1 shall also be adjusted upon the occurrence of such events.
| 17.2 | Consolidations or Mergers |
In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company’s outstanding stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of substantially all the Company’s assets (any of the foregoing, an “Acquisition”), all then outstanding Stock Rights (excluding any Shares subject to Stock Grants as to which all Company repurchase rights shall have lapsed) shall terminate unless assumed pursuant to clause (i) below; provided that either (i) the Administrator shall provide for the surviving or acquiring entity or an affiliate thereof to assume the outstanding Stock Rights or grant replacement Stock Rights in lieu thereof, any such replacement to be upon an equitable basis as determined by the Administrator, or (ii) if there is no such assumption or substitution, all outstanding Stock Rights shall become immediately and fully exercisable and all Company repurchase rights with respect to Stock Rights shall lapse, in each case immediately prior to the Acquisition, notwithstanding any restrictions or vesting conditions set forth therein.
| 17.3 | Recapitalization or Reorganization |
In the event of a recapitalization or reorganization of the Company (other than a transaction described in Section 17.2 above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising a Stock Right shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Stock Right immediately prior to such recapitalization or reorganization.
| 17.4 | Adjustments to Shares, Stock Grants and Stock-Based Awards |
Upon the happening of any of the events described in Sections 17.1, 17.2 or 17.3, or other change in the Company’s capital structure that constitutes an equity restructuring within the meaning of the Accounting Rules, the maximum number of Shares specified in Section 3, the number of Shares subject to the limits in Section 13.1, any exercise price per Share of any Stock Right, any outstanding Stock-Based Award and the Shares subject to any Stock Grant, vested or unvested, shall be appropriately adjusted by the Administrator to reflect such events. The Administrator may also make adjustments of the type described above to take into account distributions to stockholders other than those provided for in Sections 17.1,
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17.2 or 17.3, or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan. The Administrator shall determine the specific adjustments to be made under this Section 17.4. References in the Plan to Shares will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 17.4.
| 17.5 | Modification of ISOs. |
Notwithstanding the foregoing, any adjustments made pursuant to Section 17.1, 17.2 or 17.3 with respect to ISOs shall be made only after the Administrator determines whether such adjustments would constitute a “modification” of such ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Administrator determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments, unless the holder of an ISO specifically consents in writing to such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the ISO.
| 18. | Issuances of Securities |
Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to Stock Rights. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company.
| 19. | Fractional Shares |
No fractional share shall be issued under the Plan and the person exercising any Stock Right shall receive from the Company cash in lieu of any such fractional share equal to the Fair Market Value thereof.
| 20. | Dividend Equivalents |
The Administrator may provide for the payment of amounts (on terms and subject to conditions established by the Administrator, including providing for the reinvestment of such amounts in the form of additional Stock Rights) in lieu of cash dividends or other cash distributions with respect to Common Stock subject to a Stock Right whether or not the holder of such Stock Right is otherwise entitled to share in the actual dividend or distribution in respect of such Stock Right; provided, however, that notwithstanding anything to the contrary in the Plan (a) any dividends or dividend equivalents relating to a Stock Right (other than an Option or Stock Appreciation Right) that, at the dividend payment date, remains subject to a risk of forfeiture (whether service-based or performance-based) shall be subject to the same risk of forfeiture as applies to the underlying Stock Right and (b) except as contemplated by Section 17, no dividends or dividend equivalents shall be payable with respect to Options or Stock Appreciation Rights unless and until such Options or Stock Appreciation Rights have vested and been exercised in accordance with their terms.
| 21. | Withholding |
The delivery, vesting and retention of Shares, cash or other property under a Stock Right are conditioned upon full satisfaction by the Participant of all tax withholding requirements with respect to the Stock Right. The Administrator shall prescribe such rules for the withholding of taxes with respect to any Stock Right as it deems necessary. The Administrator may withhold from the Participant’s compensation or require that the Participant advance cash to the Company or an Affiliate the amount of such withholding and may hold back Shares from a Stock Right or permit a Participant to tender previously owned Shares in satisfaction of tax withholding requirements (but not in excess of the maximum withholding amount consistent with the award being subject to equity accounting treatment under the Accounting Rules). For purposes hereof, the Fair Market Value of any shares withheld for purposes of payroll withholding shall be determined in the manner provided in Section 1 above, as of the most recent practicable date prior to the date of grant, vesting, exercise or the date of a Disqualifying Disposition. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to pay the difference in cash to the Company or the Affiliate employer.
| 22. | Notice to Company of Disqualifying Disposition |
Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a “Disqualifying Disposition” of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition (as defined in Section 424(c) of the Code) of such Shares before the later of (a) two years from the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO. If the Employee has died before such Shares are sold, the notice provisions of this Section 22 shall not apply.
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| 23. | Effective Date; Termination of the Plan |
This Plan was amended and restated by the Board on April 13, 2017 and April 2, 2018, in each case subject to the approval of the Plan by the shareholders of the Company, and was further amended and restated on October 16, 2018. The Plan, as amended and restated hereby, shall be effective as of June 5, 2019. The Plan will terminate on April 12, 2027. The Plan also may be terminated at an earlier date by vote of the Board of Directors. Termination of this Plan will not affect any Stock Rights granted or Stock Agreements executed prior to the effective date of such termination.
| 24. | Amendment of the Plan; Amendment of Stock Rights |
The Plan may be amended by the Board of Directors or the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code, and to the extent necessary to qualify the shares issuable upon exercise of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendments to the Plan will be conditioned upon stockholder approval only to the extent, if any, such approval is required by law (including the Code) or applicable stock exchange requirements, as determined by the Administrator. No modification or amendment of the Plan shall adversely and materially affect a Participant’s rights under a Stock Right previously granted to the Participant, without such Participant’s consent.
In its discretion, the Administrator may amend any term or condition of any outstanding Stock Right, provided: (i) such term or condition is not prohibited by the Plan; (ii) if the amendment is materially adverse to the Participant, such amendment shall be made only with the consent of the Participant or the Participant’s Survivors, as the case may be; and (iii) any such amendment of any ISO shall be made only after the Administrator determines whether such amendment would constitute a “modification” of any Stock Right which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of such ISO (in which case, the Participant’s or Participant’s Survivors’ consent to such amendment shall be required). Notwithstanding the foregoing, unless such action is approved by the Company’s shareholders, the Company may not (except for adjustments permitted under Section 17 of this Plan) (1) amend any outstanding Option or Stock Appreciation Right granted under the Plan to provide an exercise price per share that is lower than the then-current exercise price per share of such outstanding Option or Stock Appreciation Right; (2) cancel any outstanding Option or Stock Appreciation Right (whether or not granted under the Plan) and grant in substitution therefor new Stock Rights under the Plan covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option or Stock Appreciation Right; or (3) cancel in exchange for a cash payment any outstanding Option or Stock Appreciation Right with an exercise price per share above the then-current Fair Market Value.
| 25. | Recovery of Compensation |
The Administrator may provide in any case that outstanding Stock Rights (whether or not vested or exercisable) and the proceeds from the exercise or disposition of Stock Rights or Common Stock acquired under Stock Rights will be subject to forfeiture and disgorgement to the Company, with interest and other related earnings, if the Participant to whom the Stock Right was granted violates (i) a non-competition, non-solicitation, confidentiality or other restrictive covenant by which he or she is bound, or (ii) any Company policy applicable to the Participant that provides for forfeiture or disgorgement with respect to incentive compensation that includes Stock Rights under the Plan. In addition, the Administrator may require forfeiture and disgorgement to the Company of outstanding Stock Rights and the proceeds from the exercise or disposition of Stock Rights or Common Stock acquired under Stock Rights, with interest and other related earnings, to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D of the Exchange Act, and any applicable Company policy. Each Participant, by accepting or being deemed to have accepted a Stock Right under the Plan, agrees to cooperate fully with the Administrator, and to cause any and all permitted transferees of the Participant to cooperate fully with the Administrator, to effectuate any forfeiture or disgorgement required hereunder. Neither the Administrator nor the Company nor any other person, other than the Participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 25.
| 26. | Compliance with Section 409a of the Code |
Without limiting the generality of Section 4 hereof, each Stock Right will contain such terms as the Administrator determines and will be construed and administered, such that the Stock Right either qualifies for an exemption from the requirements of Section 409A of the Code or satisfies such requirements.
Notwithstanding Section 24 hereof or any other provision of this Plan or any Stock Agreement to the contrary, the Administrator may unilaterally amend, modify or terminate the Plan or any outstanding Stock Right, including but not limited to changing the form of the Stock Right, if the Administrator determines that such amendment, modification or termination is necessary or advisable to avoid the imposition of an additional
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tax, interest or penalty under Section 409A of the Code. To the extent that a provision of this Plan is amended to provide for the accelerated payment or settlement of a Stock Right, no such amendment will be given effect if it would result in the imposition of an additional tax, interest or penalty under Section 409A of the Code.
If a Participant is deemed on the date of the Participant’s Termination of Service to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code, then, with regard to any payment that is considered nonqualified deferred compensation under Section 409A of the Code, to the extent applicable, payable on account of a “separation from service”, such payment will be made or provided on the date that is the earlier of (i) the expiration of the six-month period measured from the date of such “separation from service” and (ii) the date of the Participant’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 26 (whether they would have otherwise been payable in a single lump sum or in installments in the absence of such delay) will be paid on the first business day following the expiration of the Delay Period in a lump sum and any remaining payments due under the Stock Right will be paid in accordance with the normal payment dates specified for them in the applicable Stock Agreement.
For purposes of Section 409A of the Code, each payment made under this Plan will be treated as a separate payment.
With regard to any payment considered to be nonqualified deferred compensation under Section 409A of the Code, to the extent applicable, that is payable upon a change in control of the Company or other similar event, to avoid the imposition of an additional tax, interest or penalty under Section 409A of the Code, no amount will be payable unless such change in control constitutes a “change in control event” within the meaning of Section 1.409A-3(i)(5) of the Treasury Regulations.
| 27. | Authorization of Sub-Plans |
The Board of Directors may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable securities, tax or other laws of various jurisdictions. The Board of Directors shall establish such sub-plans by adopting supplements to the Plan containing (i) such limitations on the Board of Director’s discretion under the Plan as the Board of Directors deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board of Directors shall deem necessary or desirable. All supplements adopted by the Board of Directors shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction that is not the subject of such supplement.
| 28. | Governing Law |
This Plan, Stock Rights under the Plan and all claims or disputes arising out of or based upon the Plan or Stock Rights under the Plan or relating to the subject matter hereof or thereof shall be construed and enforced in accordance with the laws of The Commonwealth of Massachusetts without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.
By accepting or being deemed to have accepted a Stock Right under the Plan, each Participant will be deemed to (a) have submitted irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic boundaries of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon the Plan or any Stock Right; (b) agree not to commence any suit, action or other proceeding arising out of or based upon the Plan or a Stock Right, except in the federal and state courts located within the geographic boundaries of the United States District Court for the District of Massachusetts; and (c) waive, and agree not to assert, by way of motion as a defense or otherwise, in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of the above-named courts that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or a Stock Right or the subject matter thereof may not be enforced in or by such court.
By accepting or being deemed to have accepted a Stock Right under the Plan, to the maximum extent permitted by applicable law, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Stock Right, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim will be tried before a court and not before a jury. By accepting or being deemed to have accepted a Stock Right under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers. Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit disputes arising under the terms of the Plan or any Stock Right made hereunder to binding arbitration or as limiting the ability of the Company to require any eligible individual to agree to submit such disputes to binding arbitration as a condition of receiving a Stock Right hereunder.
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In this proxy statement, our financial results are provided in accordance with accounting principles generally accepted in the United States (GAAP). We also include non-GAAP operating margin. Our non-GAAP operating income for 2021 excluded (i) stock-based compensation expense, (ii) a decrease in the fair value of contingent consideration, (iii) revenues and expenses related to collaborative upfront and milestone payments, including the $900 million upfront payment to CRISPR Therapeutics AG, and certain other business development activities, and (iv) acquisition-related costs. A reconciliation of GAAP operating income to non-GAAP operating income is included below.
GAAP AND NON-GAAP OPERATING INCOME
| Twelve months ended December 31, 2021 | ||||
| (in millions, except percentages) | ||||
| Net product revenues | $7,573.4 | |||
| GAAP operating income | $2,782.1 | |||
| Stock-based compensation expense | 441.4 | |||
| Decrease in fair value of contingent consideration | (3.1 | ) | ||
| Collaborative revenues and expenses | 1,112.3 | |||
| Acquisition-related costs | 11.3 | |||
| Non-GAAP operating income | $4,344.0 | |||
| GAAP operating margin | 37 | % | ||
| Non-GAAP operating margin | 57 | % |
These results should not be viewed as a substitute for our GAAP results and are provided as a complement to results provided in accordance with GAAP. Management believes non-GAAP operating margin help indicate underlying trends in our business, are important in comparing current results with prior period results and provide additional information regarding our financial position that management believes is helpful to an understanding of our ongoing business. Management also uses these non-GAAP financial measures to establish budgets and operational goals that are communicated internally and externally and to manage our business and to evaluate our performance.
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