Vertex Pharmaceuticals (VRTX) 10-Q 3 May 10 2010 Q1 Quarterly report Financial data

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current assets:
Cash and cash equivalents	$396,547	$446,658
Marketable securities, available for sale	696,136	838,255
Accounts receivable	7,876	9,601
Prepaid expenses and other current assets	26,209	12,512
Total current assets	1,126,768	1,307,026
Restricted cash	30,313	30,313
Property and equipment, net	58,109	62,279
Intangible assets	518,700	518,700
Goodwill	26,102	26,102
Other assets	10,310	11,068
Total assets	1,770,302	1,955,488
Current liabilities:
Accounts payable	29,121	36,989
Accrued expenses and other current liabilities	92,234	118,753
Accrued interest		571
Deferred revenues, current portion	69,575	74,956
Accrued restructuring expense, current portion	6,334	6,316
Convertible senior subordinated notes (due February 2013)		32,071
Other obligations	14,276	15,227
Total current liabilities	211,540	284,883
Accrued restructuring expense, excluding current portion	26,999	27,701
Secured notes (due October 2012)	125,316	121,765
Liability related to sale of potential future milestone payments	39,376	38,207
Deferred revenues, excluding current portion	215,488	225,575
Deferred tax liability	160,278	160,278
Other liabilities	693	733
Total liabilities	779,690	859,142
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding at March 31, 2010 and December 31, 2009	0	0
Common stock, $0.01 par value; 300,000,000 shares authorized at March 31, 2010 and December 31, 2009; 202,122,797 and 199,955,023 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively	2,002	1,982
Additional paid-in capital	3,844,744	3,784,787
Accumulated other comprehensive loss	(1,080)	(640)
Accumulated deficit	(2,855,054)	(2,689,783)
Total stockholders' equity	990,612	1,096,346
Total liabilities and stockholders' equity	$1,770,302	$1,955,488

1_Condensed Consolidated Balanc

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
	Mar. 31, 2010	Dec. 31, 2009
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	0.01	0.01
Preferred stock, authorized shares	1,000,000	1,000,000
Preferred stock, issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value (in dollars per share)	0.01	0.01
Common stock, authorized shares	300,000,000	300,000,000
Common stock, issued shares	202,122,797	199,955,023
Common stock, outstanding shares	202,122,797	199,955,023

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Revenues:
Royalty revenues	$6,407	$6,140
Collaborative revenues	16,022	17,839
Total revenues	22,429	23,979
Costs and expenses:
Royalty expenses	3,367	3,576
Research and development expenses	143,012	143,581
Sales, general and administrative expenses	35,552	28,520
Restructuring expense	780	2,402
Acquisition-related expenses		7,793
Total costs and expenses	182,711	185,872
Loss from operations	(160,282)	(161,893)
Interest income	455	2,599
Interest expense	(3,955)	(3,378)
Change in fair value of derivative instruments	(1,489)
Net loss	($165,271)	($162,672)
Basic net loss per common share (in dollars per share)	-0.83	-1.04
Diluted net loss per common share (in dollars per share)	-0.83	-1.04
Basic weighted-average number of common shares outstanding (in shares)	198,935	155,860
Diluted weighted-average number of common shares outstanding (in shares)	198,935	155,860

2_Condensed Consolidated Statem

Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Cash flows from operating activities:
Net loss	($165,271)	($162,672)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	7,584	7,164
Stock-based compensation expense	19,333	22,277
Other non-cash based compensation expense	1,412	1,170
Secured notes (due 2012) discount amortization expense	3,231
Change in fair value of derivative instruments	1,489
Loss on disposal of property and equipment	22	2,056
Changes in operating assets and liabilities, excluding the effect of an acquisition:
Accounts receivable	1,714	6,785
Prepaid expenses and other current assets	(13,667)	(3,254)
Accounts payable	(7,964)	(29,575)
Accrued expenses and other liabilities	(27,762)	(18,303)
Accrued restructuring expense	(684)	747
Accrued interest	(431)	(3,642)
Deferred revenues	(15,468)	(8,312)
Net cash used in operating activities	(196,462)	(185,559)
Cash flows from investing activities:
Purchases of marketable securities	(42,022)
Sales and maturities of marketable securities	184,274	174,006
Payment for the acquisition of ViroChem, net of cash acquired		(87,422)
Expenditures for property and equipment	(3,110)	(6,579)
(Increase) decrease in other assets	(380)	172
Net cash provided by investing activities	138,762	80,177
Cash flows from financing activities:
Issuances of common stock from employee benefit plans	7,664	5,418
Issuances of common stock from stock offerings, net		313,250
Debt conversion costs	(22)
Net cash provided by financing activities	7,642	318,668
Effect of changes in exchange rates on cash	(53)	(202)
Net (decrease) increase in cash and cash equivalents	(50,111)	213,084
Cash and cash equivalents-beginning of period	446,658	389,115
Cash and cash equivalents-end of period	396,547	602,199
Supplemental disclosure of cash flow information:
Cash paid for interest	761	6,828
Conversion of convertible subordinated notes for common stock	32,071
Accrued interest offset to additional paid-in capital on conversion of convertible subordinated notes	140
Unamortized debt issuance costs of converted convertible subordinated notes offset to additional paid-in capital	624
Fair value of common stock issued to acquire ViroChem		$290,557

Basis of Presentation

Basis of Presentation
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Basis of Presentation	A. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated ("Vertex" or the "Company") in accordance with accounting principles generally accepted in the United States of America. The condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain information and footnote disclosures normally included in the Company's annual financial statements have been condensed or omitted. The interim financial statements, in the opinion of management, reflect all normal recurring adjustments (including accruals) necessary for a fair presentation of the financial position and results of operations for the interim periods ended March31, 2010 and 2009. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the fiscal year, although the Company expects to incur a substantial loss for the year ending December31, 2010. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December31, 2009, which are contained in the Company's Annual Report on Form10-K for the year ended December31, 2009 that was filed with the Securities and Exchange Commission on February19, 2010.

Accounting Policies

Accounting Policies
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Accounting Policies	B. Accounting Policies Basic and Diluted Net Loss per Common Share Basic net loss per common share is based upon the weighted-average number of common shares outstanding during the period, excluding restricted stock and restricted stock units that have been issued but are not yet vested. Diluted net loss per common share is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options (the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method), the assumed conversion of convertible notes and vesting of unvested restricted stock and restricted stock units. Common equivalent shares have not been included in the net loss per common share calculations because the effect would have been anti-dilutive. Total potential gross common equivalent shares consisted of the following: At March31, 2010 2009 (in thousands, except per share amounts) Stock options 21,088 18,612 Weighted-average exercise price (per share) $ 32.11 $ 29.83 Convertible notes 12,425 Conversion price (per share) n/a $ 23.14 Unvested restricted stock and restricted stock units 1,904 2,268 Stock-based Compensation Expense The Company expenses the fair value of employee stock options and other forms of stock-based employee compensation over the associated employee service period or, for awards with market conditions, the derived service period. For awards with performance conditions, the Company makes estimates regarding the likelihood of satisfaction of the performance conditions that affect the period over which the expense is recognized. Compensation expense is determined based on the fair value of the award at the grant date, including estimated forfeitures, and is adjusted to reflect actual forfeitures and the outcomes of certain market and performance conditions. Please refer to NoteC, "Stock-based Compensation Expense," for further information. Research and Development Expenses All research and development expenses, including amounts funded by research and development collaborations, are expensed as incurred. The Company defers and capitalizes nonrefundable advance payments made by the Company for research and development activities until the related goods are delivered or the related services are performed. Research and development expenses are comprised of costs incurred by the Company in performing research and development activities, including salary and benefits; stock-based compensation expense; laboratory supplies and other direct expenses; contractual services, including clinical trial and pharmaceutical development costs; commercial supply investment in its drug candidates; and infrastructure costs, including facilities costs and depreciation expense. The Company evaluates periodically whether a portion of its commercial supply investment may be capitalized as inventory.

Stock-based Compensation Expens

Stock-based Compensation Expense
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Stock-based Compensation Expense	C. Stock-based Compensation Expense The Company issues stock options, restricted stock and restricted stock units with service conditions, which are generally the vesting periods of the awards. The Company also issues, to certain members of senior management, restricted stock and restricted stock units that vest upon the earlier of the satisfaction of (i)a market or performance condition or (ii)a service condition, and stock options that vest upon the earlier of the satisfaction of (1)performance conditions or (2)a service condition. The Company also issues shares pursuant to an employee stock purchase plan ("ESPP"). The effect of stock-based compensation expense during the three months ended March31, 2010 and 2009 was as follows: Three Months Ended March31, 2010 2009 (in thousands) Stock-based compensation expense by type of award: Stock options $ 13,468 $ 16,157 Restricted stock and restricted stock units 4,747 4,757 ESPP share issuances 1,118 1,363 Total stock-based compensation expense included in net loss $ 19,333 $ 22,277 Stock-based compensation expense by line item: Research and development expenses $ 14,320 $ 17,352 Sales, general and administrative expenses 5,013 4,925 Total stock-based compensation expense included in net loss $ 19,333 $ 22,277 The stock-based compensation expense for the three months ended March31, 2009 included $4.7million related to accelerated vesting and the modification of stock options and $0.7million related to accelerated vesting of restricted stock awards in connection with Dr.Joshua Boger's transition arrangement. The following table sets forth the unrecognized stock-based compensation expense, net of estimated forfeitures, as of March31, 2010 by type of award and the weighted-average period over which that expense is expected to be recognized for the Company's stock options, restricted stock and ESPP share issuances: As of March31, 2010 UnrecognizedExpense, Netof EstimatedForfeitures Weighted-average Recognition Period (in thousands) (in years) Type of award: Stock options $ 135,098 3.16 Restricted stock and restricted stock units 42,182 2.84 ESPP share issuances 1,178 0.45

Marketable Securities

Marketable Securities
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Marketable Securities	D. Marketable Securities A summary of cash, cash equivalents and marketable securities is shown below: March31, 2010 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) Cash and cash equivalents Cash and money market funds $ 295,547 $ $ $ 295,547 Government-sponsored enterprise securities 100,997 3 101,000 Total cash and cash equivalents $ 396,544 $ 3 $ $ 396,547 Marketable securities U.S. Treasury securities (due within 1year) $ 221,026 $ 38 $ $ 221,064 Government-sponsored enterprise securities (due within 1year) 475,021 56 (5 ) 475,072 Total marketable securities $ 696,047 $ 94 $ (5 ) $ 696,136 Total cash, cash equivalents and marketable securities $ 1,092,591 $ 97 $ (5 ) $ 1,092,683 December31, 2009 Cash and cash equivalents Cash and money market funds $ 251,005 $ $ $ 251,005 U.S. Treasury securities 20,198 (5 ) 20,193 Government-sponsored enterprise securities 175,455 8 (3 ) 175,460 Total cash and cash equivalents $ 446,658 $ 8 $ (8 ) $ 446,658 Marketable securities U.S. Treasury securities (due within 1year) $ 223,422 $ $ (99 ) $ 223,323 Government-sponsored enterprise securities (due within 1year) 614,869 81 (18 ) 614,932 Total marketable securities $ 838,291 $ 81 $ (117 ) $ 838,255 Total cash, cash equivalents and marketable securities $ 1,284,949 $ 89 $ (125 ) $ 1,284,913 The Company reviews investments in marketable securities for other-than-temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment's carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers the intent to sell, or whether it is more likely than not that the Company will be required to sell, the investment before recovery of the investment's amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company's investment policy, the severity and the duration of the impairment and changes in value subsequent to period end. As of March31, 2010, the Company had two government-sponsored enterprise securities that were in gross unrealized loss positions and no marketable securities in any other category that were in a gross unrealized loss position. The following table summarizes the fair value and gross unrealized losses related to marketable securities, aggregated by investment category and length of time that individual securities have been in a continuous gross unrealized loss position as of March31, 2010:

Fair Value of Financial Instrum

Fair Value of Financial Instruments
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Fair Value of Financial Instruments	E. Fair Value of Financial Instruments The fair value of the Company's financial assets and liabilities reflects the Company's estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company's assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities: Level1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level2: Observable inputs other than Level1 inputs. Examples of Level2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. Level3: Unobservable inputs based on the Company's assessment of the assumptions that market participants would use in pricing the asset or liability. The Company's investment strategy is focused on capital preservation. The Company invests in instruments that meet credit quality standards as outlined in the Company's investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue or type of instrument. Beginning in the fourth quarter of 2007, the Company began to shift its investments to instruments that carry less exposure to market volatility and liquidity pressures. As of March31, 2010, the Company's investments are in money market funds and short-term government guaranteed or supported securities. As of March31, 2010, all of the Company's financial assets that were subject to fair value measurements were valued using observable inputs. The Company's financial assets that were valued based on Level1 inputs consist of a money market fund, U.S. Treasuries and government-sponsored enterprise securities, which are government-supported. The Company's money market fund also invests in government-sponsored enterprise securities. During the three months ended March31, 2010 and 2009, the Company did not record an other-than-temporary impairment charge related to its financial assets. The Company's financial liabilities that were subject to fair value measurement related to the financial transactions that the Company entered into in September 2009 are valued based on Level3 inputs. Please refer to NoteL, "September 2009 Financial Transactions." The following table sets forth the Company's financial assets and liabilities subject to fair value measurements as of March31, 2010:

Comprehensive Loss

Comprehensive Loss
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Comprehensive Loss	F. Comprehensive Loss For the three months ended March31, 2010 and 2009, comprehensive loss was as follows: Three Months Ended March31, 2010 2009 (in thousands) Net loss $ (165,271 ) $ (162,672 ) Changes in other comprehensive income (loss): Unrealized holding gains (losses) on marketable securities 128 (1,993 ) Foreign currency translation adjustment (568 ) (32 ) Total change in other comprehensive income (loss) (440 ) (2,025 ) Total comprehensive loss $ (165,711 ) $ (164,697 )

Income Taxes

Income Taxes
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Income Taxes	G. Income Taxes At March31, 2010 and December31, 2009, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. The Company does not expect that its unrecognized tax benefits will materially increase within the next twelve months. The Company did not recognize any material interest or penalties related to uncertain tax positions at March31, 2010 and December31, 2009. The Company files United States federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United States before 2007 and any other major taxing jurisdiction for years before 2005, except where the Company has net operating losses or tax credit carryforwards that originate before 2005. The Company completed an examination by the Internal Revenue Service with respect to 2006 in June 2009 with no material change. The Company currently is not under examination by any jurisdiction for any tax year.

Restructuring Expense

Restructuring Expense
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Restructuring Expense	H. Restructuring Expense In June 2003, Vertex adopted a plan to restructure its operations to coincide with its increasing internal emphasis on advancing drug candidates through clinical development to commercialization. The restructuring was designed to re-balance the Company's relative investments in research and development to better support the Company's long-term strategy. At that time, the restructuring plan included a workforce reduction, write-offs of certain assets and a decision not to occupy approximately 290,000 square feet of specialized laboratory and office space in Cambridge, Massachusetts under lease to Vertex (the "Kendall Square Lease"). The Kendall Square Lease commenced in January 2003 and has a 15-year term. In the second quarter of 2005, the Company revised its assessment of its real estate requirements and decided to use approximately 120,000 square feet of the facility subject to the Kendall Square Lease (the "Kendall Square Facility") for its operations, beginning in 2006. The remaining rentable square footage of the Kendall Square Facility currently is subleased to third parties. The restructuring expense incurred in the three months ended March31, 2010 and 2009 relates only to the portion of the Kendall Square Facility that the Company is not occupying and does not intend to occupy for its operations. The remaining lease obligations, which are associated with the portion of the Kendall Square Facility that the Company occupies and uses for its operations, are recorded as rental expense in the period incurred. In estimating the expense and liability under its Kendall Square Lease obligation, the Company estimated (i)the costs to be incurred to satisfy rental and build-out commitments under the lease (including operating costs), (ii)the lead-time necessary to sublease the space, (iii)the projected sublease rental rates and (iv)the anticipated durations of subleases. The Company uses a credit-adjusted risk-free rate of approximately 10% to discount the estimated cash flows. The Company reviews its estimates and assumptions on at least a quarterly basis, and intends to continue such reviews until the termination of the Kendall Square Lease, and will make whatever modifications the Company believes necessary, based on the Company's best judgment, to reflect any changed circumstances. The Company's estimates have changed in the past, and may change in the future, resulting in additional adjustments to the estimate of the liability, and the effect of any such adjustments could be material. Changes to the Company's estimate of the liability are recorded as additional restructuring expense/(credit). In addition, because the Company's estimate of the liability includes the application of a discount rate to reflect the time-value of money, the Company will record imputed interest costs related to the liability each quarter. These costs are included in restructuring expense on the Company's condensed consolidated statements of operations. For the three months ended March31, 2010, the restructuring expense recorded by the Company was the result of the imputed interest cost relating to the restructuring liability.

Equity and Debt Offerings and D

Equity and Debt Offerings and Debt Exchanges and Conversions
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Equity and Debt Offerings and Debt Exchanges and Conversions	I. Equity and Debt Offerings and Debt Exchanges and Conversions February 2009 Equity Offering In February 2009, the Company completed an offering of 10,000,000 shares of common stock (the "February 2009 Equity Offering"), which were sold at a price of $32.00 per share. This offering resulted in $313.3million of net proceeds to the Company. The underwriting discount of $6.4million and other expenses of $0.3million related to the February 2009 Equity Offering were recorded as an offset to additional paid-in capital. December 2009 Equity Offering In December 2009, the Company completed an offering of 13,000,000 shares of common stock (the "December 2009 Equity Offering"), which were sold at a price of $38.50 per share. This offering resulted in $488.1million of net proceeds to the Company. The underwriting discount of $12.1million and other expenses of $0.3million related to the December 2009 Equity Offering were recorded as an offset to additional paid-in capital. 2009 Debt Exchanges and 2010 Debt Conversions As of January1, 2009, the Company had outstanding $287.5million in aggregate principal amount of 4.75% convertible senior subordinated notes due 2013 (the "2013 Notes"). The 2013 Notes were convertible, at the option of the holder, into common stock at a price equal to approximately $23.14 per share, subject to adjustment. The 2013 Notes bore interest at the rate of 4.75% per annum, and the Company was required to make semi-annual interest payments on the outstanding principal balance of the 2013 Notes on February15 and August15 of each year. The Company had the right to redeem the 2013 Notes, in whole or in part, on or after February15, 2010, at the redemption prices stated in the indenture, plus accrued and unpaid interest to, but excluding, the redemption date. The 2013 Notes would have matured on February15, 2013. In the second quarter of 2009, the Company exchanged $143.5million in aggregate principal amount of the 2013 Notes, plus accrued interest, for 6,601,000 shares of newly-issued common stock. In the exchanges, the Company issued 46 shares of common stock for each $1,000 in principal amount of 2013 Notes. As a result of the exchanges, the Company incurred a non-cash charge of $12.3million in the second quarter of 2009. This charge is related to the incremental shares issued in the transaction over the number that would have been issued upon conversion of the 2013 Notes under their original terms, at the original conversion rate of approximately 43.22 shares of common stock per $1,000 in principal amount of the 2013 Notes. In addition, accrued interest of $2.1million and unamortized debt issuance costs of exchanged convertible notes of $3.5million were recorded as an offset to additional paid-in capital. In the fourth quarter of 2009, the Company exchanged $111.9million in aggregate principal amount of the 2013 Notes, plus accrued interest, for 4,980,838 shares of newly-issued common stock. In the exchanges, the Company issued 44.5 shares of common stock for each $1,000 in principal amount of 2013 Notes. As a result of the exchanges, the Company incurred a non-cash charge of $5.8million in the fourth qua

Collaborative Arrangements

Collaborative Arrangements
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Collaborative Arrangements	J. Collaborative Arrangements Janssen Pharmaceutica,N.V. In June 2006, the Company entered into a collaboration agreement with Janssen Pharmaceutica,N.V. ("Janssen") for the development, manufacture and commercialization of telaprevir, the Company's lead investigative HCV protease inhibitor. Under the agreement, Janssen has agreed to be responsible for 50% of the drug development costs incurred under the development program for the parties' territories (North America for the Company, and the rest of the world, other than the Far East, for Janssen) and has exclusive rights to commercialize telaprevir in its territories including Europe, South America, the Middle East, Africa and Australia. Under the development program for telaprevir, each party is incurring reimbursable drug development costs. Reimbursable costs incurred by Janssen are offset against reimbursable costs incurred by the Company. Amounts that Janssen pays to the Company for reimbursement, after the offset, are recorded as revenues. Accordingly, if Janssen incurs increased costs under the development program, the Company's revenues attributable to the reimbursement are reduced. Janssen made a $165.0million up-front license payment to the Company in July 2006. The up-front license payment is being amortized over the Company's estimated period of performance under the collaboration agreement. The Company's estimates regarding the period of performance under the Janssen collaboration agreement were adjusted in 2007, in the third quarter of 2009 and in the first quarter of 2010, as a result of changes in the global development plan for telaprevir, which contemplates the conduct of certain development activities in the post-approval period, if telaprevir is approved for marketing. These adjustments were made on a prospective basis beginning in the periods in which the changes were identified. These adjustments resulted in a decrease in the amount of revenues the Company recognized from the Janssen collaboration by $2.6million per quarter for the first adjustment, by $1.1million per quarter for the second adjustment and by $1.4million per quarter for the third adjustment. As of March31, 2010, there is $77.7million of deferred revenues related to this up-front license payment that will be recognized over the remaining period of performance. Under the agreement, Janssen agreed to make contingent milestone payments, which could have totaled up to $380.0million for successful development, approval and launch of telaprevir as a product. As of March31, 2010, the Company had earned $100.0million of these contingent milestone payments. The remaining $280.0million in milestones under the Company's agreement with Janssen include $100.0million related to the regulatory filing with and approval of telaprevir by the European Medicines Evaluation Agency, and $150.0million related to the launch of telaprevir in the European Union. On September30, 2009, the Company entered into two financial transactions related to the $250.0million in milestones related to the filing, approval and launch of telaprevir in the European Union. Please refer to NoteL, "September 2009 Financial Transactions."

Acquisition of ViroChem Pharma

Acquisition of ViroChem Pharma Inc.
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Acquisition of ViroChem Pharma Inc.	K. Acquisition of ViroChem PharmaInc. On March12, 2009, the Company acquired 100% of the outstanding equity of ViroChem PharmaInc. ("ViroChem"), a privately-held biotechnology company based in Canada, for $100.0million in cash and 10,733,527 shares of the Company's common stock. Vertex acquired ViroChem in order to add two clinical-development stage HCV polymerase inhibitors to Vertex's HCV drug development portfolio. At the time of the acquisition, ViroChem was also engaged in research activities related to viral diseases and was developing an early-stage drug candidate for the treatment of patients with HIV infection. The transaction was accounted for under the acquisition method of accounting. All of the assets acquired and liabilities assumed in the transaction were recognized at their acquisition-date fair values, while transaction costs and restructuring costs associated with the transaction were expensed as incurred. The intangible assets and goodwill related to the ViroChem acquisition are tested for impairment on an annual basis as of October1, or earlier if impairment indicators are present. All of the intangible assets acquired in the ViroChem acquisition related to in-process research and development assets. These in-process research and development assets primarily related to ViroChem's two clinical-development stage HCV polymerase inhibitors, VX-222 and VX-759, which accounted for $412.9million and $105.8million, respectively, of the intangible assets reflected on the Company's condensed consolidated balance sheets as of March31, 2010 and December31, 2009. The Company's condensed consolidated balance sheets also reflect goodwill that relates to the potential synergies from the possible development of combination therapies involving telaprevir and the acquired drug candidates. No impairment has been found for VX-222 or VX-759 or goodwill since the acquisition date. In addition, the Company considered ViroChem's other clinical drug candidates and determined that VCH-286, ViroChem's lead HIV drug candidate, had an estimated fair value of $7.2million at the acquisition date, based on development costs through the acquisition date. Pursuant to the Company's annual impairment analysis, the Company determined that VCH-286's fair value was zero, resulting in a $7.2million impairment charge in the fourth quarter of 2009. The deferred tax liability of $160.3million as of March31, 2010 and December31, 2009 primarily relates to the tax impact of future amortization or impairments associated with the identified intangible assets acquired, which are not deductible for tax purposes. In connection with the impairment charge for VCH-286, the Company also recorded an adjustment of $2.2million to the deferred tax liability in the fourth quarter of 2009. In connection with the acquisition of ViroChem, the Company incurred $7.8million in expenses, which are reflected as acquisition-related expenses on the condensed consolidated statement of operations in the three months ended March31, 2009. These costs include transaction expenses as well as a restructuring charge the Company incurred in March 2009 when it determined it would rest

September 2009 Financial Transa

September 2009 Financial Transactions
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
September 2009 Financial Transactions	L. September 2009 Financial Transactions 2012 Notes On September30, 2009, the Company sold $155.0million in aggregate principal amount of secured notes due 2012 (the "2012 Notes") for an aggregate of $122.2million pursuant to a note purchase agreement with Olmsted ParkS.A. (the "Purchaser"). The 2012 Notes were issued pursuant to, and the 2012 Notes are governed by the terms of, an indenture entered into on September30, 2009 between the Company and U.S. Bank National Association, as trustee and collateral agent. In connection with the issuance of the 2012 Notes, the Company granted a security interest to the Purchaser with respect to $155.0million of future telaprevir milestone payments that the Company is eligible to earn from Janssen for the future filing, approval and launch of telaprevir in the European Union. The 2012 Notes were issued at a discount and do not pay current interest prior to maturity. The 2012 Notes will mature on October31, 2012, subject to earlier mandatory redemption to the extent specified milestone events set forth in the Company's collaboration with Janssen occur prior to October31, 2012. $100.0million of these potential milestone payments relate to the regulatory filing with and approval of telaprevir by the European Medicines Evaluation Agency, and $55.0million relate to the launch of telaprevir in the European Union. The Company will be required to redeem the portion of the 2012 Notes equal to each milestone payment as each such milestone payment is earned under the Janssen collaboration. The holders of the 2012 Notes have the right to cause the Company to repay all or any part of the 2012 Notes at 100% of the principal amount of the 2012 Notes to be repurchased if a change of control of the Company occurs. The Company may also redeem all or any part of the 2012 Notes at any time at 100% of the principal amount of the 2012 Notes to be redeemed. Upon certain events of default occurring and continuing, either the trustee or the holders of not less than 25% in aggregate principal amount of the 2012 Notes then outstanding may declare the principal of the 2012 Notes immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization relating to the Company, the principal amount of the 2012 Notes shall automatically become immediately due and payable. The Company has determined that the 2012 Notes contain an embedded derivative related to the potential mandatory redemption or early repayment of the 2012 Notes at the principal amount prior to their maturity date. The Company bifurcated the embedded derivative from the 2012 Notes because the features of the embedded derivative were not clearly and closely related to the 2012 Notes. The Company determines the fair value of the embedded derivative based on a probability-weighted model of the discounted value that market participants would ascribe to the potential mandatory redemption and early repayment features of the 2012 Notes. The Company records quarterly interest expense related to the 2012 Notes determined using the effective interest rate method. The fair value of this embedded derivative is evaluated quarterly

Sale of HIV Protease Inhibitor

Sale of HIV Protease Inhibitor Royalty Stream
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Sale of HIV Protease Inhibitor Royalty Stream	M. Sale of HIV Protease Inhibitor Royalty Stream In December 1993, the Company and GlaxoSmithKlineplc entered into a collaboration agreement to research, develop and commercialize HIV protease inhibitors, including Agenerase (amprenavir) and Lexiva/Telzir (fosamprenavir calcium). Under the collaboration agreement, GlaxoSmithKline agreed to pay the Company royalties on net sales of drugs developed under the collaboration. The Company began earning a royalty from GlaxoSmithKline in 1999 on net sales of Agenerase, in 2003 on net sales of Lexiva, and in 2004 on net sales of Telzir. GlaxoSmithKline has the right to terminate its arrangement with the Company without cause upon twelve months' notice. Termination of the collaboration agreement by GlaxoSmithKline will relieve it of its obligation to make further payments under the agreement and will end any license granted to GlaxoSmithKline by the Company under the agreement. In June 1996, the Company and GlaxoSmithKline obtained a worldwide, non-exclusive license under certain G.D. SearleCo. ("Searle," now owned by Pharmacia/Pfizer) patents in the area of HIV protease inhibition. Searle is paid royalties based on net sales of Agenerase and Lexiva/Telzir. On May30, 2008, the Company entered into a purchase agreement (the "Purchase Agreement") with Fosamprenavir Royalty,L.P. ("Fosamprenavir Royalty") pursuant to which the Company sold, and Fosamprenavir Royalty purchased, the Company's right to receive royalty payments, net of royalty amounts to be earned and due to Searle, arising from sales of Lexiva/Telzir and Agenerase under the Company's 1993 agreement with GlaxoSmithKline, from April1, 2008 to the end of the term of the collaboration agreement, for a one-time cash payment of $160.0million to the Company. In accordance with the Purchase Agreement, GlaxoSmithKline will make all royalty payments, net of the subroyalty amounts payable to Searle, directly to Fosamprenavir Royalty. The Purchase Agreement also contains other representations, warranties, covenants and indemnification obligations. The Company continues to be obligated for royalty amounts earned and that are due to Searle. The Company has instructed GlaxoSmithKline to pay such amounts directly to Searle as they become due. The Company classified the proceeds received from Fosamprenavir Royalty as deferred revenues, to be recognized as royalty revenues over the life of the collaboration agreement, because of the Company's continuing involvement in the royalty arrangement over the term of the Purchase Agreement. Such continuing involvement, which is required pursuant to covenants contained in the Purchase Agreement, includes overseeing GlaxoSmithKline's compliance with the collaboration agreement, monitoring and defending patent infringement, adverse claims or litigation involving the royalty stream, undertaking to cooperate with Fosamprenavir Royalty's efforts to find a new license partner if GlaxoSmithKline terminates the collaboration agreement, and complying with the license agreement with Searle, including the obligation to make future royalty payments to Searle. Because the transaction was structured as a non-cancellabl

Guarantees

Guarantees
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Guarantees	N. Guarantees As permitted under Massachusetts law, the Company's Articles of Organization and Bylaws provide that the Company will indemnify certain of its officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchased directors' and officers' liability insurance policies that could reduce its monetary exposure and enable it to recover a portion of any future amounts paid. No indemnification claims are currently outstanding and the Company believes the estimated fair value of these indemnification arrangements is minimal. The Company customarily agrees in the ordinary course of its business to indemnification provisions in agreements with clinical trials investigators and sites in its drug development programs, in sponsored research agreements with academic and not-for-profit institutions, in various comparable agreements involving parties performing services for the Company in the ordinary course of business, and in its real estate leases. The Company also customarily agrees to certain indemnification provisions in its drug discovery, development and commercialization collaboration agreements. With respect to the Company's clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator's institution relating to personal injury or property damage, violations of law or certain breaches of the Company's contractual obligations arising out of the research or clinical testing of the Company's compounds or drug candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by the Company, to violations of law by the Company or to certain breaches of the Company's contractual obligations. The indemnification provisions appearing in the Company's collaboration agreements are similar, but in addition provide some limited indemnification for its collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these provisions is generally unlimited. The Company has purchased insurance policies covering personal injury, property damage and general liability that reduce its exposure for indemnification and would enable it in many cases to recover a portion of any future amounts paid. The Company has never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification ar

Contingencies

Contingencies
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Contingencies	O. Contingencies The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no contingent liabilities accrued as of March31, 2010 or December31, 2009.

Recent Accounting Pronouncement

Recent Accounting Pronouncements
	3 Months Ended Mar. 31, 2010
Notes to Condensed Consolidated Financial Statements
Recent Accounting Pronouncements	P. Recent Accounting Pronouncements In September 2009, the Financial Accounting Standards Board provided updated guidance (1)on whether multiple deliverables exist, how the deliverables in a revenue arrangement should be separated and how the consideration should be allocated; (2)requiring an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price; and (3)eliminating the use of the residual method and requiring an entity to allocate revenue using the relative selling price method. The update is effective for fiscal years beginning on or after June15, 2010, with early adoption permitted. Adoption may either be on a prospective basis or by retrospective application. The Company is currently evaluating the effect of this update to its accounting and reporting systems and processes; however, at this time the Company is unable to quantify the impact on its condensed consolidated financial statements of its adoption or determine the timing and method of its adoption.

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Apr. 22, 2010
Document and Entity Information
Entity Registrant Name	VERTEX PHARMACEUTICALS INC / MA
Entity Central Index Key	0000875320
Document Type	10-Q
Document Period End Date	2010-03-31
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		202,202,912
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1