Item 16. FORM 10-K SUMMARY

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			Vertex Pharmaceuticals Incorporated
February 15, 2024			By:			/s/ Reshma Kewalramani
						Reshma Kewalramani Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

			Name															Title												Date
/s/ Reshma Kewalramani
Reshma Kewalramani												President, Chief Executive Officer and Director (Principal Executive Officer)															February 15, 2024
/s/ Charles F. Wagner, Jr.
Charles F. Wagner, Jr.												Executive Vice President and Chief Financial Officer (Principal Financial Officer)															February 15, 2024
/s/ Kristen C. Ambrose
Kristen C. Ambrose												Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)															February 15, 2024
/s/Jeffrey M. Leiden
Jeffrey M. Leiden												Executive Chairman															February 15, 2024
/s/ Sangeeta N. Bhatia
Sangeeta N. Bhatia												Director															February 15, 2024
/s/ Lloyd Carney
Lloyd Carney												Director															February 15, 2024
/s/ Alan Garber
Alan Garber												Director															February 15, 2024
/s/ Terrence C. Kearney
Terrence C. Kearney												Director															February 15, 2024
/s/ Michel Lagarde
Michel Lagarde												Director															February 15, 2024
/s/ Diana McKenzie
Diana McKenzie												Director															February 15, 2024
/s/ Nancy A. Thornberry
Nancy A. Thornberry												Director															February 15, 2024
/s/ Bruce I. Sachs
Bruce I. Sachs												Director															February 15, 2024
/s/ Suketu Upadhyay
Suketu Upadhyay												Director															February 15, 2024

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Vertex Pharmaceuticals Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Vertex Pharmaceuticals Incorporated (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 15, 2024, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

F-1

						Medicaid Drug Rebate Program in the U.S.
Description of the Matter						As discussed in Note A to the Company’s consolidated financial statements, the Company recognizes revenue from product sales based on amounts due from customers net of allowances for variable consideration, which include, among others, rebates mandated by law under Medicaid and other government pricing programs. The most significant estimates relate to government and private payor rebates, chargebacks, discounts and fees, collectively rebates. The Company includes an estimate of variable consideration in its transaction price at the time of sale, when control of the product transfers to the customer. The Company estimates its Medicaid and other government pricing accruals based on monthly sales, historical experience of claims submitted by the various states and jurisdictions, historical rebate rates and estimated lag time of the rebate invoices. Rebate accruals inclusive of estimated amounts due for claims not yet received or processed as part of the Company’s Medicaid program are recorded within accrued expenses on the Company’s consolidated balance sheet. Auditing the allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S. was complex and judgmental due to the significant estimation required in determining certain assumptions including the levels of expected utilization of these rebates based on the amount of product sold to eligible patients, as well as the complexity of the government mandated calculations. The allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S. are sensitive to these significant assumptions and calculations.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s revenue recognition process, including controls over management’s review of the allowances for Medicaid rebates. We tested the Company’s controls to assess the completeness and accuracy of the current and historical data that supports the Medicaid estimate, significant assumptions related to the inputs utilized as well as management’s review of the application of the government pricing regulations. Our audit procedures to test the allowances for rebates owed pursuant to the Medicaid Drug Rebate Program in the U.S., included, the following: we performed audit procedures to assess the methodology used to determine the estimate and tested the significant assumptions as well as the underlying data used by the Company in its analysis. We also assessed the historical accuracy of the Company’s estimates of Medicaid rebates by comparing assumptions to historical trends and evaluating the change from prior periods. We further tested the completeness and accuracy of the underlying data used in the Company’s calculations through reconciliation to third-party invoices, claims data and actual cash payments. In addition, we involved our government pricing specialists to assist in evaluating management’s methodology and calculations used in the measurement of certain estimated rebates.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2005.

Boston, Massachusetts

February 15, 2024

F-2

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Statements of Income

(in millions, except per share amounts)

			Year Ended December 31,
			2023						2022						2021
Revenues:
Product revenues, net			$	9,869.2					$	8,930.7					$	7,573.4
Other revenues			—						—						1.0
Total revenues			9,869.2						8,930.7						7,574.4
Costs and expenses:
Cost of sales			1,262.2						1,080.3						904.2
Research and development expenses			3,162.9						2,540.3						1,937.8
Acquired in-process research and development expenses			527.1						115.5						1,113.3
Selling, general and administrative expenses			1,136.6						944.7						840.1
Change in fair value of contingent consideration			(51.6)						(57.5)						(3.1)
Total costs and expenses			6,037.2						4,623.3						4,792.3
Income from operations			3,832.0						4,307.4						2,782.1
Interest income			614.7						144.6						4.9
Interest expense			(44.1)						(54.8)						(61.5)
Other (expense) income, net			(22.8)						(164.8)						4.9
Income before provision for income taxes			4,379.8						4,232.4						2,730.4
Provision for income taxes			760.2						910.4						388.3
Net income			$	3,619.6					$	3,322.0					$	2,342.1
Net income per common share:
Basic			$	14.05					$	12.97					$	9.09
Diluted			$	13.89					$	12.82					$	9.01
Shares used in per share calculations:
Basic			257.7						256.1						257.7
Diluted			260.5						259.1						259.9

Please refer to Note A, “Nature of Business and Accounting Policies,” for an explanation of amounts reclassified from “Research and development expenses” to “Acquired in-process research and development expenses” for 2021.

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

F-3

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Statements of Comprehensive Income

(in millions)

			Year ended December 31,
			2023						2022						2021
Net income			$	3,619.6					$	3,322.0					$	2,342.1
Other comprehensive (loss) income:
Unrealized holding gains (losses) on marketable securities, net of tax of $(2.7), zero and zero, respectively			9.7						0.4						(0.8)
Unrealized (losses) gains on foreign currency forward contracts, net of tax of $14.0, $1.0 and $(21.8), respectively			(50.9)						(4.1)						83.2
Foreign currency translation adjustment			26.1						(11.4)						2.0
Total other comprehensive (loss) income			(15.1)						(15.1)						84.4
Comprehensive income			$	3,604.5					$	3,306.9					$	2,426.5

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

F-4

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Balance Sheets

(in millions, exce****pt share data)

			December 31,
			2023						2022
Assets
Current assets:
Cash and cash equivalents			$	10,369.1					$	10,504.0
Marketable securities			849.2						274.5
Accounts receivable, net			1,563.4						1,442.2
Inventories			738.8						460.6
Prepaid expenses and other current assets			623.7						553.5
Total current assets			14,144.2						13,234.8
Property and equipment, net			1,159.3						1,108.4
Goodwill			1,088.0						1,088.0
Other intangible assets, net			839.9						603.6
Deferred tax assets			1,812.1						1,246.9
Operating lease assets			293.6						347.4
Long-term marketable securities			2,497.8						112.2
Other assets			895.3						409.6
Total assets			$	22,730.2					$	18,150.9
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	364.9					$	303.9
Accrued expenses			2,655.3						2,126.7
Other current liabilities			527.2						311.5
Total current liabilities			3,547.4						2,742.1
Long-term finance lease liabilities			376.1						430.8
Long-term operating lease liabilities			348.6						379.5
Other long-term liabilities			877.7						685.8
Total liabilities			5,149.8						4,238.2
Commitments and contingencies			—						—
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding			—						—
Common stock, $0.01 par value; 500,000,000 shares authorized, 257,695,221 and 257,011,628 shares issued and outstanding, respectively			2.6						2.6
Additional paid-in capital			7,449.7						7,386.5
Accumulated other comprehensive (loss) income			(14.3)						0.8
Retained earnings			10,142.4						6,522.8
Total shareholders’ equity			17,580.4						13,912.7
Total liabilities and shareholders’ equity			$	22,730.2					$	18,150.9

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

F-5

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Statements of Shareholders’ Equity

(in millions)

			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Retained Earnings						Total Shareholders’ Equity
			Shares						Amount
Balance at December 31, 2020			259.9						$	2.6					$	7,894.0					$	(68.5)					$	858.7					$	8,686.8
Other comprehensive income, net of tax			—						—						—						84.4						—						84.4
Net income			—						—						—						—						2,342.1						2,342.1
Repurchases of common stock			(7.3)						(0.1)						(1,425.3)						—						—						(1,425.4)
Common stock withheld for employee tax obligations			(0.6)						(0.0)						(135.9)						—						—						(135.9)
Issuance of common stock under benefit plans			2.5						0.0						102.5						—						—						102.5
Stock-based compensation expense			—						—						445.5						—						—						445.5
Balance at December 31, 2021			254.5						$	2.5					$	6,880.8					$	15.9					$	3,200.8					$	10,100.0
Other comprehensive loss, net of tax			—						—						—						(15.1)						—						(15.1)
Net income			—						—						—						—						3,322.0						3,322.0
Common stock withheld for employee tax obligations			(0.7)						(0.0)						(172.0)						—						—						(172.0)
Issuance of common stock under benefit plans			3.2						0.1						187.3						—						—						187.4
Stock-based compensation expense			—						—						490.4						—						—						490.4
Balance at December 31, 2022			257.0						$	2.6					$	7,386.5					$	0.8					$	6,522.8					$	13,912.7
Other comprehensive loss, net of tax			—						—						—						(15.1)						—						(15.1)
Net income			—						—						—						—						3,619.6						3,619.6
Repurchases of common stock			(1.3)						(0.0)						(427.6)						—						—						(427.6)
Common stock withheld for employee tax obligations			(0.7)						(0.0)						(226.1)						—						—						(226.1)
Issuance of common stock under benefit plans			2.7						0.0						133.4						—						—						133.4
Stock-based compensation expense			—						—						583.5						—						—						583.5
Balance at December 31, 2023			257.7						$	2.6					$	7,449.7					$	(14.3)					$	10,142.4					$	17,580.4

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

F-6

VERTEX PHARMACEUTICALS INCORPORATED

Consolidated Statements of Cash Flows

(in millions)

			Year Ended December 31,
			2023						2022						2021
Cash flows from operating activities:
Net income			$	3,619.6					$	3,322.0					$	2,342.1
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense			581.2						491.3						441.4
Depreciation and amortization expenses			181.3						148.3						125.6
Deferred income taxes			(536.5)						(275.9)						(154.6)
Losses (gains) on equity securities			0.6						149.1						(17.1)
Decrease in fair value of contingent consideration			(51.6)						(57.5)						(3.1)
Other non-cash items, net			8.4						11.8						14.4
Changes in operating assets and liabilities:
Accounts receivable, net			(84.1)						(358.6)						(274.7)
Inventories			(322.9)						(136.4)						(92.8)
Prepaid expenses and other assets			(545.7)						(326.4)						(91.8)
Accounts payable			48.7						120.8						31.9
Accrued expenses			429.4						542.5						305.4
Other liabilities			208.9						498.9						16.8
Net cash provided by operating activities			3,537.3						4,129.9						2,643.5
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(3,786.5)						(692.7)						(528.2)
Sales and maturities of available-for-sale debt securities			839.1						920.0						499.3
Purchases of property and equipment			(200.4)						(204.7)						(235.0)
Sale of equity securities			95.1						—						—
Investment in equity securities and notes receivable			(31.0)						(47.8)						(77.0)
Payments related to finite-lived intangible assets			(58.0)						—						—
Payment to acquire ViaCyte, net of cash acquired			—						(295.9)						—
Net cash used in investing activities			(3,141.7)						(321.1)						(340.9)
Cash flows from financing activities:
Issuances of common stock under benefit plans			134.6						186.3						102.0
Repurchases of common stock			(427.6)						—						(1,425.4)
Payments in connection with common stock withheld for employee tax obligations			(226.1)						(172.0)						(135.9)
Payments on finance leases			(44.9)						(85.5)						(47.0)
Proceeds from finance leases and other financing activities			1.8						3.5						28.3
Net cash used in financing activities			(562.2)						(67.7)						(1,478.0)
Effect of changes in exchange rates on cash			26.9						(29.2)						(13.4)
Net (decrease) increase in cash, cash equivalents and restricted cash			(139.7)						3,711.9						811.2
Cash, cash equivalents and restricted cash—beginning of period			10,512.0						6,800.1						5,988.9
Cash, cash equivalents and restricted cash—end of period			$	10,372.3					$	10,512.0					$	6,800.1
Supplemental disclosure of cash flow information:
Cash paid for income taxes			$	1,677.3					$	1,057.8					$	476.3
Cash paid for interest			$	43.1					$	52.3					$	56.3
Net payments due to CRISPR Therapeutics related to finite-lived intangible assets			$	180.0					$	—					$	—

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

F-7

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements

**A.**Nature of Business and Accounting Policies

Business

Vertex Pharmaceuticals Incorporated (“Vertex,” “we,” “us” or “our”) is a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases, with a focus on specialty markets. We have four approved medicines that treat the underlying cause of cystic fibrosis (“CF”), a life-threatening genetic disease, and one approved therapy that treats severe sickle cell disease (“SCD”) and transfusion dependent beta thalassemia (“TDT”), life shortening inherited blood disorders. Our pipeline includes clinical-stage programs in CF, sickle cell disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney disease, type 1 diabetes, myotonic dystrophy type 1 and alpha-1 antitrypsin deficiency.

Our marketed CF medicines are TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), SYMDEKO/SYMKEVI (tezacaftor/ivacaftor and ivacaftor), ORKAMBI (lumacaftor/ivacaftor) and KALYDECO (ivacaftor).

Starting in the fourth quarter of 2023, we have received approval to market CASGEVY (exagamglogene autotemcel or “exa-cel”) for the treatment of SCD and TDT in the United States (“U.S.”), the European Union, the United Kingdom (“U.K.”), the Kingdom of Saudi Arabia, and the Kingdom of Bahrain.

Basis of Presentation

The accompanying consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”), reflect the operations of Vertex and our wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated. We operate in one segment, pharmaceuticals. Please refer to Note Q, “Segment Information,” for enterprise-wide disclosures regarding our revenues, major customers and long-lived assets by geographic area.

In 2022, we began to separately classify upfront, contingent milestone, and other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as “Acquired in-process research and development expenses” in our consolidated statements of income in cases where such acquired assets do not have an alternative future use. To conform prior periods to current presentation, we reclassified $1.1 billion from “Research and development expenses” to “Acquired in-process research and development expenses” for 2021. Please refer to Note B, “Collaboration, License and Other Arrangements,” for further information on these transactions.

Use of Estimates

The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements, and the amounts of revenues and expenses during the reported periods. We base our estimates on historical experience and various other assumptions, including in certain circumstances future projections that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Revenue Recognition

We recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five-step model to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services that we transfer to the customer. Once a contract is determined to be within the

F-8

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery.

Product Revenues, Net

Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution fees, (b) government and private payor rebates, chargebacks, discounts and fees and (c) other incentives for certain indirect customers, including costs of co-pay assistance programs for patients. Reserves are established for the estimates of variable consideration based on the amounts earned or to be claimed on the related sales. The reserves are classified as reductions to “Accounts receivable, net” if payable to a customer or “Accrued expenses” if payable to a third-party. Where appropriate, we utilize the expected value method to determine the appropriate amount for estimates of variable consideration based on factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. The amount of variable consideration that is included in the transaction price may be constrained and is included in our net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

Invoice Discounts and Distribution Fees: In the U.S., we may provide invoice discounts on product sales to our customers for prompt payment and pay fees for distribution services, such as fees for certain data that customers provide to us. We estimate that, based on our experience, our customers will earn these discounts and fees, and deduct the full amount of these discounts and fees from our gross product revenues and accounts receivable at the time such revenues are recognized.

Rebates, Chargebacks, Discounts and Fees: We contract with government agencies (our “Third-party Payors”) so that products will be eligible for purchase by, or partial or full reimbursement from, such Third-party Payors. We estimate the rebates, chargebacks, discounts and fees we will provide to Third-party Payors and deduct these estimated amounts from our gross product revenues at the time the revenues are recognized. For each product, we estimate the aggregate rebates, chargebacks and discounts that we will provide to Third-party Payors based upon (i) our contracts with these Third-party Payors, (ii) the government-mandated discounts and fees applicable to government-funded programs, (iii) information obtained from our customers and other third-party data regarding the payor mix for such product and (iv) historical experience.

Other Incentives: Other incentives that we offer include co-pay mitigation rebates that we provide in the U.S. to commercially insured patients who have coverage and who reside in states that permit co-pay mitigation programs. Based upon the terms of our co-pay mitigation programs, we estimate average co-pay mitigation amounts for each of our products to establish appropriate accruals.

We make significant estimates and judgments that materially affect our recognition of net product revenues. We adjust our estimated rebates, chargebacks and discounts based on new information, including information regarding actual rebates, chargebacks and discounts for our products, as it becomes available. Claims by third-party payors for rebates, chargebacks and discounts frequently are submitted to us significantly after the related sales, potentially resulting in adjustments in the period in which the new information becomes known. Our credits to product revenue related to prior period sales have not been significant and primarily related to rebates and discounts.

We exclude taxes collected from customers relating to product sales and remitted to governmental authorities from revenues.

CF Product Revenues

We sell our CF products principally to a limited number of specialty pharmacy and specialty distributors in the U.S.,

F-9

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

which account for the largest portion of our total revenues. Our customers in the U.S. subsequently resell the products to patients and health care providers. We make international sales primarily to specialty distributors and retail pharmacies, as well as hospitals and clinics, many of which are government-owned or supported. As noted above, we recognize net product revenues from sales when our customers obtain control of our products, which typically occurs upon delivery to our CF customers. Our payment terms are approximately 30 days in the U.S. and consistent with prevailing practice in international markets.

CASGEVY Product Revenues

We expect to sell CASGEVY principally to a limited number of specialty distributors or directly to authorized hospitals and clinics in markets where a specialty distributor is not utilized. Control is expected to transfer to our CASGEVY customers, resulting in revenue recognition, upon infusion of this gene-editing therapy into our patients.

Contract Liabilities

We had contract liabilities of $170.3 million and $159.6 million as of December 31, 2023 and 2022, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we can receive for our CF products. Upon exceeding the annual reimbursement amount provided by the customer’s contract with us, our CF products are provided free of charge, which is a material right. These contracts include upfront payments and fees. If we estimate that we will exceed the annual reimbursement amount under a contract, we defer a portion of the consideration received for shipments made up to the annual reimbursement limit as a portion of “Other current liabilities.” Once the reimbursement limit has been reached, we recognize the deferred amount as revenue when we ship the free products. Our CF product revenue contracts include performance obligations that are one year or less.

Our contract liabilities at the end of each fiscal year relate to contracts with CF annual reimbursement limits in international markets in which the annual period associated with the contract is not the same as our fiscal year. In these markets we recognize revenues related to performance obligations satisfied in previous years; however, these revenues do not relate to any performance obligations that were satisfied more than 12 months prior to the beginning of the current year. During the years ended December 31, 2023, 2022 and 2021, we recorded $159.6 million, $171.7 million and $191.5 million, respectively, of CF product revenues that were recorded as contract liabilities at the beginning of the year.

Concentration of Credit Risk

Financial instruments that potentially subject us to concentration of credit risk consist principally of cash equivalents and marketable securities. We place these investments with highly rated financial institutions, and, by policy, limit the amount of credit exposure to any one financial institution. We also maintain a foreign currency hedging program that includes foreign currency forward contracts with several counterparties. We have not experienced any credit losses related to these financial instruments and do not believe we are exposed to any significant credit risk related to these instruments.

We are also subject to credit risk from our accounts receivable related to our product sales and collaborators. We evaluate the creditworthiness of each of our customers and have determined that all our material customers are creditworthy. To date, we have not experienced significant losses with respect to the collection of our accounts receivable. We believe that our allowances, which are not significant to our consolidated financial statements, are adequate at December 31, 2023. Please refer to Note Q, “Segment Information,” for further information.

Cash and Cash Equivalents

We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Marketable Securities

As of December 31, 2023, our marketable securities consisted of investments in available-for-sale debt securities and corporate equity securities with readily determinable fair values. We classify marketable securities with current maturities of less than one year as current assets on our consolidated balance sheets. The remainder of our marketable securities are classified as long-term assets within “Long-term marketable securities” on our consolidated balance sheets. The fair value of

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these securities is based on quoted prices for identical or similar assets.

We record unrealized gains (losses) on available-for-sale debt securities as a component of “Accumulated other comprehensive (loss) income,” which is a separate component of shareholders’ equity on our consolidated balance sheets, until such gains and losses are realized. Realized gains and losses, if any, are determined using the specific identification method.

For available-for-sale debt securities in unrealized loss positions, we are required to assess whether to record an allowance for credit losses using an expected loss model. A credit loss is limited to the amount by which the amortized cost of an investment exceeds its fair value. A previously recognized credit loss may be decreased in subsequent periods if our estimate of fair value for the investment increases. To determine whether to record a credit loss, we consider issuer specific credit ratings and historical losses as well as current economic conditions and our expectations for future economic conditions.

We record changes in the fair value of our investments in corporate equity securities to “Other (expense) income, net” in our consolidated statements of income. Realized gains and losses, which are also included in “Other (expense) income, net,” are determined on an original weighted-average cost basis.

Accounts Receivable

We deduct invoice discounts for prompt payment and fees for distribution services from our accounts receivable based on our experience that our customers will earn these discounts and fees. Our estimates for our allowance for credit losses, which has not been significant to date, is determined based on existing contractual payment terms, historical payment patterns, current economic conditions and our expectation for future economic conditions.

Stock-based Compensation Expense

We expense the fair value of employee restricted stock units and other forms of stock-based employee compensation over the associated employee service period on a straight-line basis. Stock-based compensation expense is determined based on the fair value of the award at the grant date and is adjusted each period to reflect actual forfeitures and the outcomes of certain performance conditions.

For awards with performance conditions in which the award does not vest unless the performance condition is met, we recognize expense if, and to the extent that, we estimate that achievement of the performance condition is probable. If we conclude that vesting is probable, we recognize expense from the date we reach this conclusion through the estimated vesting date.

We provide to employees who have rendered a certain number of years of service to Vertex and meet certain age requirements, partial or full acceleration of vesting of these equity awards, subject to certain conditions including a notification period, upon a termination of employment other than for cause. Approximately 5% of our employees were eligible for partial or full acceleration of any of their equity awards as of December 31, 2023. We recognize stock-based compensation expense related to these awards over a service period reflecting qualified employees’ eligibility for partial or full acceleration of vesting.

Please refer to Note N, “Stock-based Compensation Expense,” for tables displaying our stock-based compensation expense by type of award and by line item within our consolidated statements of income.

Research and Development Expenses

Research and development expenses are comprised of costs we incur in performing research and development activities, including salary and benefits; stock-based compensation expense; outsourced services and other direct expenses, including clinical trial, pharmaceutical development and drug supply costs; intangible asset impairment charges; and infrastructure costs, including facilities costs and depreciation expense. We recognize research and development expenses as incurred. We capitalize nonrefundable advance payments we make for research and development activities and expense the payments as the related goods are delivered or the related services are performed.

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Acquired In-process Research and Development Expenses

Our research and development activities include upfront, contingent milestone, and other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions. In-process research and development that is acquired in a transaction that does not qualify as a business combination under U.S. GAAP and that does not have an alternative future use is recorded to “Acquired in-process research and development expenses” in our consolidated statements of income in the period in which it is acquired.

Inventories

We value our inventories at the lower-of-cost or net realizable value. We determine the cost of our inventories, which include amounts related to materials and manufacturing overhead, on a first-in, first-out basis. We perform an assessment of the recoverability of our capitalized inventory during each reporting period and write down any excess and obsolete inventories to their net realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases are capitalized and recorded upon sale in “Cost of sales” in our consolidated statements of income. Shipping and handling costs incurred for product shipments are recorded as incurred in “Cost of sales” in our consolidated statements of income.

We capitalize inventories produced in preparation for initiating sales of a product candidate when the related product candidate is considered to have a high likelihood of regulatory approval and the related costs are expected to be recoverable through sales of the inventories. In determining whether to capitalize such inventories, we evaluate, among other factors, information regarding the product candidate’s safety and efficacy, the status of regulatory submissions and communications with regulatory authorities and the outlook for commercial sales, including the existence of current or anticipated competitive drugs and the availability of reimbursement. In addition, we evaluate risks associated with manufacturing the product candidate and the remaining shelf-life of the inventories.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation. Depreciation expense is recorded using the straight-line method over the estimated useful life of the related asset generally as follows:

Description						Estimated Useful Life
Buildings and improvements						15 to 40 years
Laboratory equipment, other equipment and furniture						7 to 10 years
Leasehold improvements; assets under finance leases						The shorter of the useful life of the assets or the estimated remaining term of the associated lease
Computers and software						3 to 5 years

Maintenance and repairs to an asset that do not improve or extend its life are expensed as incurred. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in our consolidated statements of income. We perform an assessment of the fair value of the assets if indicators of impairment are identified during a reporting period and record the assets at the lower of the net book value or the fair value of the assets.

We capitalize costs incurred to develop software for internal use during the application development stage, which are depreciated over the useful life of the related asset.

Cloud Computing Service Contracts

We classify costs incurred to implement cloud computing service contracts as “Other assets” on our consolidated balance sheets. Amortization is recorded over the noncancellable term of the cloud computing service contract, plus any optional renewal periods that are reasonably certain to be exercised.

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Leases

We determine whether an arrangement contains a lease at inception. If a lease is identified in an arrangement, we recognize a right-of-use asset and liability on our consolidated balance sheet and determine whether the lease should be classified as a finance or operating lease. We do not recognize assets or liabilities for leases with lease terms of less than 12 months.

A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to Vertex by the end of the lease term, (ii) we hold an option to purchase the leased asset that we are reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases.

Finance and operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the rate implicit is not readily determinable, we utilize our incremental borrowing rate at the lease commencement date. Operating lease assets are further adjusted for prepaid or accrued lease payments. Operating lease payments are expensed using the straight-line method as an operating expense over the lease term. Finance lease assets are amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term. Finance lease payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance liability associated with the lease.

We do not separate lease and non-lease components for our real estate leases when determining which lease payments to include in the calculation of our lease assets and liabilities. Variable lease payments are expensed as incurred. If a lease includes an option to extend or terminate the lease, we reflect the option in the lease term if it is reasonably certain we will exercise the option.

Finance leases are recorded in “Property and equipment, net,” “Other current liabilities” and “Long-term finance lease liabilities,” and operating leases are recorded in “Operating lease assets,” “Other current liabilities” and “Long-term operating lease liabilities” on our consolidated balance sheets.

Income Taxes

Our provision for income taxes is accounted for under the asset and liability method and includes federal, state, local and foreign taxes.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. A valuation allowance is applied against any net deferred tax asset if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. On a periodic basis, we reassess the valuation allowance on our deferred income tax assets weighing positive and negative evidence to assess the recoverability of our deferred tax assets. We include, among other things, our recent financial performance and our future projections in this periodic assessment.

We record liabilities related to uncertain tax positions by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We evaluate our uncertain tax positions on a quarterly basis and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in our tax returns, and changes in facts or circumstances related to a tax position. We adjust our liabilities to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions. We accrue interest and penalties related to unrecognized tax benefits as a component of our “Provision for income taxes.”

As part of the U.S. Tax Cut and Jobs Act of 2017, we are subject to a territorial tax system, under which we must

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establish an accounting policy to provide for tax on Global Intangible Low Taxed Income (“GILTI”) earned by certain foreign subsidiaries. We have elected to treat the impact of GILTI as a current tax expense in our “Provision for income taxes.”

Variable Interest Entities

We review each agreement pursuant to which we license technologies owned by a third party to determine whether or not we have a variable interest via the license agreement with the third party and if the variable interest is a variable interest in the third party as a whole and whether or not we are the primary beneficiary of that variable interest entity (“VIE”). If we determine we are the primary beneficiary of a VIE at the onset of a license agreement, it is treated as a business combination and we consolidate the financial statements of the VIE into our consolidated financial statements until we are no longer the primary beneficiary of the consolidated VIE, or no longer have a variable interest in the VIE. As of December 31, 2023 and 2022, we did not have any consolidated VIEs.

Fair Value of Contingent Consideration

We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data and our knowledge of the programs and viability of the programs. Estimates included in the discounted cash flow models pertaining to contingent payments also include: (i) estimates regarding the timing of the relevant development and commercial milestones and royalties, and (ii) and appropriate discount rates. We record any increases or decreases in the fair value of our contingent payments to “Change in fair value of contingent consideration” in our consolidated statements of income. We record our contingent consideration liabilities at fair value on our consolidated balance sheets as “Other current liabilities” or “Other long-term liabilities” depending on when we estimate we will pay them. Please refer to Note D, “Fair Value Measurements,” for further information.

In-process Research and Development Assets

We record the fair value of in-process research and development assets as of the transaction date of a business combination on our consolidated balance sheets as “Other intangible assets, net.” These assets are used in research and development activities but have not yet reached technological feasibility, which occurs when we complete the research and development efforts by obtaining regulatory approval to market an underlying product candidate. We characterize in-process research and development assets on our consolidated balance sheets as indefinite-lived intangible assets until either they achieve regulatory approval and become finite-lived intangible assets, or the assets are impaired. Upon completion of the associated research and development efforts, we will determine the remaining estimated life of the marketed product and begin amortizing the carrying value of the assets over this period. If the assets become impaired or are abandoned, the carrying value is written down to fair value, and we record an impairment charge in the period in which the impairment occurs. We test in-process research and development assets for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist.

The fair value of our in-process research and development assets is determined using either the multi-period excess earnings or the relief from royalty methods of the income approach. Each method requires us to make: (i) assumptions regarding the probability of obtaining marketing approval for a product candidate; (ii) estimates of future cash flows from potential product sales with respect to a product candidate; and (iii) appropriate discount and tax rates. The multi-period excess earnings method also requires us to estimate the timing of and the expected costs to develop and commercialize a product candidate. The relief from royalty method also requires us to estimate the after-tax royalty savings expected from ownership of a product candidate that we acquired.

Finite-lived Intangible Assets

We record finite-lived intangible assets at cost, net of accumulated amortization, on our consolidated balance sheets as “Other intangible assets, net.” Each of these assets relates to our marketed products and may include, among other things, completed research and development projects that were previously reflected on our consolidated balance sheets as in-process research and development assets, or rights to developed technology associated with in-licenses, regulatory approval milestones due to our collaborators, or other payments. We amortize our finite-lived intangible assets using the straight-line method within “Cost of sales” over the remaining estimated life of the assets beginning in the period in which regulatory

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approval is achieved or the assets are acquired and continuing through the period that we no longer have either exclusive rights to market the products associated with the assets or in-license rights to the intellectual property underlying the assets. We test our finite-lived intangible assets for impairment if indicators are present or changes in circumstances suggest that the carrying value of the assets may not be recoverable. If we determine that the carrying value of a finite-lived intangible asset may not be recoverable, we compare the carrying value of the asset to the undiscounted cash flows that we expect the asset to generate. When we determine that a finite-lived intangible asset has become impaired, we write down the carrying value of the asset to its fair value and record an impairment charge in the period in which the impairment occurs.

Goodwill

The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. As noted in Basis of Presentation above, we have one operating segment, pharmaceuticals, which is our only reporting unit.

Hedging Activities

We recognize the fair value of hedging instruments that are designated and qualify as hedging instruments pursuant to U.S. GAAP, foreign currency forward contracts, as either assets or liabilities on our consolidated balance sheets. Changes in the fair value of these instruments are recorded each period in “Accumulated other comprehensive (loss) income” as unrealized gains and losses until the forecasted underlying transaction occurs. Unrealized gains and losses on these foreign currency forward contracts are included in “Prepaid expenses and other current assets” or “Other assets,” and “Other current liabilities” or “Other long-term liabilities,” respectively, on our consolidated balance sheets depending on the remaining period until their contractual maturity. Realized gains and losses for the effective portion of such contracts are recognized in “Product revenues, net” in our consolidated statement of income in the same period that we recognize the product revenues that were impacted by the hedged foreign exchange rate changes. We classify the cash flows from hedging instruments in the same category as the cash flows from the hedged items.

Certain of our hedging instruments are subject to master netting arrangements to reduce the risk arising from such transactions with our counterparties. We present unrealized gains and losses on our foreign currency forward contracts on a gross basis within our consolidated balance sheets.

We also enter into foreign currency forward contracts with contractual maturities of less than one month designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities including intercompany balances. These contracts are not designated as hedging instruments pursuant to U.S. GAAP. Realized gains and losses for such contracts are recognized in “Other (expense) income, net” in our consolidated statements of income each period.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss), which includes foreign currency translation adjustments and unrealized gains and losses on foreign currency forward contracts and our available-for-sale debt securities. For purposes of comprehensive income disclosures, we record provisions for or benefits from income taxes related to the unrealized gains and losses on foreign currency forward contracts and our available-for-sale debt securities. We record provisions for or benefits from income taxes related to our cumulative translation adjustment only, for those undistributed earnings in our foreign subsidiaries that we do not intend to permanently reinvest.

Foreign Currency Translation and Transactions

The majority of our operations occur in entities that have the U.S. dollar denominated as their functional currency. The assets and liabilities of our entities with functional currencies other than the U.S. dollar are translated into U.S. dollars at exchange rates in effect at the end of the year. Revenue and expense amounts for these entities are translated using the average exchange rates for the period. Changes resulting from foreign currency translation are included in “Accumulated other comprehensive (loss) income.” Net foreign currency exchange transaction losses, which are included in “Other (expense) income, net” on our consolidated statements of income, were $24.6 million, $15.1 million and $13.9 million for 2023, 2022 and 2021, respectively. These net foreign currency exchange losses are presented net of the impact of the foreign

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currency forward contracts designed to mitigate their effect on our consolidated statements of income.

Share Repurchase Programs

Repurchases of our common stock are recorded as reductions to “Common Stock” and “Additional paid-in capital” pursuant to our established accounting policy. Repurchases in excess of the par value will be recorded as reductions to “Retained earnings” in the event that “Additional paid-in capital” is reduced to zero.

Net Income Per Common Share

Basic net income per common share is based upon the weighted-average number of common shares outstanding during the period. Diluted net income per common share utilizing the treasury-stock method is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive. Potentially dilutive shares result from the assumed (i) vesting of restricted stock units and performance-based restricted stock units, and (ii) exercise of outstanding stock options. The proceeds of such vestings or exercises are assumed to have been used to repurchase outstanding stock using the treasury-stock method.

Recently Adopted and Issued Accounting Standards

We have not been required to adopt any accounting standards that had a significant impact on our consolidated financial statements in the three years ended December 31, 2023.

Recently Issued Accounting Standards

Segment Reporting

In 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires public entities to disclose significant segment expenses and other segment items. ASU 2023-07 also requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 becomes effective for the annual period starting on January 1, 2024, and for the interim periods starting on January 1, 2025. We are in the process of analyzing the impact that the adoption of ASU 2023-07 will have on our segment disclosures.

Income Tax Disclosures

In 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires public entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 becomes effective for the annual period starting on January 1, 2025. We are in the process of analyzing the impact that the adoption of ASU 2023-09 will have on our income tax disclosures.

**B.**Collaboration, License and Other Arrangements

We have entered into numerous agreements with third parties to collaborate on research, development and commercialization programs, license technologies, or acquire assets. Our “Acquired in-process research and development expenses” included $527.1 million, $115.5 million and $1.1 billion in 2023, 2022 and 2021, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions that qualify as in-process research and development.

In-license Agreements

We have entered into several in-license agreements to advance and obtain access to technologies and services related to our research and early-development activities. We are generally required to make an upfront payment upon execution of our license agreements; development, regulatory and commercialization milestones payments upon the achievement of certain

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product research, development and commercialization objectives; and royalty payments on future sales, if any, of commercial products resulting from our collaborations.

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

We typically can terminate our in-license agreements by providing advance notice to our collaborators. Our license agreements may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, these license agreements generally remain in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.

CRISPR Therapeutics AG

CRISPR-Cas9 Gene-editing Therapies Agreements

In 2015, we entered into a strategic collaboration, option and license agreement (the “CRISPR Agreement”) with CRISPR Therapeutics AG and its affiliates (“CRISPR”) to collaborate on the discovery and development of potential new treatments aimed at the underlying genetic causes of human diseases using CRISPR-Cas9 gene-editing technology. We had the exclusive right to license certain targets. In 2019, we elected to exclusively license three targets, including CF, pursuant to the CRISPR Agreement. For each of the three targets that we elected to license, CRISPR has the potential to receive up to an additional $410.0 million in development, regulatory and commercial milestones as well as royalties on resulting net product sales.

In 2017, we entered into a joint development and commercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement (the “Original JDCA”), under which we and CRISPR were co-developing and preparing to co-commercialize CASGEVY for the treatment of hemoglobinopathies, including treatments for SCD and TDT.

In 2021, we and CRISPR amended and restated the Original JDCA (the “A&R JDCA”), pursuant to which the parties agreed to, among other things, (a) adjust the governance structure for the collaboration and adjust the responsibilities of each party thereunder; (b) adjust the allocation of net profits and net losses between the parties; and (c) exclusively license (subject to CRISPR’s reserved rights to conduct certain activities) certain intellectual property rights to us relating to the products that may be researched, developed, manufactured and commercialized under such agreement. Pursuant to the A&R JDCA, we lead global development, manufacturing and commercialization of CASGEVY, with support from CRISPR, as described further below. We also conduct all research, development, manufacturing and commercialization activities relating to other product candidates and products under the A&R JDCA throughout the world subject to CRISPR’s reserved right to conduct certain activities.

In connection with the A&R JDCA, we made a $900.0 million upfront payment to CRISPR in the second quarter of 2021. We concluded that we did not have any alternative future use for the acquired in-process research and development and recorded this upfront payment to “Acquired in-process research and development expenses.” Prior to receiving marketing approval for CASGEVY, we accounted for the A&R JDCA as a cost-sharing arrangement, with costs incurred related to CASGEVY allocated 60% to us and 40% to CRISPR, subject to certain adjustments, and we recognized the impact of the arrangement as either “Research and development expenses” or “Selling, general and administrative expenses.” Prior to July 1, 2021, we and CRISPR shared equally all expenses incurred under the Original JDCA, which we also accounted for as a cost-sharing arrangement.

CASGEVY was approved by the U.S. Food and Drug Administration in December 2023 for the treatment of SCD. In connection with this approval, we made a $200.0 million milestone payment to CRISPR in January 2024, which we accrued to “Other current liabilities” and recorded within “Other intangible assets, net” on our consolidated balance sheet as of December 31, 2023. Please refer to Note J, “Goodwill and Other Intangible Assets,” for further information. Subsequent to receiving marketing approval for CASGEVY, we continue to lead the research and development activities under the A&R JDCA, subject to CRISPR’s reserved right to conduct certain activities. We are reimbursed by CRISPR for its 40% share of these research and development activities, subject to certain adjustments, and we continue to record this reimbursement from CRISPR within “Research and development expenses.” We also share with CRISPR 40% of the net commercial profits or

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losses incurred with respect to CASGEVY, subject to certain adjustments. In 2023, the net commercial loss incurred with respect to CASGEVY was not material to our consolidated statement of income.

In 2023, 2022 and 2021, we recognized the net impact of the A&R JDCA and Original JDCA as “Research and development expenses” of $227.0 million, $194.2 million and $108.2 million, respectively, and “Selling, general and administrative expenses” of $94.9 million, $61.4 million and $20.8 million, respectively, within our consolidated statements of income.

CRISPR-Cas9 Gene-editing Hypoimmune Cell Therapies Agreement

In March 2023, we entered into a non-exclusive license agreement (the “CRISPR T1D Agreement”) for the use of CRISPR’s CRISPR-Cas9 gene-editing technology to accelerate the development of our hypoimmune cell therapies for type 1 diabetes (“T1D”). Pursuant to the CRISPR T1D Agreement, we made a $100.0 million upfront payment to CRISPR, and we determined that substantially all the fair value of our upfront payment was attributable to in-process research and development, for which there is no alternative future use, and that no substantive processes were acquired that would constitute a business. In the second quarter of 2023, we achieved a research milestone that resulted in a $70.0 million payment to CRISPR. We recorded the upfront payment and the research milestone, totaling $170.0 million, to “Acquired in-process research and development expenses” in 2023. CRISPR is eligible to receive up to an additional $160.0 million in research, development, regulatory and commercial milestones for any products that may result from the agreement, as well as royalties on resulting net product sales.

Entrada Therapeutics, Inc.

In February 2023, we closed a strategic collaboration and license agreement (the “Entrada Agreement”) with Entrada Therapeutics, Inc. (“Entrada”) focused on discovering and developing intracellular therapeutics for myotonic dystrophy type 1 (“DM1”). Upon closing, we made an upfront payment of $225.1 million to Entrada, and purchased $24.9 million of Entrada’s common stock in connection with the Entrada Agreement. We determined that substantially all the fair value of our upfront payment was attributable to in-process research and development, for which there is no alternative future use, and that no substantive processes were acquired that would constitute a business. In 2023, Entrada also achieved a research milestone, resulting in a $17.5 million payment to Entrada. We recorded the upfront and milestone payments totaling $242.6 million to “Acquired in-process research and development expenses” in 2023. We recorded the investment in Entrada’s common stock at fair value on our consolidated balance sheet within “Marketable securities.” Entrada is eligible to receive up to an additional $410.0 million in research, development, regulatory and commercial milestones for any products that may result from the Entrada Agreement, as well as royalties on resulting net product sales.

Verve Therapeutics, Inc.

In 2022, we entered into a strategic collaboration and license agreement with Verve Therapeutics, Inc. (“Verve”) focused on discovering and developing an in vivo gene-editing program for a liver disease. Under the terms of the agreement, we made a $25.0 million upfront payment to Verve and also purchased $35.0 million of Verve’s common stock in connection with the agreement. Verve is also eligible to receive up to $66.0 million in success payments, up to an additional $340.0 million in development, regulatory and commercial milestones for any products that may result from the collaboration agreement, and royalties on net product sales. We determined that substantially all the fair value of the upfront payment was attributable to in-process research and development and no substantive processes were acquired that would constitute a business. We concluded that there is no alternative future use for the acquired in-process research and development and recorded the upfront payment to “Acquired in-process research and development expenses.” The investment in Verve’s common stock is recorded at fair value on our consolidated balance sheet within “Marketable securities.”

ApoLo1 Bio, LLC

In 2016, we entered into a strategic collaboration and license agreement with ApoLo1 Bio, LLC (“ApoLo1”) related to our drug discovery efforts in APOL1-mediated kidney disease. In 2021, based on positive results from a Phase 2 proof-of-concept study of VX-147 in patients with APOL1-mediated focal segmental glomerulosclerosis, we paid ApoLo1 a $15.0 million milestone and exercised our $60.0 million option to buy-out all future development milestones, regulatory milestones, and future royalties on net product sales. We recorded these payments to “Acquired in-process research and

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development expenses” because we concluded that we did not have any alternative future use for the acquired in-process research and development.

Moderna, Inc.

In 2016, we entered into a strategic collaboration and licensing agreement with Moderna, Inc. (“Moderna”), pursuant to which the parties are seeking to identify and develop messenger ribonucleic acid (“mRNA”) therapeutics encoding cystic fibrosis transmembrane conductance regulator for the treatment of CF. Moderna is eligible to receive up to $270.0 million in development and regulatory milestones as well as royalties on net product sales related to this agreement.

In 2020, we entered into a second strategic collaboration and licensing agreement with Moderna aimed at the discovery and development of lipid nanoparticles and mRNAs that can deliver gene-editing therapies to lung cells for the treatment of CF. Moderna is eligible to receive up to $380.0 million in development, regulatory and commercial milestones as well as royalties on net product sales related to this agreement.

Asset Acquisitions

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

In September 2023, pursuant to an asset purchase agreement, we acquired a novel G protein-coupled receptor (“GPCR”) program from Septerna, Inc. We determined that substantially all the fair value acquired is concentrated in the GPCR in-process research and development asset, which does not constitute a business, and for which we determined there is no alternative future use. As a result, we recorded $47.5 million to “Acquired in-process research and development expenses” in 2023.

Catalyst Biosciences, Inc. - Complement 3 Degrader Program

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

Additional In-License Agreements and Other Arrangements

In addition to the agreements described above, we recorded upfront, option and milestone payments totaling $67.0 million in 2023, $30.5 million in 2022 and $138.3 million in 2021 to “Acquired in-process research and development expenses” related to additional in-license agreements and other business development transactions that we do not consider to be individually significant to our consolidated financial statements. The most significant payments included within these amounts were upfront payments of $31.0 million to Mammoth Biosciences, Inc. (“Mammoth”) and $25.0 million to Arbor Biotechnologies, Inc. (“Arbor”) in 2021.

For Mammoth, Arbor, and several other in-license agreements that we entered into in 2021, 2022 and 2023 that are not individually significant to our consolidated financial statements, we determined that substantially all the fair value of the consideration for each individual agreement was attributable to in-process research and development, for which we did not have any alternative future use, and no substantive processes were acquired that would constitute a business. We recorded the payments for these agreements to “Acquired in-process research and development expenses.” Please refer to Note D, “Fair Value Measurements,” and Note E, “Marketable Securities and Equity Investments,” for further information regarding our investments in our collaborators.

Editas Medicine, Inc.

In December 2023, we entered into a sublicense agreement (the “Editas Agreement”) with Editas Medicine, Inc. (“Editas”) to obtain a non-exclusive license for Editas CRISPR/Cas9 gene-editing technology related to SCD and TDT, including CASGEVY. Pursuant to the Editas Agreement, we made a $50.0 million upfront payment to Editas and Editas is

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

eligible to receive an additional $50.0 million license payment upon the resolution of certain contingencies related to Editas’ license to the technology. Editas is also eligible to receive commercial milestones based on certain annual CASGEVY sales thresholds. Pursuant to the A&R JDCA described above, CRISPR will reimburse us for 40%, or $20.0 million, of the upfront payment, and would also reimburse us for 40% of the additional contingent $50.0 million license payment, subject to certain adjustments. We recorded the net $30.0 million upfront payment related to our sublicense for Editas’ developed technology to “Other intangible assets, net” on our consolidated balance sheet as of December 31, 2023. Please refer to Note J, “Goodwill and Other Intangible Assets,” for further information.

Out-license Agreements

We have entered into licensing agreements pursuant to which we have out-licensed rights to certain product candidates to third-party collaborators. Pursuant to these out-license agreements, our collaborators become responsible for all costs related to the continued development of such product candidates and obtain development and commercialization rights to these product candidates. Depending on the terms of the agreements, our collaborators may be required to make upfront payments, milestone payments upon the achievement of certain product research and development objectives and may also be required to pay royalties on future sales, if any, of commercial products resulting from the collaboration. The termination provisions associated with these collaborations are generally the same as those described above related to our in-license agreements.

Cystic Fibrosis Foundation

In 2004, we entered into a collaboration agreement with the Cystic Fibrosis Foundation, as successor in interest to the Cystic Fibrosis Foundation Therapeutics, Inc., to support research and development activities. Pursuant to the collaboration agreement, as amended, we have agreed to pay tiered royalties ranging from single digits to sub-teens on covered compounds first synthesized and/or tested during a research term on or before February 28, 2014, including ivacaftor, lumacaftor and tezacaftor and royalties ranging from low-single digits to mid-single digits on potential net sales of certain compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016, including elexacaftor. We do not have any royalty obligations on compounds first synthesized and tested on or after September 1, 2016. For combination products, such as ORKAMBI, SYMDEKO/SYMKEVI and TRIKAFTA/KAFTRIO, sales are allocated equally to each of the active pharmaceutical ingredients in the combination product. We record expenses related to these royalty obligations to “Cost of sales.”

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

**C.**Earnings Per Share

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

			2023						2022						2021
			(in millions, except per share amounts)
Net income			$	3,619.6					$	3,322.0					$	2,342.1
Basic weighted-average common shares outstanding			257.7						256.1						257.7
Effect of potentially dilutive securities:
Restricted stock units (including PSUs)			1.6						1.6						1.1
Stock options			1.2						1.4						1.1
Employee stock purchase program			0.0						0.0						0.0
Diluted weighted-average common shares outstanding			260.5						259.1						259.9
Basic net income per common share			$	14.05					$	12.97					$	9.09
Diluted net income per common share			$	13.89					$	12.82					$	9.01

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

			2023						2022						2021
			(in millions)
Unvested restricted stock units (including PSUs)			0.1						0.2						0.4
Stock options			0.0						0.0						0.7

**D.**Fair Value Measurements

The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used to determine the fair value of our financial assets and liabilities:

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

Our investment strategy is focused on capital preservation. We invest in instruments that meet the credit quality standards outlined in our investment policy, which also limits the amount of credit exposure to any one issue or type of instrument. We maintain strategic equity investments separately from the investment policy that governs our other cash, cash equivalents and marketable securities as described in Note E, “Marketable Securities and Equity Investments.” Additionally, we utilize foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on our consolidated statements of income.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

The following tables set forth our financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include $3.3 billion and $3.1 billion of cash as of December 31, 2023 and 2022, respectively):

			As of December 31, 2023																								As of December 31, 2022
									Fair Value Hierarchy																								Fair Value Hierarchy
			Total						Level 1						Level 2						Level 3						Total						Level 1						Level 2						Level 3
			(in millions)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds			$	5,328.4					$	5,328.4					$	—					$	—					$	5,162.6					$	5,162.6					$	—					$	—
Time deposits			1,450.0						—						1,450.0						—						2,000.0						—						2,000.0						—
U.S. Treasury securities			68.9						68.9						—						—						—						—						—						—
Government-sponsored enterprise securities			174.8						—						174.8						—						—						—						—						—
Corporate debt securities			5.2						—						5.2						—						5.8						—						5.8						—
Commercial paper			6.6						—						6.6						—						204.5						—						204.5						—
Marketable securities:
Corporate equity securities			46.0						46.0						—						—						116.8						88.8						28.0						—
U.S. Treasury securities			546.5						546.5						—						—						—						—						—						—
Government-sponsored enterprise securities			425.2						—						425.2						—						127.1						—						127.1						—
Asset-backed securities			306.0						—						306.0						—						—						—						—						—
Certificates of deposit			33.7						—						33.7						—						—						—						—						—
Corporate debt securities			1,802.8						—						1,802.8						—						87.0						—						87.0						—
Commercial paper			186.8						—						186.8						—						55.8						—						55.8						—
Prepaid expenses and other current assets:
Foreign currency forward contracts			1.8						—						1.8						—						47.5						—						47.5						—
Other assets:
Foreign currency forward contracts			—						—						—						—						0.8						—						0.8						—
Total financial assets			$	10,382.7					$	5,989.8					$	4,392.9					$	—					$	7,807.9					$	5,251.4					$	2,556.5					$	—
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts			$	(33.7)					$	—					$	(33.7)					$	—					$	(14.3)					$	—					$	(14.3)					$	—
Contingent consideration			—						—						—						—						(14.6)						—						—						(14.6)
Other long-term liabilities:
Foreign currency forward contracts			—						—						—						—						(0.9)						—						(0.9)						—
Contingent consideration			(77.4)						—						—						(77.4)						(114.4)						—						—						(114.4)
Total financial liabilities			$	(111.1)					$	—					$	(33.7)					$	(77.4)					$	(144.2)					$	—					$	(15.2)					$	(129.0)

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

Fair Value of Corporate Equity Securities

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

As of December 31, 2023, one of our investments in publicly traded corporate equity securities was subject to a contractual sales restriction expiring partially in 2024 and partially in 2025 with a total fair value of $24.4 million. We

F-22

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

purchased this investment directly from the publicly traded company in the first quarter of 2023, and do not anticipate any circumstances that would cause this restriction to lapse prior to the periods listed above.

Fair Value of Contingent Consideration

In 2019, we acquired Exonics Therapeutics, Inc. (“Exonics”), a privately held company focused on creating transformative gene-editing therapies to repair mutations that cause Duchenne muscular dystrophy (“DMD”) and other severe neuromuscular diseases, including DM1. Our Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to former Exonics equity holders. We base our estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data attributable to gene therapies and our knowledge of the progress and viability of the programs.

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

			Year Ended December 31, 2023
			(in millions)
Balance at December 31, 2022			$	129.0
Decrease in fair value of contingent payments			(51.6)
Balance at December 31, 2023			$	77.4

In November 2023, we determined that additional pre-clinical studies of the delivery system for our gene-editing components for DMD will be required, which resulted in a decrease in the fair value of our contingent consideration liabilities in the fourth quarter of 2023. The primary drivers of this decrease were reassessments of our estimates regarding the timing of the development and regulatory milestones and the probability of achieving the milestones. The discount rates used in the valuation model for contingent payments, which were between 4.7% and 4.9% as of December 31, 2023, represent a measure of credit risk and market risk associated with settling the liabilities.

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

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

**E.**Marketable Securities and Equity Investments

A summary of our cash equivalents and marketable securities, which are recorded at fair value (and do not include $3.3 billion and $3.1 billion of cash as of December 31, 2023 and 2022, respectively), is shown below:

			As of December 31, 2023																								As of December 31, 2022
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
			(in millions)
Cash equivalents:
Money market funds			$	5,328.4					$	—					$	—					$	5,328.4					$	5,162.6					$	—					$	—					$	5,162.6
Time deposits			1,450.0						—						—						1,450.0						2,000.0						—						—						2,000.0
U.S. Treasury securities			68.9						—						—						68.9						—						—						—						—
Government-sponsored enterprise securities			174.8						—						—						174.8						—						—						—						—
Corporate debt securities			5.2						—						—						5.2						5.8						—						—						5.8
Commercial paper			6.6						—						—						6.6						204.5						—						—						204.5
Total cash equivalents			$	7,033.9					$	—					$	—					$	7,033.9					$	7,372.9					$	—					$	—					$	7,372.9
Marketable securities:
U.S. Treasury securities			$	544.5					$	3.0					$	(1.0)					$	546.5					$	—					$	—					$	—					$	—
Government-sponsored enterprise securities			424.8						0.9						(0.5)						425.2						127.0						0.2						(0.1)						127.1
Asset-backed securities			304.9						1.4						(0.3)						306.0						—						—						—						—
Certificates of deposit			33.7						—						—						33.7						—						—						—						—
Corporate debt securities			1,794.0						10.5						(1.7)						1,802.8						87.2						—						(0.2)						87.0
Commercial paper			186.8						0.1						(0.1)						186.8						55.8						—						—						55.8
Total marketable debt securities			3,288.7						15.9						(3.6)						3,301.0						270.0						0.2						(0.3)						269.9
Corporate equity securities			72.1						—						(26.1)						46.0						104.4						30.9						(18.5)						116.8
Total marketable securities			$	3,360.8					$	15.9					$	(29.7)					$	3,347.0					$	374.4					$	31.1					$	(18.8)					$	386.7

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

			December 31,
			2023						2022
			(in millions)
Cash and cash equivalents			$	5,583.9					$	5,372.9
Marketable securities			803.2						157.7
Long-term marketable securities			2,497.8						112.2
Total			$	8,884.9					$	5,642.8

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

			December 31,
			2023						2022
			(in millions)
Matures within one year			$	6,387.1					$	5,530.6
Matures after one year through five years			2,495.6						112.2
Matures after five years			2.2						—
Total			$	8,884.9					$	5,642.8

F-24

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

We did not record any allowances for credit losses to adjust the fair value of available-for-sale debt securities in 2023, 2022 or 2021. Additionally, we did not record any realized gains or losses that were material to our consolidated statements of income in 2023, 2022 or 2021. As of December 31, 2023, we held available-for-sale debt securities with a total fair value of $1.5 billion that were in unrealized loss positions totaling $3.6 million; however, none of these investments had been in an unrealized loss position for greater than twelve months.

We record changes in the fair value of our investments in corporate equity securities to “Other (expense) income, net” in our consolidated statements of income. During the three years ended December 31, 2023, our net unrealized (losses) gains on corporate equity securities held at the conclusion of each period were as follows:

			2023						2022						2021
			(in millions)
Net unrealized (losses) gains			$	(7.5)					$	(149.1)					$	17.1

In 2023, we received proceeds of $95.1 million related to the sale of the common stock of a publicly traded company, which had a total original cost basis of $57.3 million. In 2022 and 2021, we did not sell any common stock of publicly traded companies.

As of December 31, 2023, the carrying value of our equity investments without readily determinable fair values, which are recorded in “Other assets” on our consolidated balance sheets, was $98.6 million.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

**F.**Accumulated Other Comprehensive Income (Loss)

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

									Unrealized Holding Gains (Losses), Net of Tax
			Foreign Currency Translation Adjustment						On Available-For-Sale Debt Securities						On Foreign Currency Forward Contracts						Total
			(in millions)
Balance as of December 31, 2020			$	(15.6)					$	0.3					$	(53.2)					$	(68.5)
Other comprehensive income (loss) before reclassifications			2.0						(0.8)						59.7						60.9
Amounts reclassified from accumulated other comprehensive income (loss)			—						—						23.5						23.5
Net current period other comprehensive income (loss)			2.0						(0.8)						83.2						84.4
Balance as of December 31, 2021			$	(13.6)					$	(0.5)					$	30.0					$	15.9
Other comprehensive (loss) income before reclassifications			(11.4)						(3.3)						138.9						124.2
Amounts reclassified from accumulated other comprehensive income (loss)			—						3.7						(143.0)						(139.3)
Net current period other comprehensive (loss) income			(11.4)						0.4						(4.1)						(15.1)
Balance as of December 31, 2022			$	(25.0)					$	(0.1)					$	25.9					$	0.8
Other comprehensive income (loss) income before reclassifications			26.1						9.7						(27.2)						8.6
Amounts reclassified from accumulated other comprehensive income (loss)			—						—						(23.7)						(23.7)
Net current period other comprehensive income (loss)			26.1						9.7						(50.9)						(15.1)
Balance as of December 31, 2023			$	1.1					$	9.6					$	(25.0)					$	(14.3)

**G.**Hedging

Foreign currency forward contracts - Designated as hedging instruments

We maintain a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of our forecasted product revenues denominated in certain foreign currencies. The program includes foreign currency forward contracts that are designated as cash flow hedges under U.S. GAAP having contractual durations from one to eighteen months. We recognize realized gains and losses for the effective portion of such contracts in “Product revenues, net” in our consolidated statements of income in the same period that we recognize the product revenues that were impacted by the hedged foreign exchange rate changes.

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

F-26

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

contracts with terms that match the critical terms of the risk being hedged. As of December 31, 2023, all hedges were determined to be highly effective.

We consider the impact of our counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of December 31, 2023 and December 31, 2022, credit risk did not change the fair value of our foreign currency forward contracts.

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

			As of December 31,
			2023						2022
Foreign Currency			(in millions)
Euro			$	1,720.6					$	1,497.7
Canadian dollar			229.5						216.3
British pound sterling			225.0						247.4
Australian dollar			153.3						174.9
Swiss Franc			63.9						65.2
Total foreign currency forward contracts			$	2,392.3					$	2,201.5

Foreign currency forward contracts - Not designated as hedging instruments

We also enter into foreign currency forward contracts with contractual maturities of less than one month, which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under U.S. GAAP. We recognize realized gains and losses for such contracts in “Other (expense) income, net” in our consolidated statements of income each period. As of December 31, 2023, we did not have any outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP was not applied.

During the three years ended December 31, 2023, we recognized the following related to foreign currency forward contracts in our consolidated statements of income:

			2023						2022						2021
			(in millions)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net			$	30.2					$	182.5					$	(30.0)
Not designated as hedging instruments
Other (expense) income, net			$	4.4					$	(9.9)					$	(18.6)
Total reported in the Consolidated Statements of Income
Product revenues, net			$	9,869.2					$	8,930.7					$	7,573.4
Other (expense) income, net			$	(22.8)					$	(164.8)					$	4.9

F-27

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

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

As of December 31, 2023
Assets												Liabilities
Classification						Fair Value						Classification						Fair Value
(in millions)
Prepaid expenses and other current assets						$	1.8					Other current liabilities						$	(33.7)
Other assets						—						Other long-term liabilities						—
Total assets						$	1.8					Total liabilities						$	(33.7)

As of December 31, 2022
Assets												Liabilities
Classification						Fair Value						Classification						Fair Value
(in millions)
Prepaid expenses and other current assets						$	47.5					Other current liabilities						$	(14.3)
Other assets						0.8						Other long-term liabilities						(0.9)
Total assets						$	48.3					Total liabilities						$	(15.2)

As of December 31, 2023, we expect the amounts that are related to foreign exchange forward contracts designated as cash flow hedges under U.S. GAAP recorded in “Prepaid expenses and other current assets” and “Other current liabilities” to be reclassified to earnings within twelve months.

As discussed in “Note A, “Nature of Business and Accounting Policies,” we present the fair value of our foreign currency forward contracts on a gross basis within our consolidated balance sheets. The following table summarizes the potential effect of offsetting derivatives by type of financial instrument designated as cash flow hedges under U.S. GAAP on our consolidated balance sheets:

			As of December 31, 2023
			Gross Amounts Recognized						Gross Amounts Offset						Gross Amounts Presented						Gross Amounts Not Offset						Legal Offset
Foreign currency forward contracts			(in millions)
Total assets			$	1.8					$	—					$	1.8					$	(1.8)					$	—
Total liabilities			(33.7)						—						(33.7)						1.8						(31.9)

			As of December 31, 2022
			Gross Amounts Recognized						Gross Amounts Offset						Gross Amounts Presented						Gross Amounts Not Offset						Legal Offset
Foreign currency forward contracts			(in millions)
Total assets			$	48.3					$	—					$	48.3					$	(15.2)					$	33.1
Total liabilities			(15.2)						—						(15.2)						15.2						—

F-28

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

**H.**Inventories

“Inventories” consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
Raw materials			$	78.7					$	38.1
Work-in-process			525.1						260.7
Finished goods			135.0						161.8
Total			$	738.8					$	460.6

**I.**Property and Equipment

“Property and equipment, net” consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
Buildings and improvements			$	928.6					$	903.1
Laboratory equipment, other equipment and furniture			579.1						476.5
Leasehold improvements			474.6						410.9
Computers and software			332.8						312.1
Land			33.1						33.1
Total property and equipment, gross			2,348.2						2,135.7
Less: accumulated depreciation			(1,188.9)						(1,027.3)
Total property and equipment, net			$	1,159.3					$	1,108.4

We recorded depreciation expense of $167.8 million, $148.3 million and $125.6 million in 2023, 2022 and 2021, respectively, which includes our finance lease amortization.

F-29

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

**J.**Goodwill and Other Intangible Assets

Intangible Assets

“Other intangible assets, net” consisted of the following:

									As of December 31, 2023																		As of December 31, 2022
			Estimated Useful lives						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
									(in millions, except useful lives)
Finite-lived intangible assets			10 to 12 yrs.						$	238.0					$	(1.7)					$	236.3					$	—					$	—					$	—
In-process research and development			Indefinite						603.6						—						$	603.6					603.6						—						$	603.6
Total other intangible assets, net									$	841.6					$	(1.7)					$	839.9					$	603.6					$	—					$	603.6

As of December 31, 2023, finite-lived intangible assets totaled $238.0 million. Following the regulatory approval of CASGEVY in several markets we paid $208.0 million in regulatory approval milestones, including $200.0 million to CRISPR, as well as a net amount of $30.0 million related to the Editas Agreement. We recorded these amounts as finite-lived intangible assets and are amortizing each on a straight-line basis over the longer of the last underlying patents to expire or the period that we have exclusive rights to market CASGEVY. We recorded intangible asset amortization expense of $1.7 million to “Cost of sales” related to these assets in 2023. Please refer to Note B, “Collaboration, License and Other Arrangements,” for further information.

As of December 31, 2023, the estimated future amortization of our finite-lived intangible assets was as follows:

Year						Estimated Amortization Expense
						(in millions)
2024						$	20.2
2025						$	20.2
2026						$	20.2
2027						$	20.2
2028						$	20.2

In 2022, we recorded a $13.0 million impairment of an in-process research and development intangible asset to “Research and development expenses” due to a decision to revise the scope of certain acquired gene-editing programs.

Goodwill

As of December 31, 2023 and 2022, we had goodwill of $1.1 billion on our consolidated balance sheets.

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Notes to Consolidated Financial Statements (Continued)

**K.**Additional Balance Sheet Detail

“Prepaid expenses and other current assets” consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
Tax-related prepaid and receivables			$	429.0					$	319.8
Prepaid expenses			108.6						111.8
Fair value of cash flow hedges			1.8						47.5
Other			84.3						74.4
Total			$	623.7					$	553.5

“Accrued expenses” consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
Product revenue accruals			$	1,716.4					$	1,300.8
Payroll and benefits			295.0						246.5
Research, development and commercial contract costs			265.2						198.7
Royalty payable			237.6						215.0
Tax related accruals			99.5						123.3
Other			41.6						42.4
Total			$	2,655.3					$	2,126.7

“Other current liabilities” consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
Milestone payment due to CRISPR			$	200.0					$	—
Contract liabilities			170.3						159.6
Finance lease liabilities			50.6						40.8
Operating lease liabilities			33.1						48.6
Other			73.2						62.5
Total			$	527.2					$	311.5

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

“Other long-term liabilities” consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
Tax-related liabilities			$	681.4					$	452.8
Contingent consideration			77.4						114.4
Other			118.9						118.6
Total			$	877.7					$	685.8

Cash, Cash Equivalents and Restricted Cash Presented in Consolidated Statements of Cash Flows

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

			As of December 31,
			2023						2022						2021						2020
			(in millions)
Cash and cash equivalents			$	10,369.1					$	10,504.0					$	6,795.0					$	5,988.2
Prepaid expenses and other current assets			3.2						8.0						5.1						0.7
Cash, cash equivalents and restricted cash per consolidated statements of cash flows			$	10,372.3					$	10,512.0					$	6,800.1					$	5,988.9

Our restricted cash, if any, is included in “Prepaid expenses and other current assets” and “Other assets” on our consolidated balance sheets.

Cloud Computing Service Contracts

As of December 31, 2023 and 2022, “Other assets” included $58.9 million and $40.2 million, respectively, related to costs incurred to implement cloud computing service contracts. We recorded amortization associated with cloud computing service contracts of $11.8 million in 2023. Our amortization associated with cloud computing service contracts was not material in 2022 or 2021.

**L.**Leases

Finance Leases

Our finance lease assets and liabilities primarily relate to our corporate headquarters in Boston and research site in San Diego (the “Buildings”). These Buildings are classified as finance leases because the present value of the sum of the lease payments associated with the Buildings exceeded substantially all of the fair value of the Buildings at lease inception. We also have an outstanding finance lease for land related to a facility that we own.

Corporate Headquarters

In 2011, we entered into two lease agreements, pursuant to which we lease approximately 1.1 million square feet of office and laboratory space in two buildings in Boston, Massachusetts for a term of 15 years. Base rent payments commenced in 2013 and will continue through December 2028. We utilize this initial period as our lease term. We have an option to extend the lease term for an additional ten years.

San Diego Lease

In 2015, we entered into a lease agreement pursuant to which we lease approximately 170,000 square feet of office and

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Notes to Consolidated Financial Statements (Continued)

laboratory space in San Diego, California for a term of 16 years. Base rent payments commenced in 2019 and will continue through May 2034. We utilize this initial period as our lease term. We have an option to extend the lease term for up to two additional five-year terms.

Operating Leases

Our operating leases relate to our real estate leases that are not classified as finance leases.

Jeffrey Leiden Center for Cell and Genetic Therapies

In 2019, we entered into an agreement to lease approximately 269,000 square feet of office and laboratory space near our corporate headquarters in Boston, Massachusetts for a term of 16 years. Base rent payments commenced in 2021 and will continue through November 2036. We utilize the initial period as our lease term. We have an option to extend the lease term for up to two additional ten-year periods.

Please refer to our accounting policy, Leases, in Note A, “Nature of Business and Accounting Policies,” for further information on the accounting treatment for our finance and operating leases.

Aggregate Lease Information

The components of lease cost recorded in our consolidated statements of income were as follows:

			2023						2022						2021
			(in millions)
Operating lease cost			$	47.8					$	35.3					$	33.9
Finance lease cost
Amortization of leased assets			42.7						51.0						51.9
Interest on lease liabilities			38.8						43.5						47.4
Variable lease cost			44.6						39.8						33.6
Sublease income			(2.7)						(2.7)						(0.4)
Net lease cost			$	171.2					$	166.9					$	166.4

Our variable lease cost during 2023, 2022 and 2021 primarily related to operating expenses, taxes and insurance associated with our finance leases.

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Notes to Consolidated Financial Statements (Continued)

Our leases are included on our consolidated balance sheets as follows:

			As of December 31,
			2023						2022
			(in millions)
Finance leases
Property and equipment, net			$	272.8					$	315.5
Total finance lease assets			$	272.8					$	315.5
Other current liabilities			$	50.6					$	40.8
Long-term finance lease liabilities			376.1						430.8
Total finance lease liabilities			$	426.7					$	471.6
Operating leases
Operating lease assets			$	293.6					$	347.4
Total operating lease assets			$	293.6					$	347.4
Other current liabilities			$	33.1					$	48.6
Long-term operating lease liabilities			348.6						379.5
Total operating lease liabilities			$	381.7					$	428.1

Maturities of our finance and operating lease liabilities as of December 31, 2023 were as follows:

Year						Finance Leases						Operating Leases						Total
						(in millions)
2024						$	81.4					$	42.1					$	123.5
2025						89.0						41.4						130.4
2026						89.3						40.4						129.7
2027						89.7						36.5						126.2
2028						90.1						33.5						123.6
Thereafter						143.5						242.2						385.7
Total lease payments						583.0						436.1						1,019.1
Less: amount representing interest						(156.3)						(54.4)						(210.7)
Present value of lease liabilities						$	426.7					$	381.7					$	808.4

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Notes to Consolidated Financial Statements (Continued)

The weighted-average remaining lease terms and discount rates related to our leases were as follows:

			As of December 31,
			2023						2022
Weighted-average remaining lease term (in years)
Finance leases			10.06						10.60
Operating leases			11.24						11.57
Weighted-average discount rate
Finance leases			8.20		%				8.36		%
Operating leases			2.42		%				2.46		%

Supplemental cash flow information related to our leases was as follows:

			2023						2022						2021
			(in millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases			$	62.8					$	50.8					$	21.5
Operating cash flows from finance leases			$	38.4					$	42.5					$	46.2
Financing cash flows from finance leases			$	44.9					$	85.5					$	47.0
Right-of-use assets obtained in exchange for lease obligations
Operating leases			$	2.4					$	58.6					$	36.3

**M.**Common Stock, Preferred Stock and Equity Plans

Common Stock and Preferred Stock

We are authorized to issue 500.0 million shares of common stock. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, if and when declared by our Board of Directors, and to share ratably in our assets legally available for distribution to our shareholders in the event of liquidation. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The holders of common stock do not have cumulative voting rights.

We are authorized to issue 1.0 million shares of preferred stock in one or more series and to fix the powers, designations, preferences and relative participating, option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by our shareholders. As of December 31, 2023 and 2022, we had no shares of preferred stock issued or outstanding.

Share Repurchase Programs

In November 2020, our Board of Directors approved a share repurchase program, pursuant to which we repurchased $500.0 million of our common stock in 2020 and 2021. In 2021, we repurchased 2.0 million shares of our common stock under this program for an aggregate of $424.9 million.

In June 2021, our Board of Directors approved a share repurchase program, pursuant to which we were authorized to repurchase up to $1.5 billion of our common stock by December 31, 2022. In 2021, we repurchased 5.3 million shares of our common stock under this program for an aggregate of $1.0 billion. On December 31, 2022, the program expired with $499.7 million of the authorization remaining.

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Notes to Consolidated Financial Statements (Continued)

In February 2023, our Board of Directors approved a share repurchase program, pursuant to which we are authorized to repurchase up to $3.0 billion of our common stock. This program does not have an expiration date and can be discontinued at any time. In 2023, we repurchased 1.3 million shares of our common stock under this program for an aggregate of $427.6 million. As of December 31, 2023, we had $2.6 billion remaining authorization under this program.

Stock and Option Plans

The purpose of each of our stock and option plans is to attract, retain and motivate our employees, consultants and directors. Awards granted under these plans can be nonstatutory stock options (“NSOs”), incentive stock options (“ISOs”), restricted stock units (“RSUs”) including performance-based RSUs (“PSUs”), restricted stock (“RSs”), or other equity-based awards, as specified in the individual plans.

Shares issued under all of our plans are funded through the issuance of new shares. The following table contains information about our equity plans:

																		As of December 31, 2023
Title of Plan						Group Eligible						Type of Award Granted						Awards Outstanding						Additional Awards Authorized for Grant
																		(in thousands)
2013 Stock and Option Plan						Employees, Non-employee Directors and Consultants						NSO, RS, RSU and PSU						6,054						16,509
2006 Stock and Option Plan						Employees, Non-employee Directors and Consultants						NSO, RS and RSU						43						—
												Total						6,097						16,509

Restricted Stock Units (excluding PSUs)

The following table summarizes our restricted stock unit activity during the year ended December 31, 2023:

			Restricted Stock Units (excluding PSUs)
			Number of Shares						Weighted-average Grant-date Fair Value
			(in thousands)						(per share)
Unvested at December 31, 2022			2,913						$	240.54
Granted			1,574						$	331.23
Vested			(1,349)						$	238.92
Cancelled			(176)						$	275.18
Unvested at December 31, 2023			2,962						$	287.41

The total fair value of restricted stock units that vested during 2023, 2022 and 2021 (measured based on the market price of our common stock on the date of vesting) was $433.4 million, $372.5 million and $281.1 million, respectively.

Performance-based RSUs (PSUs)

The potential range of shares issuable pursuant to our PSU awards range from 0% to 200% of the target shares based on financial and non-financial measures. For the majority of our PSU awards, 50% of PSUs that could be earned have a one-year performance period with the amount actually earned dependent upon our financial performance and with vesting of the earned shares in three equal installments over a three-year period. For these same PSU awards, the remaining 50% of PSUs that could be earned have a three-year performance period with the amount earned dependent upon the achievement of multiple clinical development milestones and with the earned shares cliff vesting at the end of the three-year performance period.

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Notes to Consolidated Financial Statements (Continued)

The following table summarizes our PSU activity during the year ended December 31, 2023:

			Performance-Based RSU
			Number of Units						Weighted-average Grant-date Fair Value
			(in thousands)						(per share)
Unvested at December 31, 2022 (1)			1,227						$	226.75
Granted (2)			581						$	317.83
Vested			(545)						$	237.14
Cancelled			(68)						$	241.25
Unvested at December 31, 2023			1,195						$	247.12
(1) “Unvested” represents our PSUs at target to the extent performance has not been certified plus the actual number of shares that continue to be subject to service conditions for which the performance has been achieved and certified.
(2) “Granted” represents (i) the target number of shares issuable for grants during 2023 and (ii) any change in the number of shares issuable pursuant to outstanding PSUs based on performance certification during 2023.

The total fair value of PSUs that vested during 2023, 2022 and 2021 (measured on the date of vesting) was $160.4 million, $98.7 million and $92.2 million, respectively.

Stock Options

All options granted under our 2013 Stock and Option Plan (“2013 Plan”) and 2006 Stock and Option Plan (“2006 Plan”) were granted with an exercise price equal to the fair value of the underlying common stock on the date of grant. As of December 31, 2023, we are only authorized to make new equity awards under our 2013 Plan. Under the 2013 Plan, no stock options can be awarded with an exercise price less than the fair market value on the date of grant. All options awarded under our stock and option plans expire not more than 10 years from the grant date. In each of the three years ended December 31, 2023, we only granted stock options to certain of our non-employee directors on May 1.

The following table summarizes information related to the outstanding and exercisable options during the year ended December 31, 2023:

			Stock Options						Weighted-average Exercise Price						Weighted-average Remaining Contractual Life						Aggregate Intrinsic Value
			(in thousands)						(per share)						(in years)						(in millions)
Outstanding at December 31, 2022			2,527						$	146.11
Granted			16						$	342.73
Exercised			(602)						$	134.27
Forfeited			(1)						$	174.87
Outstanding at December 31, 2023			1,940						$	151.37					3.97						$	497.6
Exercisable at December 31, 2023			1,940						$	151.37					3.97						$	497.6

The aggregate intrinsic value in the table above represents the total pre-tax amount, net of exercise price, that would have been received by option holders if all option holders had exercised all options with an exercise price lower than the market price on the last business day of 2023, which was $407.84 based on the average of the high and low price of our common stock on that date.

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during 2023, 2022 and 2021 was $128.4 million, $157.2 million and $43.0 million, respectively. The total cash we received as a result of stock option exercises during 2023, 2022 and 2021 was $80.8 million, $144.6 million and $64.2

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Notes to Consolidated Financial Statements (Continued)

million, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2023, which were all exercisable:

						Options Outstanding and Exercisable
Range of Exercise Prices						Number Outstanding						Weighted-average Remaining Contractual Life						Weighted-average Exercise Price
						(in thousands)						(in years)						(per share)
$77.31–$100.00						495						2.58						$	88.70
$100.01–$150.00						170						1.74						$	123.38
$150.01–$200.00						1,189						4.59						$	172.73
$200.01–$342.73						86						7.69						$	272.22
Total						1,940						3.97						$	151.37

Employee Stock Purchase Plan

We have an employee stock purchase plan (the “ESPP”). The ESPP permits eligible employees to enroll in a twelve-month offering period comprising two six-month purchase periods. Participants may purchase shares of our common stock, through payroll deductions, at a price equal to 85% of the fair market value of the common stock on the first day of the applicable twelve-month offering period, or the last day of the applicable six-month purchase period, whichever is lower. Purchase dates under the ESPP occur on or about May 14 and November 14 of each year. As of December 31, 2023, there were 1.3 million shares of common stock authorized for issuance pursuant to the ESPP.

In 2023, the following shares were issued to employees under the ESPP:

			Year Ended December 31, 2023
Number of shares (in thousands)			203
Average price paid per share			$	259.42

Employee Benefits

We have a 401(k) retirement plan (the “Vertex 401(k) Plan”) in which substantially all of our permanent U.S. employees are eligible to participate. Participants may contribute up to 60% of their annual compensation to the Vertex 401(k) Plan, subject to statutory limitations. We may declare discretionary matching contributions to the Vertex 401(k) Plan. We pay matching contributions in the form of cash. In ex-U.S. markets, we have similar benefit plans. In 2023, 2022 and 2021, we recorded approximately $43.6 million, $36.4 million and $29.9 million of expense related to these plans, respectively.

**N.**Stock-based Compensation Expense

We recognize share-based payments to employees as compensation expense using the fair value method. The fair value of restricted stock units, including PSUs, is based on the intrinsic value on the date of grant. The fair value of shares purchased pursuant to the ESPP and stock options is calculated using the Black-Scholes option pricing model. Stock-based compensation expense, measured at the grant date based on the fair value of the award, is typically recognized ratably over the requisite service period.

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Notes to Consolidated Financial Statements (Continued)

During the three years ended December 31, 2023, we recognized the following stock-based compensation expense:

			2023						2022						2021
			(in millions)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs)			$	563.7					$	456.1					$	384.3
ESPP share issuances			15.8						16.7						24.4
Stock options			4.0						17.6						36.8
Stock-based compensation expense related to inventories			(2.3)						0.9						(4.1)
Total stock-based compensation expense included in “Total costs and expenses”			$	581.2					$	491.3					$	441.4
Stock-based compensation expense by line item:
Cost of sales			$	7.5					$	9.4					$	6.3
Research and development expenses			354.9						297.9						268.3
Selling, general and administrative expenses			218.8						184.0						166.8
Total stock-based compensation expense included in “Total costs and expenses”			581.2						491.3						441.4
Income tax effect			(167.5)						(144.1)						(82.9)
Total stock-based compensation expense, net of tax			$	413.7					$	347.2					$	358.5

We capitalize a portion of our stock-based compensation expense to inventories, all of which is attributable to employees who support the manufacturing of our products.

The following table sets forth our unrecognized stock-based compensation expense as of December 31, 2023, by type of award and the weighted-average period we expect to recognize the expense:

			As of December 31, 2023
			Unrecognized Expense						Weighted-average Recognition Period
			(in millions)						(in years)
Type of award:
Restricted stock units (including PSUs)			$	593.6					1.90
ESPP share issuances			11.9						0.61
Total unrecognized stock-based compensation expense			$	605.5

Restricted Stock Units and Performance-based Restricted Stock Units

We award restricted stock units with service conditions, which are generally the vesting periods of the awards.

As described in Note M, “Common Stock, Preferred Stock and Equity Plans,” we grant the majority of our PSUs to certain members of senior management. Our financial-based PSUs to senior management vest in three equal installments over a three-year period and are expensed ratably over that same period based upon an assessment of the likely level of achievement. Our non-financial based PSUs to senior management cliff vest at the end of the three-year performance period and are expensed on a straight-line basis over that same period based upon an assessment of the likely level of achievement.

Employee Stock Purchase Plan

The weighted-average fair value of each purchase right granted during 2023, 2022 and 2021 was $90.91, $79.36 and

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Notes to Consolidated Financial Statements (Continued)

$51.71, respectively. The following table reflects the weighted-average assumptions used in the Black-Scholes option pricing model for 2023, 2022 and 2021:

			2023						2022						2021
Expected stock price volatility			28.52%						33.55%						34.06%
Risk-free interest rate			5.13%						4.05%						0.05%
Expected term (in years)			0.71						0.71						0.69
Expected annual dividends			—						—						—

Stock Options

We issued stock options to our non-employee directors with total grant date fair values of $1.8 million in each of 2023, 2022 and 2021. We use the Black-Scholes option pricing model to estimate the fair value of stock options at the grant date. The options granted during 2023, 2022 and 2021 had a weighted-average grant-date fair value per share of $114.92, $89.65 and $65.94, respectively.

**O.**Income Taxes

We are subject to U.S. federal, state, and foreign income taxes. The components of income before provision for income taxes during the three years ended December 31, 2023, consisted of the following:

			2023						2022						2021
			(in millions)
United States			$	3,089.1					$	3,257.0					$	2,030.7
Foreign			1,290.7						975.4						699.7
Income before provision for income taxes			$	4,379.8					$	4,232.4					$	2,730.4

The components of our provision for income taxes during the three years ended December 31, 2023, consisted of the following:

			2023						2022						2021
			(in millions)
Current taxes:
Federal			$	900.4					$	779.0					$	374.9
State			46.2						34.9						26.5
Foreign			350.1						372.4						141.5
Total current taxes			1,296.7						1,186.3						542.9
Deferred taxes:
Federal			(569.9)						(404.0)						(36.9)
State			(21.9)						(11.0)						(19.3)
Foreign			55.3						139.1						(98.4)
Total deferred taxes			(536.5)						(275.9)						(154.6)
Provision for income taxes			$	760.2					$	910.4					$	388.3

Unremitted Earnings

As of December 31, 2023, we do not consider a portion of the earnings of our foreign subsidiaries to be indefinitely reinvested. Upon repatriation of the non-indefinitely invested earnings in the form of distributions or otherwise, we could be

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Notes to Consolidated Financial Statements (Continued)

subject to immaterial U.S. federal withholding taxes payable to various foreign countries and income taxes in certain states. There are no material deferred taxes recorded on the excess of financial statement reporting over the tax basis of our investments in our foreign subsidiaries. Any permanently reinvested basis differences could reverse if we sell our foreign subsidiaries or various other events occur, none of which were considered probable as of December 31, 2023. The tax liabilities described above would not be material to our consolidated financial statements.

Effective Tax Rate Reconciliation

A reconciliation between the U.S. federal statutory rate of 21% and our effective tax rate was as follows:

			2023						2022						2021
Federal statutory tax rate			21.0		%				21.0		%				21.0		%
State taxes, net of federal benefit			0.3		%				0.6		%				0.8		%
Foreign income tax rate differential			(0.6)		%				(0.3)		%				(0.3)		%
U.S. tax on foreign earnings, net of credits			0.7		%				1.9		%				0.7		%
Foreign derived intangible income deduction			(1.7)		%				(1.4)		%				(0.8)		%
Tax credits			(6.0)		%				(2.2)		%				(6.4)		%
Tax rate change			0.0		%				0.0		%				(3.5)		%
Stock compensation (benefit), shortfalls and cancellations			(0.8)		%				(0.8)		%				0.0		%
Uncertain tax positions			3.4		%				2.7		%				2.0		%
Other			1.1		%				0.0		%				0.7		%
Effective tax rate			17.4		%				21.5		%				14.2		%

Our 17.4% effective tax rate for 2023 was lower than the U.S. statutory rate primarily due to a benefit from a research and development tax credit study that was completed in 2023 and excess tax benefits related to stock-based compensation, partially offset by changes in uncertain tax positions.

Our 21.5% effective tax rate for 2022 was higher than the U.S. statutory rate primarily due to an increase in our uncertain tax positions associated with intercompany transfer pricing matters offset by excess tax benefits related to stock-based compensation, tax credits and changes in our estimated prior-year tax liabilities.

Our 14.2% effective tax rate for 2021 was lower than the U.S. statutory rate primarily due to an increase in the U.K.’s corporate tax rate from 19% to 25%, which was enacted in 2021 and became effective in April 2023, and benefit from a research and development tax credit study that we completed in 2021.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred taxes were as follows:

			As of December 31,
			2023						2022
			(in millions)
Deferred tax assets:
Tax credit carryforwards			$	261.0					$	223.0
Intangible assets			799.2						738.5
Stock-based compensation			144.1						124.4
Finance lease liabilities			92.1						94.9
Operating lease assets			72.5						79.6
R&D capitalization			919.3						438.3
Other			146.6						146.6
Gross deferred tax assets			2,434.8						1,845.3
Valuation allowance			(266.6)						(237.8)
Total deferred tax assets			2,168.2						1,607.5
Deferred tax liabilities:
Property and equipment			(145.1)						(139.8)
Acquired intangibles			(130.2)						(130.5)
Operating lease liabilities			(55.6)						(63.1)
Other			(25.2)						(27.2)
Total deferred tax liabilities			(356.1)						(360.6)
Net deferred tax assets			$	1,812.1					$	1,246.9

On a periodic basis, we reassess the valuation allowance on our deferred income tax assets, weighing positive and negative evidence to assess the recoverability of our deferred tax assets. As of December 31, 2023, we maintained a valuation allowance of $266.6 million related primarily to U.S. state tax attributes.

In addition to deferred tax assets and liabilities, we have recorded deferred charges related to intra-entity sales of inventory. As of December 31, 2023 and 2022, the total deferred charges were $185.8 million and $195.1 million, respectively.

As of December 31, 2023, we had net operating loss (“NOL”) carryforwards of $53.1 million, which are subject to annual utilization limitations for U.S. federal income tax purposes. In 2027, our definite lived U.S. federal NOLs of $18.2 million will begin to expire, while the remaining portion may be carried forward indefinitely. For U.S. state income tax purposes, we had NOL carryforwards of $525.5 million and tax credit carryforwards of $334.8 million. The state NOL and tax credit carryforwards begin to expire in 2024. For foreign income tax purposes, we had NOL carryforwards of $113.2 million and tax credit carryforwards of $20.6 million. The foreign NOL carryforwards may be carried forward indefinitely, with the exception of $38.2 million that will expire in 2041. The foreign tax credit carryforwards will begin to expire in 2024.

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

Unrecognized Tax Benefits

Unrecognized tax benefits during the three years ended December 31, 2023 were as follows:

			2023						2022						2021
			(in millions)
Balance at beginning of the period			$	459.6					$	147.2					$	86.6
Increases related to current period tax positions			116.0						128.3						42.0
Increases related to prior period tax positions			62.5						205.3						19.9
Decreases related to prior period tax positions			(14.4)						(14.4)						—
Statute of limitations expiration			(8.1)						(4.5)						(1.3)
Foreign currency translation adjustment			0.3						(2.3)						—
Balance at end of period			$	615.9					$	459.6					$	147.2

During 2023, we increased our gross unrecognized tax benefits by $156.3 million, primarily associated with intercompany transfer pricing matters. This unrecognized tax benefit was recorded as a $3.7 million increase to our gross deferred tax assets and a $160.0 million gross tax liability.

During 2022, we increased our gross unrecognized tax benefits by $312.4 million, primarily associated with intercompany transfer pricing matters. This unrecognized tax benefit was recorded as a $29.7 million reduction to our gross deferred tax assets and a $282.7 million gross tax liability.

As of December 31, 2023, we have classified $47.9 million and $568.0 million of our unrecognized tax benefits as credits to “Deferred tax assets” and “Other long-term liabilities,” respectively, on our consolidated balance sheet.

Included in our unrecognized tax benefits as of December 31, 2023, 2022 and 2021, we had $288.7 million, $208.5 million and $129.5 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits, which would affect our effective income tax rate if recognized.

We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes. In 2023 and 2022, we recognized total interest and penalty expenses of $84.9 million and $36.6 million, respectively. Our total interest and penalty expenses in 2021 was not material to our consolidated financial statements. As of December 31, 2023 and 2022, our accrual for interest and penalties was $124.1 million and $39.2 million, respectively.

The U.S. Internal Revenue Service and other local and foreign tax authorities routinely examine our tax returns, including intercompany transfer pricing, and it is reasonably possible that we will adjust the value of our uncertain tax positions related these matters and other issues as we receive additional information from various taxing authorities, including reaching settlements with such authorities. In the case of intercompany transfer pricing, it is reasonably possible that taxing authorities do not agree with each other on the reallocation of income or the valuation of intellectual property, in which case we could be subject to double taxation, despite bilateral treaty agreements available to prevent this. During the year ended December 31, 2023, we came to settlement with the U.K.’s HM Revenue & Customs (“HMRC”) with respect to our tax positions for 2015 through 2020. Due to the nature of the adjustments, we will be asserting our rights under the U.S./U.K. Income Tax Convention pursuant to the mutual agreement procedures for the relief of double taxation for these matters.

As a result of various audit closures, settlements and statutes of limitations, we estimate that it is reasonably possible that our gross unrecognized tax benefits could decrease by up to $81.8 million in the next 12 months due to statute of limitations expirations.

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

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

**P.**Commitments and Contingencies

2022 Credit Facility

In July 2022, Vertex and certain of its subsidiaries entered into a $500.0 million unsecured revolving facility (the “Credit Agreement”) with Bank of America, N.A., as administrative agent and the lenders referred to therein (the “Lenders”), which matures on July 1, 2027. The Credit Agreement was not drawn upon at closing and we have not drawn upon it to date. Amounts drawn pursuant to the Credit Agreement, if any, will be used for general corporate purposes. Subject to satisfaction of certain conditions, we may request that the borrowing capacity for the Credit Agreement be increased by an additional $500.0 million. Additionally, the Credit Agreement provides a sublimit of $100.0 million for letters of credit.

Any amounts borrowed under the Credit Agreement will bear interest, at our option, at either a base rate or a Secured Overnight Financing Rate (“SOFR”), in each case plus an applicable margin. Under the Credit Agreement, the applicable margins on base rate loans range from 0.000% to 0.500% and the applicable margins on SOFR loans range from 1.000% to 1.500%, in each case based on our consolidated leverage ratio (the ratio of our total consolidated funded indebtedness to our consolidated EBITDA for the most recently completed four fiscal quarter period).

Any amounts borrowed pursuant to the Credit Agreement are guaranteed by certain of our existing and future domestic subsidiaries, subject to certain exceptions.

The Credit Agreement contains customary representations and warranties and affirmative and negative covenants, including a financial covenant to maintain subject to certain limited exceptions, a consolidated leverage ratio of 3.50 to 1.00, subject to an increase to 4.00 to 1.00 following a material acquisition. As of December 31, 2023, we were in compliance with the covenants described above. The Credit Agreement also contains customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of amounts due under outstanding loans.

Direct costs related to the Credit Agreement are recorded over its term and were not material to our financial statements.

Guaranties and Indemnifications

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

We customarily agree in the ordinary course of our business to indemnification provisions in agreements with clinical trial investigators and sites in our product development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreements involving parties performing services for us, and our real estate leases. We also customarily agree to certain indemnification provisions in our drug discovery, development and commercialization collaboration agreements. With respect to our clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal injury or property damage, violations of law or certain breaches of our contractual obligations arising out of the research or clinical testing of our compounds or product candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by us, to violations of law by us or to certain breaches of our contractual obligations. The indemnification provisions appearing in our collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited indemnification for our collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although we believe the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that we could be required to make under these provisions is generally unlimited. We have purchased insurance policies covering personal injury, property damage and

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

general liability that reduce our exposure for indemnification and would enable us in many cases to recover all or a portion of any future amounts paid. We have never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, we believe the estimated fair value of these indemnification arrangements is minimal.

Other Contingencies

We have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue for such contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Other than our contingent consideration liabilities discussed in Note D, “Fair Value Measurements,” there were no material contingent liabilities accrued as of December 31, 2023 or 2022.

**Q.**Segment Information

Segment reporting is prepared on the same basis that our chief executive officer, who is our chief operating decision maker, manages the business, makes operating decisions and assesses performance. We operate in one segment, pharmaceuticals. Enterprise-wide disclosures about revenues, significant customers, and property and equipment, net by location are presented below.

Revenues by Product

Product revenues, net consisted of the following:

			2023						2022						2021
			(in millions)
TRIKAFTA/KAFTRIO			$	8,944.7					$	7,686.8					$	5,697.2
KALYDECO			475.5						553.2						684.2
ORKAMBI			326.0						510.7						771.6
SYMDEKO/SYMKEVI			123.0						180.0						420.4
Total product revenues, net			$	9,869.2					$	8,930.7					$	7,573.4

Product Revenues by Geographic Location

Net product revenues are attributed to countries based on the location of the customer and consisted of the following:

			2023						2022						2021
			(in millions)
United States			$	6,040.4					$	5,699.3					$	5,287.3
Outside of the United States
Europe			3,109.0						2,705.5						1,972.9
Other			719.8						525.9						313.2
Total product revenues outside of the United States			3,828.8						3,231.4						2,286.1
Total product revenues, net			$	9,869.2					$	8,930.7					$	7,573.4

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VERTEX PHARMACEUTICALS INCORPORATED

Notes to Consolidated Financial Statements (Continued)

Significant Customers

Gross product revenues and accounts receivable from each of our customers who individually accounted for 10% or more of total gross product revenues and/or 10% or more of total accounts receivable consisted of the following:

			Percent of Total Gross Product Revenues																		Percent of Accounts Receivable
			Year Ended December 31,																		As of December 31,
			2023						2022						2021						2023						2022
McKesson Corporation			26		%				25		%				22		%				23		%				22		%
Accredo Health Group, Inc.			11		%				12		%				12		%				<10%						<10%
Walgreen Co.			<10%						10		%				10		%				<10%						<10%
Lloyds Pharmacy*			<10%						<10%						<10%						10		%				12		%
*A wholly owned subsidiary of McKesson Corporation in the U.K. until 2022.

Long-lived Assets by Location

Long-lived assets by location consisted of the following:

			As of December 31,
			2023						2022
			(in millions)
United States			$	1,359.7					$	1,365.5
Outside of the United States
United Kingdom			77.3						75.7
Other			15.9						14.6
Total long-lived assets outside of the United States			93.2						90.3
Total long-lived assets			$	1,452.9					$	1,455.8

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