Item 1. Financial Statements

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Operations

(unaudited)

(in millions, except per share amounts)

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Revenues:
Product revenues, net			$	2,196.2					$	1,793.4					$	4,293.7					$	3,516.7
Other revenues			—						—						—						1.0
Total revenues			2,196.2						1,793.4						4,293.7						3,517.7
Costs and expenses:
Cost of sales			261.8						228.0						507.6						420.3
Research and development expenses			600.1						448.7						1,201.2						903.0
Acquired in-process research and development expenses			61.9						958.4						63.9						960.1
Selling, general and administrative expenses			215.3						194.6						430.5						386.7
Change in fair value of contingent consideration			(49.2)						1.6						(56.7)						(2.3)
Total costs and expenses			1,089.9						1,831.3						2,146.5						2,667.8
Income (loss) from operations			1,106.3						(37.9)						2,147.2						849.9
Interest income			10.8						1.1						12.4						2.6
Interest expense			(14.6)						(15.5)						(29.5)						(31.2)
Other (expense) income, net			(78.1)						8.1						(150.9)						(44.6)
Income (loss) before provision for (benefit from) income taxes			1,024.4						(44.2)						1,979.2						776.7
Provision for (benefit from) income taxes			213.9						(111.2)						406.6						56.6
Net income			$	810.5					$	67.0					$	1,572.6					$	720.1
Net income per common share:
Basic			$	3.17					$	0.26					$	6.15					$	2.78
Diluted			$	3.13					$	0.26					$	6.09					$	2.75
Shares used in per share calculations:
Basic			255.9						259.0						255.5						259.2
Diluted			258.7						261.0						258.3						261.5

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

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in millions)

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

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Balance Sheets

(unaudited)

(in millions, except share data)

			June 30,						December 31,
			2022						2021
Assets
Current assets:
Cash and cash equivalents			$	8,702.2					$	6,795.0
Marketable securities			551.2						729.9
Accounts receivable, net			1,332.9						1,136.8
Inventories			367.7						353.1
Prepaid expenses and other current assets			549.5						545.8
Total current assets			11,503.5						9,560.6
Property and equipment, net			1,100.1						1,094.1
Goodwill			1,002.2						1,002.2
Intangible assets			387.0						400.0
Deferred tax assets			1,143.8						934.5
Operating lease assets			318.3						330.3
Other assets			127.3						110.8
Total assets			$	15,582.2					$	13,432.5
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	198.0					$	195.0
Accrued expenses			2,119.5						1,678.6
Other current liabilities			238.7						268.4
Total current liabilities			2,556.2						2,142.0
Long-term finance lease liabilities			482.3						509.8
Long-term operating lease liabilities			365.0						377.4
Long-term contingent consideration			129.8						186.5
Other long-term liabilities			115.4						116.8
Total liabilities			3,648.7						3,332.5
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, 256,026,201 and 254,479,046 shares issued and outstanding, respectively			2.6						2.5
Additional paid-in capital			7,100.0						6,880.8
Accumulated other comprehensive income			57.5						15.9
Retained earnings			4,773.4						3,200.8
Total shareholders’ equity			11,933.5						10,100.0
Total liabilities and shareholders’ equity			$	15,582.2					$	13,432.5

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Shareholders’ Equity

(unaudited)

(in millions)

			Three Months Ended
			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive (Loss) Income						Retained Earnings						Total Shareholders’ Equity
			Shares						Amount
Balance at March 31, 2021			258.8						$	2.6					$	7,499.2					$	(33.3)					$	1,511.8					$	8,980.3
Other comprehensive income, net of tax			—						—						—						8.1						—						8.1
Net income			—						—						—						—						67.0						67.0
Repurchase of common stock			—						—						—						—						—						—
Common stock withheld for employee tax obligations			(0.0)						(0.0)						(3.5)						—						—						(3.5)
Issuance of common stock under benefit plans			0.3						0.0						38.6						—						—						38.6
Stock-based compensation expense			—						—						105.9						—						—						105.9
Balance at June 30, 2021			259.1						$	2.6					$	7,640.2					$	(25.2)					$	1,578.8					$	9,196.4
Balance at March 31, 2022			255.6						$	2.6					$	6,930.2					$	11.3					$	3,962.9					$	10,907.0
Other comprehensive income, net of tax			—						—						—						46.2						—						46.2
Net income			—						—						—						—						810.5						810.5
Common stock withheld for employee tax obligations			(0.0)						(0.0)						(4.4)						—						—						(4.4)
Issuance of common stock under benefit plans			0.4						0.0						60.6						—						—						60.6
Stock-based compensation expense			—						—						113.6						—						—						113.6
Balance at June 30, 2022			256.0						$	2.6					$	7,100.0					$	57.5					$	4,773.4					$	11,933.5
			Six Months Ended
			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive (Loss) Income						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			—						—						—						43.3						—						43.3
Net income			—						—						—						—						720.1						720.1
Repurchase of common stock			(2.0)						(0.0)						(424.9)						—						—						(424.9)
Common stock withheld for employee tax obligations			(0.5)						(0.0)						(105.7)						—						—						(105.7)
Issuance of common stock under benefit plans			1.7						0.0						53.8						—						—						53.8
Stock-based compensation expense			—						—						223.0						—						—						223.0
Balance at June 30, 2021			259.1						$	2.6					$	7,640.2					$	(25.2)					$	1,578.8					$	9,196.4
Balance at December 31, 2021			254.5						$	2.5					$	6,880.8					$	15.9					$	3,200.8					$	10,100.0
Other comprehensive income, net of tax			—						—						—						41.6						—						41.6
Net income			—						—						—						—						1,572.6						1,572.6
Common stock withheld for employee tax obligations			(0.5)						(0.0)						(121.9)						—						—						(121.9)
Issuance of common stock under benefit plans			2.0						0.1						97.0						—						—						97.1
Stock-based compensation expense			—						—						244.1						—						—						244.1
Balance at June 30, 2022			256.0						$	2.6					$	7,100.0					$	57.5					$	4,773.4					$	11,933.5

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in millions)

			Six Months Ended June 30,
			2022						2021
Cash flows from operating activities:
Net income			$	1,572.6					$	720.1
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense			244.2						219.8
Depreciation expense			73.2						60.1
Decrease in fair value of contingent consideration			(56.7)						(2.3)
Deferred income taxes			(241.7)						(180.9)
Losses on equity securities			159.8						41.7
Other non-cash items, net			(6.3)						11.2
Changes in operating assets and liabilities:
Accounts receivable, net			(249.3)						(45.9)
Inventories			(31.3)						(47.5)
Prepaid expenses and other assets			85.3						(92.2)
Accounts payable			30.8						(24.3)
Accrued expenses			547.1						107.5
Other liabilities			(31.7)						(46.0)
Net cash provided by operating activities			2,096.0						721.3
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(227.9)						(239.5)
Maturities of available-for-sale debt securities			242.3						221.3
Purchases of property and equipment			(116.9)						(120.8)
Investment in equity securities and notes receivable			(10.0)						(15.0)
Net cash used in investing activities			(112.5)						(154.0)
Cash flows from financing activities:
Issuances of common stock under benefit plans			98.1						53.5
Repurchases of common stock			—						(424.9)
Payments in connection with common stock withheld for employee tax obligations			(121.9)						(105.7)
Payments on finance leases			(25.6)						(22.5)
Proceeds from finance leases			—						11.6
Other financing activities			1.7						2.9
Net cash used in financing activities			(47.7)						(485.1)
Effect of changes in exchange rates on cash			(31.8)						0.0
Net increase in cash, cash equivalents and restricted cash			1,904.0						82.2
Cash, cash equivalents and restricted cash—beginning of period			6,800.1						5,988.9
Cash, cash equivalents and restricted cash—end of period			$	8,704.1					$	6,071.1
Supplemental disclosure of cash flow information:
Cash paid for interest			$	27.1					$	30.1
Cash paid for income taxes			$	478.3					$	234.4

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

**A.**Basis of Presentation and Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (“Vertex,” “we,” “us” or “our”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The condensed consolidated financial statements reflect the operations of Vertex and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. We operate in one segment, pharmaceuticals.

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

Certain information and footnote disclosures normally included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”) have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2022 and 2021.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2021, which are contained in our 2021 Annual Report on Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires 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 condensed 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.

Recently Adopted and Issued Accounting Standards

For a discussion of recently adopted accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies,” in our 2021 Annual Report on Form 10-K. We do not expect any recently issued accounting standards to have a significant impact on our condensed consolidated financial statements.

Summary of Significant Accounting Policies

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

**B.**Revenue Recognition

Disaggregation of Revenue

Revenues by Product

Product revenues, net consisted of the following:

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in millions)
TRIKAFTA/KAFTRIO			$	1,893.2					$	1,255.6					$	3,654.8					$	2,448.8
SYMDEKO/SYMKEVI			42.7						133.5						107.5						258.6
ORKAMBI			121.6						221.0						253.7						439.7
KALYDECO			138.7						183.3						277.7						369.6
Total product revenues, net			$	2,196.2					$	1,793.4					$	4,293.7					$	3,516.7

Product Revenues by Geographic Location

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in millions)
United States			$	1,415.1					$	1,256.9					$	2,783.3					$	2,510.4
Outside of the United States
Europe			655.5						458.9						1,287.8						863.9
Other			125.6						77.6						222.6						142.4
Total product revenues outside of the United States			781.1						536.5						1,510.4						1,006.3
Total product revenues, net			$	2,196.2					$	1,793.4					$	4,293.7					$	3,516.7

Contract Liabilities

We had contract liabilities of $134.8 million and $171.7 million as of June 30, 2022 and December 31, 2021, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement we can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right. These contracts include upfront payments and fees. We defer a portion of the consideration received for shipments made up to the annual reimbursement limit as a portion of “Other current liabilities.” The deferred amount is recognized as revenue when the free products are shipped. Our product revenue contracts include performance obligations that are one year or less.

Our contract liabilities at the end of each fiscal year relate to contracts with annual reimbursement limits in international markets in which the annual period associated with the contract is not the same as our fiscal year. In these markets, we recognize revenues related to performance obligations satisfied in previous years; however, these revenues do not relate to any performance obligations that were satisfied more than 12 months prior to the beginning of the current year.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

**C.**Acquired In-Process Research and Development 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 $61.9 million and $63.9 million for the three and six months ended June 30, 2022, respectively, and $958.4 million and $960.1 million, for the three and six months ended June 30, 2021, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.

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

In-license Agreements

We have entered into a number of in-license agreements in order 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 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; the required length of notice is dependent on whether any product developed under the license agreement has received marketing approval. 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

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 cystic fibrosis, 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 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 CTX001 JDCA”), under which we and CRISPR were co-developing and preparing to co-commercialize exagamglogene autotemcel (“exa-cel”), formerly known as CTX001, for the treatment of hemoglobinopathies, including treatments for sickle cell disease and transfusion-dependent beta thalassemia.

In the second quarter of 2021, we and CRISPR amended and restated the Original CTX001 JDCA (the “A&R JDCA”), pursuant to which the parties agreed to, among other things, (a) adjust the governance structure for the collaboration and adjust the responsibilities of each party thereunder; (b) adjust the allocation of net profits and net losses between the parties; and (c) exclusively license (subject to CRISPR’s reserved rights to conduct certain activities) certain intellectual property rights to 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 exa-cel, with support from CRISPR. Subject to the terms and conditions of the A&R JDCA, we conduct all research, development, manufacturing and commercialization activities relating to the product candidates and products under the A&R JDCA (including exa-cel) throughout the world subject to CRISPR’s reserved right to conduct certain activities.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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.” CRISPR has the potential to receive an additional one-time $200.0 million milestone payment upon receipt of the first marketing approval of exa-cel from the U.S. Food and Drug Administration or the European Commission.

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

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

Asset Acquisition

Catalyst Biosciences, Inc. - Complement 3 Degrader Program

In May 2022, pursuant to an asset purchase agreement, we acquired Catalyst Biosciences, Inc.’s portfolio of protease medicines that target the complement system (the “complement portfolio”) and related intellectual property, including CB 2782-PEG, which is a pre-clinical complement component 3 degrader program for geographic atrophy in dry age-related macular degeneration. We determined that substantially all the 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” in the three and six months ended June 30, 2022.

Cystic Fibrosis Foundation

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

**D.**Earnings Per Share

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in millions, except per share amounts)
Net income			$	810.5					$	67.0					$	1,572.6					$	720.1
Basic weighted-average common shares outstanding			255.9						259.0						255.5						259.2
Effect of potentially dilutive securities:
Stock options			1.4						1.1						1.4						1.2
Restricted stock units (including PSUs)			1.4						0.9						1.4						1.1
Employee stock purchase program			0.0						0.0						0.0						0.0
Diluted weighted-average common shares outstanding			258.7						261.0						258.3						261.5
Basic net income per common share			$	3.17					$	0.26					$	6.15					$	2.78
Diluted net income per common share			$	3.13					$	0.26					$	6.09					$	2.75

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in millions)
Stock options			0.0						0.7						0.0						0.5
Unvested restricted stock units (including PSUs)			0.0						0.4						0.3						0.6

**E.**Fair Value Measurements

The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used in order to determine the fair value of 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 investments separately from the investment policy that governs our other cash, cash equivalents and marketable securities as described in Note F, “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 condensed consolidated statement of operations.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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 $3.5 billion and $3.3 billion of cash as of June 30, 2022 and December 31, 2021, respectively):

			As of June 30, 2022																								As of December 31, 2021
			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			$	5,186.8					$	5,186.8					$	—					$	—					$	3,478.1					$	3,478.1					$	—					$	—
Commercial paper			16.2						—						16.2						—						—						—						—						—
Marketable securities:
Corporate equity securities			71.1						71.1						—						—						230.9						230.9						—						—
U.S. Treasury securities			153.5						153.5						—						—						86.4						86.4						—						—
Government-sponsored enterprise securities			10.5						10.5						—						—						69.0						69.0						—						—
Corporate debt securities			75.0						—						75.0						—						90.9						—						90.9						—
Commercial paper			241.1						—						241.1						—						252.7						—						252.7						—
Prepaid expenses and other current assets:
Foreign currency forward contracts			118.9						—						118.9						—						44.5						—						44.5						—
Other assets:
Foreign currency forward contracts			6.9						—						6.9						—						2.0						—						2.0						—
Total financial assets			$	5,880.0					$	5,421.9					$	458.1					$	—					$	4,254.5					$	3,864.4					$	390.1					$	—
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts			$	(0.1)					$	—					$	(0.1)					$	—					$	(5.6)					$	—					$	(5.6)					$	—
Long-term contingent consideration			(129.8)						—						—						(129.8)						(186.5)						—						—						(186.5)
Other long-term liabilities:
Foreign currency forward contracts			(0.0)						—						(0.0)						—						(2.7)						—						(2.7)						—
Total financial liabilities			$	(129.9)					$	—					$	(0.1)					$	(129.8)					$	(194.8)					$	—					$	(8.3)					$	(186.5)

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

Fair Value of Corporate Equity Securities

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

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 and other severe neuromuscular diseases, including myotonic dystrophy type 1. 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 rare diseases and our knowledge of the progress and viability of the programs. The discount rates used in the valuation model for contingent payments, which were between 3.9% and 4.2% as of June 30, 2022, represent a measure of credit risk and market risk associated with settling the liabilities. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period. Due to the uncertainties associated with development and commercialization of product candidates in the pharmaceutical industry and the effects of changes in other assumptions

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

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

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

Fair Value of Intangible Assets

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

**F.**Marketable Securities and Equity Investments

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

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

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

			As of June 30, 2022						As of December 31, 2021
			(in millions)
Matures within one year			$	5,678.6					$	3,912.3
Matures after one year through five years			4.5						64.8
Total			$	5,683.1					$	3,977.1

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

We record changes in the fair value of our investments in corporate equity securities to “Other (expense) income, net” in our condensed consolidated statements of operations. During the three and six months ended June 30, 2022 and 2021, our net unrealized (losses) gains on corporate equity securities held at the conclusion of each period were as follows:

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

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

									Unrealized Holding Gains (Losses), Net of Tax
			Foreign Currency Translation Adjustment						On Available-For-Sale Debt Securities						On Foreign Currency Forward Contracts						Total
			(in millions)
Balance at December 31, 2021			$	(13.6)					$	(0.5)					$	30.0					$	15.9
Other comprehensive (loss) income before reclassifications			(24.7)						(3.0)						120.3						92.6
Amounts reclassified from accumulated other comprehensive income (loss)			—						—						(51.0)						(51.0)
Net current period other comprehensive (loss) income			(24.7)						(3.0)						69.3						41.6
Balance at June 30, 2022			$	(38.3)					$	(3.5)					$	99.3					$	57.5
Balance at December 31, 2020			$	(15.6)					$	0.3					$	(53.2)					$	(68.5)
Other comprehensive income (loss) before reclassifications			1.3						(0.3)						15.6						16.6
Amounts reclassified from accumulated other comprehensive income (loss)			—						—						26.7						26.7
Net current period other comprehensive income (loss)			1.3						(0.3)						42.3						43.3
Balance at June 30, 2021			$	(14.3)					$	—					$	(10.9)					$	(25.2)

**H.**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 condensed consolidated statements of operations 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 contracts with terms that match the critical terms of the risk being hedged. As of June 30, 2022, 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 June 30, 2022 and December 31, 2021, credit risk did not change the fair value of our foreign currency forward contracts.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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 June 30, 2022						As of December 31, 2021
Foreign Currency			(in millions)
Euro			$	1,506.0					$	1,364.5
British pound sterling			263.0						287.7
Canadian dollar			174.7						89.9
Australian dollar			127.3						96.3
Swiss Franc			59.6						54.1
Total foreign currency forward contracts			$	2,130.6					$	1,892.5

Foreign currency forward contracts - Not designated as hedging instruments

We also enter into foreign currency forward contracts with contractual maturities of less than one month, which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities, including intercompany balances. These contracts are not designated as hedging instruments under U.S. GAAP. We recognize realized gains and losses for such contracts in “Other (expense) income, net” in our condensed consolidated statements of operations each period. As of June 30, 2022, the notional amount of our outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP is not applied was $628.1 million.

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in millions)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net			$	45.0					$	(17.6)					$	65.1					$	(34.1)
Not designated as hedging instruments
Other (expense) income, net			$	(8.4)					$	(1.0)					$	(16.8)					$	(9.0)
Total reported in the Condensed Consolidated Statement of Operations
Product revenues, net			$	2,196.2					$	1,793.4					$	4,293.7					$	3,516.7
Other (expense) income, net			$	(78.1)					$	8.1					$	(150.9)					$	(44.6)

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 condensed consolidated balance sheets:

As of June 30, 2022
Assets												Liabilities
Classification						Fair Value						Classification						Fair Value
(in millions)
Prepaid expenses and other current assets						$	118.9					Other current liabilities						$	(0.1)
Other assets						6.9						Other long-term liabilities						(0.0)
Total assets						$	125.8					Total liabilities						$	(0.1)

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

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

			As of June 30, 2022
			Gross Amounts Recognized						Gross Amounts Offset						Gross Amounts Presented						Gross Amounts Not Offset						Legal Offset
Foreign currency forward contracts			(in millions)
Total assets			$	125.8					$	—					$	125.8					$	(0.1)					$	125.7
Total liabilities			(0.1)						—						(0.1)						0.1						—

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

**I.**Inventories

Inventories consisted of the following:

			As of June 30, 2022						As of December 31, 2021
			(in millions)
Raw materials			$	30.4					$	42.4
Work-in-process			236.6						224.0
Finished goods			100.7						86.7
Total			$	367.7					$	353.1

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

**J.**Stock-based Compensation Expense and Share Repurchase Programs

Stock-based compensation expense

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in millions)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs)			$	103.0					$	88.8					$	221.2					$	189.7
Stock options			6.3						11.1						11.8						21.7
ESPP share issuances			4.3						6.0						11.1						11.6
Stock-based compensation expense related to inventories			0.3						(1.3)						0.1						(3.2)
Total stock-based compensation expense included in “Total costs and expenses”			$	113.9					$	104.6					$	244.2					$	219.8
Stock-based compensation expense by line item:
Cost of sales			$	2.4					$	1.6					$	4.6					$	3.0
Research and development expenses			69.5						62.6						149.9						135.4
Selling, general and administrative expenses			42.0						40.4						89.7						81.4
Total stock-based compensation expense included in costs and expenses			113.9						104.6						244.2						219.8
Income tax effect			(26.5)						(20.9)						(62.5)						(52.1)
Total stock-based compensation expense, net of tax			$	87.4					$	83.7					$	181.7					$	167.7

Share repurchase programs

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

In June 2021, our Board of Directors approved a share repurchase program (the “2021 Share Repurchase Program”), pursuant to which we are authorized to repurchase up to $1.5 billion of our common stock by December 31, 2022. During the six months ended June 30, 2022, we did not repurchase any shares of our common stock under the 2021 Share Repurchase Program. As of June 30, 2022, a total of $499.7 million remained authorized for repurchases of common stock under the 2021 Share Repurchase Program.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

**K.**Income Taxes

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

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

Effective tax rate			21		%				251		%				21		%				7		%

Our effective tax rate for the three and six months ended June 30, 2022 was similar to the U.S. statutory rate.

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

We have reviewed the tax positions taken, or to be taken, in our tax returns for all tax years currently open to examination by a taxing authority. As of June 30, 2022 and December 31, 2021, we had $145.2 million and $129.5 million, respectively, of net unrecognized tax benefits, which would affect our tax rate if recognized.

Starting in 2022, our cash paid for income taxes is substantially increasing due to the elimination of the option in the U.S. to deduct research and development expenses in the period they are incurred and instead, as required by the Tax Cuts and Jobs Act of 2017, amortize them over a five year period if they are from the U.S. and fifteen years if they are from foreign jurisdictions.

We file U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. We have various income tax audits ongoing at any time throughout the world. Except for jurisdictions where we have net operating losses or tax credit carryforwards, we are no longer subject to any tax assessment from tax authorities for years prior to 2018.

**L.**Commitments and Contingencies

Revolving Credit Facilities

Vertex and certain of its subsidiaries have entered into several credit agreements (the “Credit Agreements”) with Bank of America, N.A., as administrative agent and the lenders referred to therein (the “Lenders”). The Credit Agreements were not drawn upon at closing and we have not drawn upon them to date. Amounts drawn pursuant to the Credit Agreements, if any, will be used for general corporate purposes. Any amounts borrowed under the Credit Agreements will bear interest, at our option, at either a base rate or an alternative rate described below, in each case plus an applicable margin 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).

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

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

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

Each of the 2020 Credit Agreement and the 2022 Credit Agreement contain 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. The 2020 Credit Agreement also includes a financial covenant to maintain subject to certain limited exceptions, a consolidated interest coverage ratio of 2.50 to 1.00. These financial covenants are measured on a quarterly basis. As of June 30, 2022, we were in compliance with the covenants described above. The Credit Agreements also contain customary events of default. In the case of a continuing event of default, the administrative agent would be entitled to exercise various remedies, including the acceleration of amounts due under outstanding loans.

Direct costs related to the Credit Agreements are recorded over the term of the respective Credit Agreements and were not material to 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 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 a reserve for contingent liabilities when it is probable that future expenditures will be made, and such expenditures can be reasonably

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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

**M.**Additional Cash Flow Information

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

			Six Months Ended June 30,
			2022												2021
			Beginning of period						End of period						Beginning of period						End of period
			(in millions)
Cash and cash equivalents			$	6,795.0					$	8,702.2					$	5,988.2					$	6,063.7
Prepaid expenses and other current assets			5.1						1.9						0.7						7.4
Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flows			$	6,800.1					$	8,704.1					$	5,988.9					$	6,071.1

**N.**Subsequent Event

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

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