Item 1. Financial Statements

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Income

(in millions, except per share amounts)(unaudited)

									Three Months Ended March 31,
															2024						2023
Product revenues, net															$	2,690.6					$	2,374.8
Costs and expenses:
Cost of sales															342.6						266.9
Research and development expenses															789.1						742.6
Acquired in-process research and development expenses															76.8						347.1
Selling, general and administrative expenses															342.7						241.1
Change in fair value of contingent consideration															(0.1)						(1.9)
Total costs and expenses															1,551.1						1,595.8
Income from operations															1,139.5						779.0
Interest income															181.2						122.6
Interest expense															(10.4)						(11.4)
Other (expense) income, net															(31.2)						1.3
Income before provision for income taxes															1,279.1						891.5
Provision for income taxes															179.5						191.7
Net income															$	1,099.6					$	699.8
Net income per common share:
Basic															$	4.26					$	2.72
Diluted															$	4.21					$	2.69
Shares used in per share calculations:
Basic															258.2						257.4
Diluted															261.1						260.3

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Comprehensive Income

(in millions)(unaudited)

									Three Months Ended March 31,
															2024						2023
Net income															$	1,099.6					$	699.8
Other comprehensive income (loss):
Unrealized holding (losses) gains on available-for-sale debt securities, net of tax of $5.4 and $(0.8), respectively															(19.7)						2.9
Unrealized gains (losses) on foreign currency forward contracts, net of tax of $(12.3) and $7.4, respectively															44.5						(26.8)
Foreign currency translation adjustment															6.8						10.0
Total other comprehensive income (loss)															31.6						(13.9)
Comprehensive income															$	1,131.2					$	685.9

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Balance Sheets

(in millions, except share data)(unaudited)

			March 31, 2024						December 31, 2023
Assets
Current assets:
Cash and cash equivalents			$	9,158.0					$	10,369.1
Marketable securities			1,013.3						849.2
Accounts receivable, net			1,793.2						1,563.4
Inventories			813.1						738.8
Prepaid expenses and other current assets			511.1						623.7
Total current assets			13,288.7						14,144.2
Property and equipment, net			1,172.8						1,159.3
Goodwill			1,088.0						1,088.0
Other intangible assets, net			834.9						839.9
Deferred tax assets			1,963.0						1,812.1
Operating lease assets			312.9						293.6
Long-term marketable securities			4,381.4						2,497.8
Other assets			875.7						895.3
Total assets			$	23,917.4					$	22,730.2
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	351.4					$	364.9
Accrued expenses			2,795.9						2,655.3
Other current liabilities			648.6						527.2
Total current liabilities			3,795.9						3,547.4
Long-term finance lease liabilities			361.5						376.1
Long-term operating lease liabilities			359.8						348.6
Other long-term liabilities			853.6						877.7
Total liabilities			5,370.8						5,149.8
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, 258,296,249 and 257,695,221 shares issued and outstanding, respectively			2.6						2.6
Additional paid-in capital			7,284.7						7,449.7
Accumulated other comprehensive income (loss)			17.3						(14.3)
Retained earnings			11,242.0						10,142.4
Total shareholders’ equity			18,546.6						17,580.4
Total liabilities and shareholders’ equity			$	23,917.4					$	22,730.2

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Shareholders’ Equity

(in millions)(unaudited)

			Three Months Ended
			Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Retained Earnings						Total Shareholders’ Equity
			Shares						Amount
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			—						—						—						(13.9)						—						(13.9)
Net income			—						—						—						—						699.8						699.8
Repurchases of common stock			(0.5)						(0.0)						(135.6)						—						—						(135.6)
Common stock withheld for employee tax obligations			(0.6)						(0.0)						(166.6)						—						—						(166.6)
Issuance of common stock under benefit plans			1.6						0.0						13.1						—						—						13.1
Stock-based compensation expense			—						—						122.8						—						—						122.8
Balance at March 31, 2023			257.5						$	2.6					$	7,220.2					$	(13.1)					$	7,222.6					$	14,432.3
Balance at December 31, 2023			257.7						$	2.6					$	7,449.7					$	(14.3)					$	10,142.4					$	17,580.4
Other comprehensive income, net of tax			—						—						—						31.6						—						31.6
Net income			—						—						—						—						1,099.6						1,099.6
Repurchases of common stock			(0.3)						(0.0)						(140.4)						—						—						(140.4)
Common stock withheld for employee tax obligations			(0.6)						(0.0)						(233.5)						—						—						(233.5)
Issuance of common stock under benefit plans			1.5						0.0						15.9						—						—						15.9
Stock-based compensation expense			—						—						193.0						—						—						193.0
Balance at March 31, 2024			258.3						$	2.6					$	7,284.7					$	17.3					$	11,242.0					$	18,546.6

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

VERTEX PHARMACEUTICALS INCORPORATED

Condensed Consolidated Statements of Cash Flows

(in millions)(unaudited)

			Three Months Ended March 31,
			2024						2023
Cash flows from operating activities:
Net income			$	1,099.6					$	699.8
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense			191.9						122.4
Depreciation and amortization expense			53.5						38.8
Deferred income taxes			(158.3)						(113.4)
Losses (gains) on equity securities			27.0						(6.4)
Decrease in fair value of contingent consideration			(0.1)						(1.9)
Other non-cash items, net			(36.3)						21.7
Changes in operating assets and liabilities:
Accounts receivable, net			(251.6)						(90.5)
Inventories			(80.1)						(82.6)
Prepaid expenses and other assets			99.2						46.2
Accounts payable			0.1						35.7
Accrued expenses			194.1						140.7
Other liabilities			167.6						89.4
Net cash provided by operating activities			1,306.6						899.9
Cash flows from investing activities:
Purchases of available-for-sale debt securities			(2,598.5)						(1,816.6)
Sales and maturities of available-for-sale debt securities			710.5						50.0
Purchases of property and equipment			(68.4)						(42.1)
Net payments related to finite-lived intangible assets			(180.0)						—
Investment in equity securities			—						(24.9)
Net cash used in investing activities			(2,136.4)						(1,833.6)
Cash flows from financing activities:
Issuances of common stock under benefit plans			16.9						14.2
Repurchases of common stock			(131.2)						(132.8)
Payments in connection with common stock withheld for employee tax obligations			(233.5)						(166.6)
Payments on finance leases			(13.2)						(10.6)
Other financing activities			3.5						1.1
Net cash used in financing activities			(357.5)						(294.7)
Effect of changes in exchange rates on cash			(15.6)						12.0
Net decrease in cash, cash equivalents and restricted cash			(1,202.9)						(1,216.4)
Cash, cash equivalents and restricted cash—beginning of period			10,372.3						10,512.0
Cash, cash equivalents and restricted cash—end of period			$	9,169.4					$	9,295.6
Supplemental disclosure of cash flow information:
Cash paid for income taxes			$	34.8					$	120.3
Cash paid for interest			$	10.0					$	11.1

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.

Certain information and footnote disclosures normally included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 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 income for the interim periods ended March 31, 2024 and 2023.

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, 2023, which are contained in our 2023 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 Accounting Standards

As noted in Note A, “Nature of Business and Accounting Policies,” in our 2023 Annual Report on Form 10-K, we did not 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.

Summary of Significant Accounting Policies

Our significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in our 2023 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 March 31,
															2024						2023
															(in millions)
TRIKAFTA/KAFTRIO															$	2,483.6					$	2,096.7
Other CF products															207.0						278.1
Total product revenues, net															$	2,690.6					$	2,374.8

Product Revenues by Geographic Location

“Product revenues, net” by geographic region, based on the location of the customer, consisted of the following:

									Three Months Ended March 31,
															2024						2023
															(in millions)
United States															$	1,519.9					$	1,403.8
Outside of the United States
Europe															967.4						807.2
Other															203.3						163.8
Total product revenues outside of the United States															1,170.7						971.0
Total product revenues, net															$	2,690.6					$	2,374.8

Contract Liabilities

We had contract liabilities of $275.8 million and $170.3 million as of March 31, 2024 and December 31, 2023, 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 cystic fibrosis (“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.

**C.**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 $76.8 million and $347.1 million for the three months ended March 31, 2024 and 2023, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

collaborations, licenses of third-party technologies, and asset acquisitions that qualify as in-process research and development.

Our collaboration, licensing and asset acquisition agreements that had a significant impact on our financial statements for the three months ended March 31, 2024 and 2023, or were new or materially revised during the three months ended March 31, 2024, are described below. Additional agreements were described in Note B, “Collaboration, License and Other Arrangements,” of our 2023 Annual Report on Form 10-K.

In-license Agreements

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 (the “CRISPR JDCA”), which we amended and restated in 2021, pursuant to the terms of the CRISPR Agreement. Under the CRISPR JDCA, we and CRISPR were co-developing and preparing to co-commercialize CASGEVY for the treatment of hemoglobinopathies, including treatments for severe sickle cell disease (“SCD”) and transfusion-dependent beta thalassemia.

Pursuant to the CRISPR JDCA, we lead global development, manufacturing and commercialization of CASGEVY, with support from CRISPR. We also conduct all research, development, manufacturing, and commercialization activities relating to other product candidates and products under the CRISPR JDCA throughout the world subject to CRISPR’s reserved right to conduct certain activities.

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. Subsequent to receiving marketing approval for CASGEVY, we continue to lead the research and development activities under the CRISPR 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 record this reimbursement from CRISPR as a credit within “Research and development expenses.” We also share with CRISPR 40% of the net commercial profits or losses incurred with respect to CASGEVY, subject to certain adjustments, which is recorded to “Cost of sales.” The net commercial profits or losses equal the sum of the product revenues, cost of sales and selling, general and administrative expenses that we have recognized related to the CRISPR JDCA.

In the three months ended March 31, 2024, we recognized net reimbursements from CRISPR pursuant to the CRISPR JDCA as credits to “Cost of sales” of $15.8 million, related to CRISPR’s share of the CRISPR JDCA’s net commercial loss, and to “Research and development expenses” of $11.7 million, related to CRISPR’s share of the CRISPR JDCA’s research and development activities.

Prior to receiving marketing approvals for CASGEVY in various markets beginning in December 2023, we accounted for the CRISPR JDCA as a cost-sharing arrangement, with costs incurred related to CASGEVY allocated 60% to us and 40% to CRISPR, subject to certain adjustments. In the three months ended March 31, 2023, we recognized net reimbursements from CRISPR as credits to “Research and development expenses” of $17.9 million and to “Selling, general and administrative expenses” of $5.8 million, related to CRISPR’s share of the CRISPR JDCA’s operating expenses.

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

constitute a business. 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. We recorded the upfront payment to “Acquired in-process research and development expenses” in the three months ended March 31, 2023. We recorded the investment in Entrada’s common stock at fair value on our condensed consolidated balance sheet within “Marketable securities.” In the first quarter of 2024, Entrada earned a $75.0 million milestone, which we recorded to “Acquired in-process research and development expenses” in the three months ended March 31, 2024 and accrued to “Other current liabilities” as of March 31, 2024. Entrada is eligible to receive up to an additional $335.0 million in development, regulatory and commercial milestones for any products that may result from the Entrada Agreement, as well as royalties on resulting net product sales.

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.”

**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 March 31,
															2024						2023
															(in millions, except per share amounts)
Net income															$	1,099.6					$	699.8
Basic weighted-average common shares outstanding															258.2						257.4
Effect of potentially dilutive securities:
Restricted stock units (including performance-based restricted stock units (“PSUs”))															1.7						1.6
Stock options															1.2						1.3
Employee stock purchase program															0.0						0.0
Diluted weighted-average common shares outstanding															261.1						260.3
Basic net income per common share															$	4.26					$	2.72
Diluted net income per common share															$	4.21					$	2.69

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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 March 31,
															2024						2023
															(in millions)
Unvested restricted stock units (including PSUs)															—						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 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.

The following tables set forth our financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy:

			As of March 31, 2024																								As of December 31, 2023
			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			$	5,865.3					$	4,921.3					$	944.0					$	—					$	7,033.9					$	5,397.3					$	1,636.6					$	—
Marketable securities:
Corporate equity securities			43.4						43.4						—						—						46.0						46.0						—						—
U.S. Treasury securities			1,389.4						1,389.4						—						—						546.5						546.5						—						—
U.S. government agency securities			356.7						—						356.7						—						425.2						—						425.2						—
Asset-backed securities			792.6						—						792.6						—						306.0						—						306.0						—
Certificates of deposit			42.6						—						42.6						—						33.7						—						33.7						—
Corporate debt securities			2,632.2						—						2,632.2						—						1,802.8						—						1,802.8						—
Commercial paper			137.8						—						137.8						—						186.8						—						186.8						—
Prepaid expenses and other current assets:
Foreign currency forward contracts			26.3						—						26.3						—						1.8						—						1.8						—
Total financial assets			$	11,286.3					$	6,354.1					$	4,932.2					$	—					$	10,382.7					$	5,989.8					$	4,392.9					$	—
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts			$	(1.4)					$	—					$	(1.4)					$	—					$	(33.7)					$	—					$	(33.7)					$	—
Other long-term liabilities:
Contingent consideration			(77.3)						—						—						(77.3)						(77.4)						—						—						(77.4)
Total financial liabilities			$	(78.7)					$	—					$	(1.4)					$	(77.3)					$	(111.1)					$	—					$	(33.7)					$	(77.4)

Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of investment. Our cash equivalents primarily include money market funds and time deposits.

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

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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.

As of March 31, 2024, 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 $23.0 million. We 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.

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 (“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 discount rates used in the valuation model for contingent payments, which were between 5.1% and 5.3% as of March 31, 2024, 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.

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

			Three Months Ended March 31, 2024
			(in millions)
Balance at December 31, 2023			$	77.4
Decrease in fair value of contingent payments			(0.1)
Balance at March 31, 2024			$	77.3

**F.**Marketable Securities and Equity Investments

A summary of our cash equivalents and marketable debt and equity securities, which are recorded at fair value, is shown below:

			As of March 31, 2024																								As of December 31, 2023
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
			(in millions)
Cash equivalents			$	5,865.3					$	—					$	—					$	5,865.3					$	7,033.9					$	—					$	—					$	7,033.9
Marketable securities:
U.S. Treasury securities			1,395.1						1.1						(6.8)						1,389.4						544.5						3.0						(1.0)						546.5
U.S. government agency securities			357.7						0.1						(1.1)						356.7						424.8						0.9						(0.5)						425.2
Asset-backed securities			793.5						0.7						(1.6)						792.6						304.9						1.4						(0.3)						306.0
Certificates of deposit			42.6						0.0						(0.0)						42.6						33.7						0.0						(0.0)						33.7
Corporate debt securities			2,637.4						4.3						(9.5)						2,632.2						1,794.0						10.5						(1.7)						1,802.8
Commercial paper			137.9						0.0						(0.1)						137.8						186.8						0.1						(0.1)						186.8
Total marketable available-for-sale debt securities			5,364.2						6.2						(19.1)						5,351.3						3,288.7						15.9						(3.6)						3,301.0
Corporate equity securities			72.1						—						(28.7)						43.4						72.1						—						(26.1)						46.0
Total marketable securities			5,436.3						6.2						(47.8)						5,394.7						3,360.8						15.9						(29.7)						3,347.0
Total cash equivalents and marketable securities			$	11,301.6					$	6.2					$	(47.8)					$	11,260.0					$	10,394.7					$	15.9					$	(29.7)					$	10,380.9

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

Amounts in the table above at fair value were classified on our condensed consolidated balance sheets as follows:

			As of March 31, 2024						As of December 31, 2023
			(in millions)
Cash and cash equivalents			$	5,865.3					$	7,033.9
Marketable securities			1,013.3						849.2
Long-term marketable securities			4,381.4						2,497.8
Total			$	11,260.0					$	10,380.9

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

			As of March 31, 2024						As of December 31, 2023
			(in millions)
Matures within one year			$	969.9					$	803.2
Matures after one year through five years			4,273.3						2,495.6
Matures after five years			108.1						2.2
Total			$	5,351.3					$	3,301.0

We did not record any allowances for credit losses to adjust the fair value of our marketable available-for-sale debt securities or gross realized gains or losses in the three months ended March 31, 2024 and 2023. Additionally, we did not record any realized gains or losses that were material to our condensed consolidated statements of income during the three months ended March 31, 2024 and 2023. As of March 31, 2024, we held marketable available-for-sale debt securities with a total fair value of $4.0 billion that were in unrealized loss positions totaling $19.1 million. Included in this amount were marketable available-for sale debt securities with a total fair value of $53.8 million and total unrealized loss of $0.4 million that had been in unrealized loss positions for greater than twelve months. We intend to hold these investments until maturity and do not expect to incur realized losses on these investments when they mature.

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 income. During the three months ended March 31, 2024 and 2023, our net unrealized (losses) gains on corporate equity securities with readily determinable fair values held at the conclusion of each period were as follows:

									Three Months Ended March 31,
															2024						2023
															(in millions)
Net unrealized (losses) gains															$	(2.7)					$	6.4

As of March 31, 2024, 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 $74.3 million. During the three months ended March 31, 2024, we reduced the carrying value of one of our equity investments without a readily determinable fair value by $24.3 million based on an observable change in price.

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, 2023			$	1.1					$	9.6					$	(25.0)					$	(14.3)
Other comprehensive income (loss) before reclassifications			6.8						(20.5)						47.2						33.5
Amounts reclassified from accumulated other comprehensive income (loss)			—						0.8						(2.7)						(1.9)
Net current period other comprehensive income (loss)			6.8						(19.7)						44.5						31.6
Balance at March 31, 2024			$	7.9					$	(10.1)					$	19.5					$	17.3
Balance at December 31, 2022			$	(25.0)					$	(0.1)					$	25.9					$	0.8
Other comprehensive income (loss) before reclassifications			10.0						2.9						(9.6)						3.3
Amounts reclassified from accumulated other comprehensive income (loss)			—						—						(17.2)						(17.2)
Net current period other comprehensive income (loss)			10.0						2.9						(26.8)						(13.9)
Balance at March 31, 2023			$	(15.0)					$	2.8					$	(0.9)					$	(13.1)

**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 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 contracts with terms that match the critical terms of the risk being hedged. As of March 31, 2024, 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 March 31, 2024 and December 31, 2023, 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 March 31, 2024						As of December 31, 2023
Foreign Currency			(in millions)
Euro			$	1,305.5					$	1,720.6
Canadian dollar			190.0						229.5
British pound sterling			186.4						225.0
Australian dollar			122.1						153.3
Swiss Franc			50.5						63.9
Total foreign currency forward contracts			$	1,854.5					$	2,392.3

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 income each period. As of March 31, 2024, we did not have any outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP was not applied.

During the three months ended March 31, 2024 and 2023, we recognized the following related to foreign currency forward contracts in our condensed consolidated statements of income:

									Three Months Ended March 31,
															2024						2023
															(in millions)
Designated as hedging instruments - Reclassified from AOCI
Product revenues, net															$	3.4					$	22.0
Not designated as hedging instruments
Other (expense) income, net															$	(2.4)					$	3.6
Total reported in the Condensed Consolidated Statements of Income
Product revenues, net															$	2,690.6					$	2,374.8
Other (expense) income, net															$	(31.2)					$	1.3

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 March 31, 2024
Assets												Liabilities
Classification						Fair Value						Classification						Fair Value
(in millions)
Prepaid expenses and other current assets						$	26.3					Other current liabilities						$	(1.4)

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)

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

As of March 31, 2024, 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 March 31, 2024
			Gross Amounts Recognized						Gross Amounts Offset						Gross Amounts Presented						Gross Amounts Not Offset						Legal Offset
Foreign currency forward contracts			(in millions)
Total assets			$	26.3					$	—					$	26.3					$	(1.4)					$	24.9
Total liabilities			(1.4)						—						(1.4)						1.4						—

			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)

**I.**Inventories

Inventories consisted of the following:

			As of March 31, 2024						As of December 31, 2023
			(in millions)
Raw materials			$	95.7					$	78.7
Work-in-process			601.8						525.1
Finished goods			115.6						135.0
Total			$	813.1					$	738.8

During the first quarter of 2024, following positive results we announced related to our two Phase 3 trials for suzetrigine (formerly VX-548) for acute pain and vanzacaftor/tezacaftor/deutivacaftor for CF, we began capitalizing inventories produced in preparation for our planned product launches. We made these determinations based on our evaluation, among other factors, the safety and efficacy results, and expected likelihood of regulatory approval and commercial success. Prior to the first quarter of 2024, we expensed inventoriable and related costs associated with these product candidates as “Research and development expenses.” As of March 31, 2024, these inventories were not material to our condensed consolidated financial statements.

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 months ended March 31, 2024 and 2023, we recognized the following stock-based compensation expense:

									Three Months Ended March 31,
															2024						2023
															(in millions)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs)															$	187.2					$	115.9
ESPP share issuances															5.8						5.5
Stock options															—						1.4
Stock-based compensation expense related to inventories															(1.1)						(0.4)
Total stock-based compensation expense included in “Total costs and expenses”															$	191.9					$	122.4
Stock-based compensation expense by line item:
Cost of sales															$	1.8					$	1.9
Research and development expenses															119.4						76.3
Selling, general and administrative expenses															70.7						44.2
Total stock-based compensation expense included in costs and expenses															191.9						122.4
Income tax effect															(79.0)						(40.6)
Total stock-based compensation expense, net of tax															$	112.9					$	81.8

Share repurchase program

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. The program does not have an expiration date and can be discontinued at any time. During the three months ended March 31, 2024 and 2023, we repurchased 335,773 and 459,017 shares of our common stock under the program, respectively, for aggregate repurchases of $140.4 million and $135.6 million, respectively. As of March 31, 2024, we had $2.4 billion remaining authorization under this program.

**K.**Income Taxes

We are subject to U.S. federal, state, and foreign income taxes. During the three months ended March 31, 2024 and 2023, we recorded the following provisions for income taxes and effective tax rates as compared to our income before provision for income taxes:

									Three Months Ended March 31,
															2024						2023
															(in millions, except percentages)
Income before provision for income taxes															$	1,279.1					$	891.5
Provision for income taxes															$	179.5					$	191.7

Effective tax rate															14.0		%				21.5		%

Our effective tax rate for the three months ended March 31, 2024 was lower than the U.S. statutory rate primarily due to changes in our unrecognized tax positions as well as excess tax benefits related to stock-based compensation.

Our effective tax rate for the three months ended March 31, 2023 was higher than the U.S. statutory rate primarily due to an increase in our unrecognized tax positions partially offset by excess tax benefits related to stock-based compensation.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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 March 31, 2024 and December 31, 2023, we had $301.6 million and $288.7 million, respectively, of net unrecognized tax benefits, which would affect our tax rate if recognized.

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 2015 in jurisdictions that have a material impact on our consolidated financial statements. In 2023, we came to settlement with the United Kingdom’s HM Revenue & Customs (“HMRC”) with respect to our tax positions for 2015 through 2020 and subsequently received Closure Notices for those periods during the three months ended March 31, 2024. 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.

In December 2022, European Union member states reached an agreement to implement the minimum tax component (“Pillar Two”) of the Organization for Economic Co-operation and Development’s (the “OECD’s”), global international tax reform initiative with effective dates of January 1, 2024 and 2025. In July 2023, the OECD published Administrative Guidance proposing certain safe harbors that effectively extend certain effective dates to January 1, 2027. The assessment of our potential 2024 exposure for the global per-country minimum tax of 15%, based on our forecasted 2024 results, is immaterial to our condensed consolidated financial statements as the effective tax rates in most of the jurisdictions in which we operate are above 15%.

**L.**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 March 31, 2024, 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.

VERTEX PHARMACEUTICALS INCORPORATED

Notes to Condensed Consolidated Financial Statements (unaudited)

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 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 E, “Fair Value Measurements,” there were no material contingent liabilities accrued as of March 31, 2024 or December 31, 2023.

**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:

			Three Months Ended March 31,
			2024												2023
			Beginning of period						End of period						Beginning of period						End of period
			(in millions)
Cash and cash equivalents			$	10,369.1					$	9,158.0					$	10,504.0					$	9,289.9
Prepaid expenses and other current assets			3.2						11.4						8.0						5.7
Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flows			$	10,372.3					$	9,169.4					$	10,512.0					$	9,295.6

**N.**Subsequent Event

In April 2024, we entered into an agreement and plan of merger (the “Alpine Merger Agreement”) to acquire all of the issued and outstanding shares of common stock of Alpine Immune Sciences, Inc. (“Alpine”), a publicly traded biotechnology company focused on discovering and developing innovative, protein-based immunotherapies, for approximately $4.9 billion in cash. Alpine’s lead molecule, povetacicept, is a highly potent and effective dual antagonist of BAFF (“B cell activating factor”) and APRIL (“a proliferation inducing ligand”). Through Phase 2 development, povetacicept has shown potential best-in-class efficacy in IgA nephropathy (“IgAN”), a serious, progressive, autoimmune disease of the kidney that can lead to end-stage-renal disease. The transaction is expected to close in the second quarter of 2024, subject to certain customary closing conditions, including the completion of a tender offer, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, and other conditions. We will account for the acquisition in the period that it closes. We intend to fund the acquisition with our cash and cash equivalents.