Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases, with a focus on specialty markets. We have four approved medicines that treat the underlying cause of cystic fibrosis (“CF”), a life-threatening genetic disease, and one approved therapy that treats severe sickle cell disease (“SCD”) and transfusion dependent beta thalassemia (“TDT”), life-shortening inherited blood disorders. Our pipeline includes clinical-stage programs in CF, sickle cell disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney disease, IgA nephropathy (as well as other autoimmune renal diseases and cytopenias), type 1 diabetes, myotonic dystrophy type 1, and autosomal dominant polycystic kidney disease.

Our four approved CF medicines, led by TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), are being used to treat nearly three quarters of the approximately 92,000 people with CF in North America, Europe, and Australia. We are evaluating our CF medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for all people who have at least one mutation in their cystic fibrosis transmembrane conductance regulator (“CFTR”) gene that is responsive to our CFTR modulators. We also are pursuing messenger ribonucleic acid (“mRNA”) and genetic therapies for people with CF who do not make full-length CFTR protein and, as a result, cannot benefit from our current CF medicines.

In late 2023 and early 2024, CASGEVY (exagamglogene autotemcel or “exa-cel”), an ex-vivo, non-viral CRISPR/Cas9 gene-edited cell therapy, was approved in the U.S., the European Union (the “E.U.”), the United Kingdom (“U.K.”), the Kingdom of Saudi Arabia (“Saudi Arabia”), and the Kingdom of Bahrain (“Bahrain”) for the treatment of people 12 years of age and older with SCD or TDT. We estimate approximately 35,000 people with severe SCD or TDT could be eligible for CASGEVY in the U.S. and Europe, with additional people in Saudi Arabia and Bahrain. In addition, we are preparing for near-term launches of potential new products in CF and acute pain.

Financial Highlights

Revenues			In the third quarter of 2024, our net product revenues increased to $2.8 billion as compared to $2.5 billion in the third quarter of 2023, primarily due to increased TRIKAFTA/KAFTRIO product revenues resulting from strong demand globally, including in younger age groups, and higher net realized pricing in the U.S.
Expenses			Our total research and development (“R&D”) and selling, general and administrative (“SG&A”) expenses increased to $1.2 billion in the third quarter of 2024 as compared to $1.1 billion in the third quarter of 2023, primarily due to increased commercial investments to support launches of Vertex's therapies globally and continued investment to support additional therapies in mid-to-late stage development. Acquired in-process research and development expenses (“AIPR&D”) was not significant in the third quarter of 2024 and 2023, but includes a $4.4 billion asset acquisition in the nine months ended September 30, 2024 related to our acquisition of Alpine Immune Sciences, Inc. (“Alpine”) in May 2024. Cost of sales was 14% in the third quarter of 2024 as compared to 13% in the third quarter of 2023, primarily due to costs associated with CASGEVY.
Cash			Our total cash, cash equivalents and marketable securities decreased to $11.2 billion as of September 30, 2024 as compared to $13.7 billion as of December 31, 2023 primarily due to cash paid to acquire Alpine and repurchases of our common stock, partially offset by cash flows provided by other operating activities.

Note: Charts above may not add due to rounding.

Business Updates

Marketed Products

Cystic Fibrosis

We expect to grow our CF business with (i) label expansions, including into younger patient groups and rare mutations, (ii) continued uptake in younger patient groups, and (iii) growth in the number of people living with CF. Recent progress in activities supporting continued uptake and label expansions is included below:

• KAFTRIO is reimbursed in all 27 countries of the European Union.

• Health Canada approved TRIKAFTA for an additional 152 rare mutations in the CFTR gene.

• We submitted regulatory applications to the U.S. Food and Drug Administration (the “FDA”) and the European Medicines Agency (the “EMA”) for TRIKAFTA/KAFTRIO for the treatment of people with CF and rare responsive mutations.

Sickle Cell Disease and Beta Thalassemia

• CASGEVY received approval in Switzerland and Canada for people 12 years of age and older with SCD or TDT.

• We have activated 45 authorized treatment centers globally. Patients across all regions have initiated cell collection.

• We entered into a reimbursement agreement with NHS England for eligible people with TDT to access CASGEVY. We have also entered into commercial discussions with NHS England to secure access to CASGEVY for eligible people with SCD.

• The Italian Medicines Agency approved our request for the implementation of an early access program for CASGEVY for the treatment of people with TDT and SCD.

Potential Near-Term Launch Opportunities

We are preparing for the following near-term launches of potential new products:

Vanzacaftor/tezacaftor/deutivacaftor in CF

• The FDA assigned the once-daily vanzacaftor triple in people with CF 6 years of age and older a Prescription Drug User Fee Act (“PDUFA”) target action date of January 2, 2025. The FDA granted Priority Review for the vanzacaftor triple.

• We have completed regulatory submissions for the vanzacaftor triple in the E.U., the U.K., Canada, Australia, New Zealand, and Switzerland.

Suzetrigine in Acute Pain

• The FDA assigned a PDUFA target action date of January 30, 2025 for suzetrigine for the treatment of moderate-to-severe acute pain. The FDA granted Priority Review to suzetrigine.

Pipeline

We continue to advance a diversified pipeline of potentially transformative medicines for serious diseases utilizing a range of modalities. Recent and anticipated progress in activities supporting these efforts is included below:

Cystic Fibrosis

• We are enrolling and dosing in a Phase 3 clinical trial evaluating the vanzacaftor triple in children with CF 2 to 5 years of age who have at least one F508del mutation or a mutation responsive to triple combination CFTR modulators.

• In collaboration with Moderna, Inc. (“Moderna”), we are developing VX-522, a nebulized mRNA therapy for the treatment of people with CF who do not produce full-length CFTR protein. The multiple ascending dose portion of the Phase 1/2 clinical trial of VX-522 in people with CF is ongoing. We expect to share data from this clinical trial in the first half of 2025.

• We continue to advance new oral small molecule combination therapies through preclinical and clinical development. The most advanced next-wave CFTR modulators have completed, or are in the process of completing, Phase 1 clinical trials.

Sickle Cell Disease and Transfusion-Dependent Beta Thalassemia

• We have completed enrollment in two global Phase 3 clinical trials evaluating CASGEVY in children 5 to 11 years of age with SCD or TDT, and the trials are ongoing.

• We continue to work on preclinical assets for myeloablative conditioning agents that would have milder side-effects and could be used in connection with CASGEVY, which could broaden the eligible patient population.

Acute Pain

• We have initiated a Phase 2 clinical trial evaluating an oral formulation of VX-993, a next-generation selective NaV1.8 pain signal inhibitor, for the treatment of moderate-to-severe acute pain following bunionectomy surgery.

• We are enrolling and dosing healthy volunteers in a Phase 1 clinical trial evaluating an intravenous formulation of VX-993.

• The FDA has granted Fast Track Designation to VX-993 in moderate-to-severe acute pain in both the oral and intravenous formulations.

• We are advancing additional NaV1.8 inhibitors and NaV1.7 pain signal inhibitors, which could be used alone or in combination, for the treatment of acute pain.

Peripheral Neuropathic Pain

• We have initiated the Phase 3 pivotal program evaluating suzetrigine in people with diabetic peripheral neuropathy, a common form of chronic peripheral neuropathic pain. The FDA has granted suzetrigine Breakthrough Therapy designation in diabetic peripheral neuropathy.

• We have completed the Phase 2 clinical trial evaluating suzetrigine in people with lumbosacral radiculopathy, a second type of peripheral neuropathic pain. We expect to share results from this clinical trial in the fourth quarter of 2024.

• We have initiated a Phase 2 clinical trial evaluating the oral formulation of VX-993 for the treatment of diabetic peripheral neuropathy.

• We are advancing additional NaV1.8 inhibitors and NaV1.7 pain signal inhibitors, which could be used alone or in combination, for the treatment of peripheral neuropathic pain.

APOL1-Mediated Kidney Disease

• Inaxaplin is our small molecule for the treatment of APOL1-mediated kidney disease (“AMKD”), including APOL1-mediated focal segmental glomerulosclerosis (“FSGS”). We continue to enroll and dose people with AMKD in the Phase 3 portion of the global Phase 2/3 pivotal clinical trial.

IgA Nephropathy and Other B Cell-Mediated Diseases

• We are developing povetacicept, a dual inhibitor of the BAFF and APRIL pathways, as a potentially best-in-class approach to treat immunoglobulin A (“IgA”) nephropathy (“IgAN”), a serious progressive, autoimmune kidney disease that can lead to end-stage renal disease. We have initiated the Phase 3 clinical trial evaluating povetacicept in people with IgAN (the “RAINIER” trial).

• RAINIER is a global pivotal trial evaluating povetacicept in approximately 480 people with IgAN. The trial is designed to have a pre-planned interim analysis evaluating the change from baseline in urine protein creatinine ratio (“UPCR”) after a certain number of patients reach 36 weeks of treatment. If positive, the interim analysis may serve as the basis for seeking accelerated approval in the U.S. Final analysis will occur at two years of treatment, with a primary endpoint of total eGFR slope through Week 104.

• We are studying primary membranous nephropathy and additional renal diseases in the RUBY-3 basket trial and hematologic conditions in the RUBY-4 basket trial, both of which are ongoing.

Type 1 Diabetes

• VX-880 is an allogeneic, stem cell-derived, fully differentiated, insulin-producing islet cell replacement therapy, using standard immunosuppression to protect the implanted cells. We are evaluating VX-880 as a potential treatment for type 1 diabetes (“T1D”) in a sequential, three-part clinical trial. Following successful end of Phase 2 meetings with the FDA, the EMA and the Medicines and Healthcare products Regulatory Agency in the U.K., we have reached an agreement to advance VX-880 into pivotal development with the conversion of the ongoing Phase 1/2 clinical trial to a Phase 1/2/3 clinical trial. The Phase 1/2/3 clinical trial will include a total of 50 people with T1D infused with a single target dose of VX-880, and the primary endpoint is the proportion of patients with insulin independence and absence of severe hypoglycemic episodes.

• Our second Phase 1/2 program in T1D evaluates VX-264, which encapsulates the same VX-880 islet cells in a novel device designed to eliminate the need for immunosuppression. This trial is a sequential, multi-part study to evaluate the safety, tolerability and efficacy of VX-264. We have completed Part A of the clinical trial and we are enrolling and dosing people with TID in Part B of the clinical trial, where patients receive the full-target dose with a stagger period between patients. In Part C, we expect that patients will receive the full target dose with no stagger period. We expect to share initial data from this clinical trial in 2025.

• Our hypoimmune islet cell program uses CRISPR/Cas9 technology to gene-edit the same allogeneic stem cell-derived, fully differentiated islet cells used in the VX-880 and VX-264 programs. The goal is to protect the cells from the immune system to explore another possible path to eliminate the need for immunosuppressive therapy. This program continues to progress through the research stage.

Myotonic Dystrophy Type 1

• Our lead approach for myotonic dystrophy type 1 (“DM1”), VX-670, was in-licensed from Entrada Therapeutics, Inc. (“Entrada”). VX-670 is an oligonucleotide connected to a cyclic peptide to promote effective delivery into cells, which holds the potential to address the underlying cause of DM1.

• We completed the single ascending dose portion of the global Phase 1/2 clinical trial for VX-670 in people with DM1. We have initiated the multiple ascending dose portion of the trial, which will evaluate the safety and efficacy of VX-670.

Autosomal Dominant Polycystic Kidney Disease

• We are enrolling and dosing in a Phase 1 clinical trial in healthy volunteers evaluating VX-407, our first-in-class small molecule corrector that targets the underlying cause of autosomal dominant polycystic kidney disease (“ADPKD”) in people with a subset of PKD1 variants.

Our Business Environment

In the nine months ended September 30, 2024, our net product revenues came primarily from the sale of our medicines for the treatment of CF. Our CF strategy involves continuing to develop and obtain approval and reimbursement for treatment regimens that will provide benefits to all people with CF and increasing the number of people with CF eligible and able to receive our medicines, including through label expansions, expanded reimbursement, and the development of new medicines. We are advancing our pipeline of product candidates for the treatment of serious diseases outside of CF, including CASGEVY, which has received marketing approvals in the U.S., the E.U., the U.K., Saudi Arabia, Bahrain, Switzerland and Canada for the treatment of SCD and TDT.

Our strategy is to combine transformative advances in the understanding of causal human biology and the science of therapeutics to discover and develop innovative medicines. This approach includes advancing multiple compounds or therapies from each program, spanning multiple modalities, into early clinical trials to obtain patient data that can inform selection of the most promising therapies for later-stage development, as well as to inform discovery and development efforts. We aim to rapidly follow our first-in-class therapies that achieve proof-of-concept with potential best-in-class candidates to provide durable clinical and commercial success.

In pursuit of new product candidates and therapies in specialty markets, we invest in research and development. We believe that pursuing research in diverse areas allows us to balance the risks inherent in product development and may provide product candidates that will form our pipeline in future years. To supplement our internal research programs, we acquire technologies and programs and collaborate with biopharmaceutical and technology companies, leading academic

research institutions, government laboratories, foundations and other organizations, as needed, to advance research in our areas of therapeutic interest and to access technologies needed to execute on our strategy.

Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Across the industry, most potential drug or biological products never progress into development, and most products that do advance into development never receive marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor the results of our discovery, research, nonclinical studies and clinical trials and frequently evaluate our product development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in rapid changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors.

Our business also requires ensuring appropriate manufacturing and reimbursement of our products. As we advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties, including some in China, and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. Our foreign third-party manufacturers and suppliers may be subject to U.S. legislation, including the BIOSECURE Act, sanctions, trade restrictions and other foreign regulatory requirements which could increase costs or reduce the supply of material available to us, or delay the procurement or supply of such material. The processes for cell and genetic therapies can be more complex than those required for small molecule drugs and require additional investments in different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.

Sales of our products depend, to a large degree, on the extent to which our products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. Reimbursement for our products, including our potential pipeline therapies, cannot be assured and may take significant periods of time to obtain. We dedicate substantial management and other resources to obtain and maintain appropriate levels of reimbursement for our products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets.

In the U.S., we have worked successfully with third-party payors to promptly obtain appropriate levels of reimbursement for our CF medicines. In addition, we are working with U.S. government and commercial payors with respect to CASGEVY. We anticipate broad access with government and commercial payors for CASGEVY in the U.S., and we have recently entered into multiple agreements with government and commercial health insurance providers to provide access to CASGEVY. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states, to ensure that payors recognize the significant benefits that all of our therapies provide and provide patients with appropriate levels of access to our medicines and therapies now and in the future. We cannot, however, predict how recent changes in the law, including through the Inflation Reduction Act of 2022 and passage of state laws (e.g., transparency laws and prescription drug affordability boards), will affect our ability to negotiate successfully with third-party payors and distribute our products. Similarly, in ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We are working with ex-U.S. payors with respect to CASGEVY, and we are pursuing long-term reimbursement agreements. We have secured reimbursed access for people with SCD or TDT in Saudi Arabia and Bahrain, and for people with TDT in England. In addition, the Italian Medicines Agency has approved our request for the implementation of an early access program for people with TDT and SCD. We expect to continue to focus significant resources to expand and maintain reimbursement for our CF medicines, CASGEVY and, ultimately, pipeline therapies, in U.S. and ex-U.S. markets.

Strategic Transactions

Acquisitions

As part of our business strategy, we seek to acquire technologies, products, product candidates and other businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. We have engaged in a number of acquisitions of biotechnology companies over the last several years and expect to continue to identify and evaluate opportunities to acquire additional biotechnology companies. The accounting for these acquisitions can vary significantly based on whether we conclude the transactions represent business combinations or asset acquisitions. In May 2024, we acquired Alpine for approximately $5.0 billion in cash. Alpine’s lead molecule, povetacicept, has shown potential best-in-class efficacy in IgAN through Phase 2 development. We accounted for

the Alpine transaction as an asset acquisition because povetacicept represents substantially all of the fair value of the gross assets that we acquired. As a result, $4.4 billion of the fair value attributed to povetacicept was expensed as AIPR&D in the nine months ended September 30, 2024. In 2022, we acquired ViaCyte, Inc. (“ViaCyte”), which had intellectual property, tools, technologies and assets with the potential to accelerate development of our T1D programs. We accounted for our acquisition of ViaCyte as a business combination.

Collaboration and In-Licensing Arrangements

We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of products, product candidates and other technologies that have the potential to complement our ongoing research and development efforts. Over the last several years, we entered into collaboration agreements with a number of companies, including CRISPR Therapeutics AG (“CRISPR”), Entrada, and Moderna. In July 2024, we entered into a multi-target license and option agreement with Orum Therapeutics, Inc. for the use of their degrader-antibody conjugate technology for the discovery of novel targeted conditioning agents for gene-edited therapies, such as CASGEVY, which included an upfront payment of $14.8 million.

Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume the costs of the program and/or agree to make contingent payments, which could consist of milestone, royalty and option payments. Most of these collaboration payments are expensed as AIPR&D, including a $75.0 million milestone due to Entrada in the first quarter of 2024, and our upfront payment of $225.1 million to Entrada and $170.0 million in total upfront and milestone payments to CRISPR related to T1D in the nine months ended September 30, 2023. These payments were expensed to AIPR&D because they were primarily attributable to acquired in-process research and development for which there was no alternative future use. However, depending on many factors, including the structure of the collaboration, the stage of development of the acquired technology, the significance of the in-licensed product candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously.

Acquired In-Process Research and Development Expenses

In the nine months ended September 30, 2024 and 2023, our AIPR&D included $4.5 billion and $509.3 million, respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including the asset acquisitions, collaborations, and licenses of third-party technologies described above. Please refer to Note C, “Collaboration, License and Other Arrangements,” for further information regarding our asset acquisitions, collaborations and in-license agreements.

RESULTS OF OPERATIONS

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages and per share amounts)
Product revenues, net			$	2,771.9					$	2,483.5					12%						$	8,108.1					$	7,351.5					10%
Acquired in-process research and development expenses			15.0						51.7						(71)%						4,540.9						509.3						**
Other operating costs and expenses			1,640.6						1,393.7						18%						4,826.1						3,998.7						21%
Income (loss) from operations			1,116.3						1,038.1						8%						(1,258.9)						2,843.5						**
Other non-operating income, net			107.8						141.1						(24)%						370.9						388.7						(5)%
Provision for income taxes			178.7						143.9						24%						560.6						581.4						(4)%
Net income (loss)			$	1,045.4					$	1,035.3					1%						$	(1,448.6)					$	2,650.8					**
Net income (loss) per diluted common share			$	4.01					$	3.97											$	(5.61)					$	10.18
Diluted shares used in per share calculations			261.0						260.6												258.1						260.4
																					** Not meaningful

Product Revenues, net

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
TRIKAFTA/KAFTRIO			$	2,585.0					$	2,274.3					14%						$	7,517.8					$	6,611.4					14%
Other product revenues			186.9						209.2						(11)%						590.3						740.1						(20)%
Product revenues, net			$	2,771.9					$	2,483.5					12%						$	8,108.1					$	7,351.5					10%

In the third quarter and nine months ended September 30, 2024, our net product revenues increased by $288.4 million and $756.6 million, or 12% and 10%, as compared to the third quarter and nine months ended September 30, 2023, respectively. Increases in our TRIKAFTA/KAFTRIO product revenues were due to strong demand globally, including in younger age groups, and higher net realized pricing in the U.S. Decreases in revenues for our other CF products were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO. In the three and nine months ended September 30, 2024, "Other product revenues" included $2.0 million related to CASGEVY.

Our net product revenues from the U.S. and from ex-U.S. markets were as follows:

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
United States			$	1,713.5					$	1,554.2					10%						$	4,847.7					$	4,465.8					9%
ex-U.S.			1,058.4						929.3						14%						3,260.4						2,885.7						13%
Product revenues, net			$	2,771.9					$	2,483.5					12%						$	8,108.1					$	7,351.5					10%

Operating Costs and Expenses

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
Cost of sales			$	392.6					$	318.7					23%						$	1,107.1					$	894.2					24%
Research and development expenses			875.9						810.0						8%						2,631.6						2,338.3						13%
Acquired in-process research and development expenses			15.0						51.7						(71)%						4,540.9						509.3						**
Selling, general and administrative expenses			371.8						263.8						41%						1,086.7						767.5						42%
Change in fair value of contingent consideration			0.3						1.2						**						0.7						(1.3)						**
Total costs and expenses			$	1,655.6					$	1,445.4					15%						$	9,367.0					$	4,508.0					108%
																					** Not meaningful

Cost of Sales

Our cost of sales primarily consists of third-party royalties payable on net sales of our CF products as well as the cost of producing inventories. Pursuant to our agreement with the Cystic Fibrosis Foundation, our tiered third-party royalties on sales of TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens, with lower royalties on sales of TRIKAFTA/KAFTRIO than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues increased to 14% in each of the third quarter and nine months ended September 30, 2024 as compared to 13% and 12% in the third quarter and nine months ended September 30, 2023, respectively, primarily due to cost of sales associated with CASGEVY following its regulatory approval in the fourth quarter of 2023.

Research and Development Expenses

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
Research expenses			$	193.8					$	173.9					11%						$	597.2					$	511.4					17%
Development expenses			682.1						636.1						7%						2,034.4						1,826.9						11%
Total research and development expenses			$	875.9					$	810.0					8%						$	2,631.6					$	2,338.3					13%

Our research and development expenses include internal and external costs incurred for research and development of our products and product candidates. We do not assign our internal costs, such as salary and benefits, stock-based compensation expense, laboratory supplies and other direct expenses and infrastructure costs, to individual products or product candidates, because the employees within our research and development groups typically are deployed across multiple research and development programs. We assign external costs of services provided to us by clinical research organizations and other outsourced research by individual program. Our internal costs are greater than our external costs. All research and development costs for our products and product candidates are expensed as incurred.

Since January 2022, we have incurred approximately $8.3 billion in total research and development expenses associated with product discovery and development. The successful development of our product candidates is highly uncertain and subject to a number of risks. In addition, the duration of clinical trials may vary substantially according to the type, complexity and novelty of the product candidate and the disease indication being targeted. The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products, typically requiring lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activities. Data obtained from these activities also are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The duration and cost of discovery, nonclinical studies and clinical trials may vary significantly over the life of a project and are difficult to predict. Therefore, accurate and meaningful estimates of the ultimate costs to bring our product candidates to market are not available.

Any estimates regarding development and regulatory timelines for our product candidates are highly subjective and subject to change. Until we have data from Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or if, a clinical development program will generate revenues and cash flows.

Research Expenses

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
Research Expenses:
Salary and benefits			$	48.3					$	46.3					4%						$	163.2					$	137.5					19%
Stock-based compensation expense			29.4						20.5						43%						87.9						59.2						48%
Outsourced services and other direct expenses			64.1						61.8						4%						195.5						176.0						11%
Infrastructure costs			52.0						45.3						15%						150.6						138.7						9%
Total research expenses			$	193.8					$	173.9					11%						$	597.2					$	511.4					17%

Our research expenses have been increasing over the last several years as we have invested in our pipeline and expanded our cell and genetic therapy capabilities, resulting in increased headcount and stock-based compensation expense, and outsourced services, other direct expenses and infrastructure costs. We expect to continue to invest in our research programs with a focus on creating transformative medicines for serious diseases.

Development Expenses

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
Development Expenses:
Salary and benefits			$	172.8					$	152.3					13%						$	510.1					$	438.8					16%
Stock-based compensation expense			81.6						60.6						35%						239.6						172.7						39%
Compensation expense for cash-settled unvested Alpine equity awards			—						—						**						151.9						—						**
Outsourced services and other direct expenses			319.4						332.6						(4)%						822.7						957.0						(14)%
Infrastructure costs			108.3						90.6						20%						310.1						258.4						20%
Total development expenses			$	682.1					$	636.1					7%						$	2,034.4					$	1,826.9					11%
																					** Not meaningful

Our development expenses increased by $46.0 million and $207.5 million, or 7% and 11%, in the third quarter and nine months ended September 30, 2024 as compared to the third quarter and nine months ended September 30, 2023, respectively. Development expenses in the nine months ended September 30, 2024 included compensation expense associated with cash-settled unvested equity awards related to our acquisition of Alpine from the second quarter of 2024.

Increased development expenses as compared to the three and nine months ended September 30, 2023 were due to continued investments in internal headcount and related expenses and infrastructure to support advancement of additional therapies into mid-to-late-stage development, including our T1D program. Additional headcount over the last several years has increased our stock-based compensation expense, which has historically fluctuated and is expected to continue to fluctuate from one period to another based on the probability of achieving milestones associated with our performance-based awards. These increases were partially offset by decrease outsourced services and other direct expenses. The decreases were primarily due to lower clinical trial costs resulting from advancements in both our suzetrigine program in acute pain and the vanzacaftor triple for CF, as well as the commercialization of CASGEVY.

Acquired In-process Research and Development Expenses

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
Acquired in-process research and development expenses			$	15.0					$	51.7					(71)%						$	4,540.9					$	509.3					**
																					** Not meaningful

AIPR&D in the three months ended September 30, 2024 was primarily related to an upfront payment associated with a collaboration arrangement. AIPR&D in the nine months ended September 30, 2024 was primarily related to $4.4 billion of AIPR&D resulting from our acquisition of Alpine, which was accounted for as an asset acquisition, and also included the $75.0 million milestone to Entrada from the first quarter of 2024. AIPR&D in the third quarter of 2023 was primarily related to our $47.5 million acquisition of a novel GPCR program from Septerna. AIPR&D in the nine months ended September 30, 2023 also included our $225.1 million upfront payment to Entrada and our $100.0 million upfront payment and $70.0 million research milestone to CRISPR related to T1D. Our AIPR&D has historically fluctuated, and is expected to continue to fluctuate, from one period to another due to upfront, contingent milestone, and other payments pursuant to our existing and future business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.

Selling, General and Administrative Expenses

			Three Months Ended September 30,																		Nine Months Ended September 30,
			2024						2023						Change						2024						2023						Change
			(in millions, except percentages)
Selling, general and administrative expenses			$	371.8					$	263.8					41%						$	1,086.7					$	767.5					42%

Selling, general and administrative expenses increased by 41% and 42% in the third quarter and nine months ended September 30, 2024 as compared to the third quarter and nine months ended September 30, 2023, respectively, primarily due to increased commercial investments to support the launches of our therapies globally and prepare for near-term launches of multiple potential new products, and stock-based compensation expense.

Contingent Consideration

The fair value of our contingent consideration increased by $0.3 million and $0.7 million in the third quarter and nine months ended September 30, 2024, respectively, and increased by $1.2 million and decreased by $1.3 million in the third quarter and nine months ended September 30, 2023, respectively.

Other Non-Operating Income (Expense), Net

Interest Income

Interest income decreased from $167.9 million in the third quarter of 2023 to $132.2 million in the third quarter of 2024, primarily due to decreased cash equivalents and available-for-sale debt securities following our acquisition of Alpine in the second quarter of 2024. Interest income increased from $435.2 million in the nine months ended September 30, 2023 to $469.9 million in the nine months ended September 30, 2024, primarily due to the mix of our cash equivalents and available-for-sale debt securities partially offset by the impact from our acquisition of Alpine on the amount of our cash equivalents and available-for-sale debt securities. Our future interest income is dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.

Interest Expense

Interest expense was $7.5 million and $10.9 million in the third quarter of 2024 and 2023, respectively, and $27.8 million and $33.5 million in the nine months ended September 30, 2024 and 2023, respectively. The majority of our interest expense in these periods was related to imputed interest expense associated with finance leases for our corporate headquarters in Boston. As discussed in Note M, “Leases,” our corporate headquarters leases were amended in August 2024, which resulted in a classification change to operating leases as of September 30, 2024. As a result, we expect our interest expense to decrease in future periods because operating lease expenses are recorded entirely within operating expenses in our condensed consolidated statements of operations.

Other Income (Expense), Net

Other income (expense), net was expenses of $16.9 million and $15.9 million in the third quarter of 2024 and 2023, respectively, and $71.2 million and $13.0 million in the nine months ended September 30, 2024 and 2023, respectively. These amounts related primarily to net unrealized gains or losses resulting from changes in the fair value of our strategic equity investments, which consist of investments in our collaborators that may be public or private companies. To the extent that we continue to hold strategic equity investments in publicly traded companies, we expect that due to the volatility of the stock price of biotechnology companies, our other income (expense), net will fluctuate in future periods based on increases or decreases in the fair value of our strategic equity investments. As of September 30, 2024, the fair value of our investments in publicly traded companies was $33.4 million.

Income Taxes

Our effective tax rate fluctuates from period to period due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, adjustments to the value of our uncertain tax positions, acquisitions and third-party collaboration and licensing transactions.

We recorded provisions for income taxes of $178.7 million and $143.9 million in the third quarter of 2024 and 2023, respectively, and $560.6 million and $581.4 million in the nine months ended September 30, 2024 and 2023, respectively. Our effective tax rate of (63.1)% in the nine months ended September 30, 2024 was materially different than the U.S. statutory rate primarily due to the $4.4 billion of AIPR&D resulting from our acquisition of Alpine, which drove our pre-tax loss in this period. Our effective tax rate of 18.0% in the nine months ended September 30, 2023 was lower than the U.S. statutory rate primarily due to a benefit from a research and development tax credit study that was completed during the third quarter of 2023 and excess tax benefits related to stock-based compensation, partially offset by changes in uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes the components of our financial condition as of September 30, 2024 and December 31, 2023:

			As of September 30, 2024						As of December 31, 2023						Change
			(in millions, except percentages)
Cash, cash equivalents and marketable securities:
Cash and cash equivalents			$	5,239.2					$	10,369.1
Marketable securities			1,285.3						849.2
Long-term marketable securities			4,703.5						2,497.8
Total cash, cash equivalents and marketable securities			$	11,228.0					$	13,716.1					(18)%
Working Capital:
Total current assets			$	9,804.1					$	14,144.2					(31)%
Total current liabilities			(3,973.1)						(3,547.4)						12%
Total working capital			$	5,831.0					$	10,596.8					(45)%

Working Capital

As of September 30, 2024, total working capital was $5.8 billion, which represented a decrease of $4.8 billion from $10.6 billion as of December 31, 2023 primarily due to the cash consideration paid to acquire Alpine.

Cash Flows

			Nine Months Ended September 30,
			2024						2023
			(in millions)
Net cash provided by (used in):
Operating activities			$	(1,077.2)					$	3,302.7
Investing activities			$	(2,948.1)					$	(2,255.2)
Financing activities			$	(1,103.6)					$	(442.4)

Operating Activities

Cash used in operating activities was $1.1 billion in the nine months ended September 30, 2024 primarily due to our acquisition of Alpine partially offset by cash flows provided by other operating activities. Cash provided by operating activities was $3.3 billion in the nine months ended September 30, 2023 primarily due to income from operations of $2.8 billion driven by our net product revenues.

Investing Activities

Cash used in investing activities were $2.9 billion and $2.3 billion in the nine months ended September 30, 2024 and 2023, respectively. The largest portion of our investing activities in each of these periods were net purchases of available-for-sale debt securities.

Financing Activities

Cash used in financing activities were $1.1 billion and $442.4 million in the nine months ended September 30, 2024 and 2023, respectively. Our financing activities in each of these periods were primarily related to repurchases of our common stock pursuant to our share repurchase program and payments related to our employee stock benefit plans.

Sources and Uses of Liquidity

We intend to rely on our existing cash, cash equivalents and current marketable securities together with cash flows from product sales as our primary source of liquidity. We expect that cash flows from our product sales together with our cash, cash equivalents and current marketable securities will be sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including our future product sales, and the potential introduction of one or more of our other product candidates to the market, our business development activities, and the number, breadth, cost and prospects of our research and development programs.

Credit Facilities & Financing Strategy

We may borrow up to a total of $500.0 million pursuant to a revolving credit facility that we entered into in July 2022 and could repay and reborrow amounts under this revolving credit agreement without penalty. Subject to certain conditions, we could request that the borrowing capacity be increased by an additional $500.0 million, for a total of $1.0 billion. Negative covenants in our credit agreement could prohibit or limit our ability to access this source of liquidity. As of September 30, 2024, the facility was undrawn, and we were in compliance with these covenants.

We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.

Future Capital Requirements

We have significant future capital requirements, including:

• Expected operating expenses to conduct research and development activities, manufacture and commercialize our existing and future products, and to operate our organization.

• Cash that we pay for income taxes.

• Royalties we pay related to sales of our CF products.

• Facility, operating and finance lease obligations, including obligations through 2044 related to our corporate headquarters as a result of the extension that we signed in August 2024.

• Firm purchase obligations related to our supply and manufacturing processes.

In addition, other potential significant future capital requirements may include:

• We have entered into certain business development-related and strategic agreements with third parties that include the funding of certain research, development, manufacturing and commercialization efforts. Certain of our transactions, including collaborations, licensing arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. Other transactions include the potential for future lease-related expenses and other costs. Our obligation to fund these research and development and commercialization efforts and to pay these potential milestones, expenses and royalties is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause their discontinuance. We may enter into additional business development transactions and strategic agreements, including acquisitions, collaborations, licensing arrangements and equity investments, which require additional capital.

• To the extent we borrow amounts under our existing credit agreement, we would be required to repay any outstanding principal amounts in 2027.

• As of September 30, 2024, we had $1.8 billion remaining authorization available under our Share Repurchase Program that our Board of Directors approved in February 2023. We expect to fund repurchases of our common stock through a combination of cash on hand and cash generated by operations. This program does not have an expiration date and can be discontinued at any time.

Other than the extension to our corporate headquarters leases noted above, there have not been any material changes to our future capital requirements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission, or SEC, on February 15, 2024.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. During the nine months ended September 30, 2024, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 15, 2024.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements, please refer to Note A, “Basis of Presentation and Accounting Policies.”