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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020MARCH 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM  TO  
Commission file number 000-19319

Vertex Pharmaceuticals Incorporated
(Exact name of registrant as specified in its charter)

Massachusetts
(State or other jurisdiction of incorporation or organization)

50 Northern Avenue, Boston, Massachusetts
(Address of principal executive offices)

04-3039129
(I.R.S. Employer Identification No.)

02210
(Zip Code)

Registrant’s telephone number, including area code (617) 341-6100

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareVRTXThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share260,467,334258,865,671Outstanding at July 23, 2020April 22, 2021

Table of Contents
VERTEX PHARMACEUTICALS INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED June 30, 2020MARCH 31, 2021

TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1.
2
2
Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019
2
Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019
3
Condensed Consolidated Balance Sheets - June 30, 2020March 31, 2021 and December 31, 20192020
4
Condensed Consolidated Statements of Shareholders' Equity - Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019
5
Condensed Consolidated Statements of Cash Flows - Three and Six Months Ended June 30,March 31, 2021 and 2020 and 2019
6
7
Item 2.
2322
Item 3.
3533
Item 4.
3633
Part II. Other Information
Item 1.
3633
Item 1A.
3634
Item 2.
3835
Item 5.
Other Information
35
Item 6.
3936
Signatures
4037
“We,” “us,” “Vertex” and the “Company” as used in this Quarterly Report on Form 10-Q refer to Vertex Pharmaceuticals Incorporated, a Massachusetts corporation, and its subsidiaries.
“Vertex,” “KALYDECO®,” “ORKAMBI®,” “SYMDEKO®,” “SYMKEVI®” and “TRIKAFTA®” are registered trademarks of Vertex. The trademark for “KAFTRIOTM” is pending in the United States and registered in the European Union. Other brands, names and trademarks contained in this Quarterly Report on Form 10-Q are the property of their respective owners.
We use the brand name for our products when we refer to the product that has been approved and with respect to the indications on the approved label. Otherwise, including in discussions of our cystic fibrosis development programs, we refer to our compounds by their scientific (or generic) name or VX developmental designation.


Table of Contents
Part I. Financial Information

Item 1.  Financial Statements

VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202020192020201920212020
Revenues:Revenues:Revenues:
Product revenues, netProduct revenues, net$1,524,485  $940,380  $3,039,592  $1,797,633  Product revenues, net$1,723,305 $1,515,107 
Collaborative and royalty revenues—  913  —  2,095  
Other revenuesOther revenues1,000 0 
Total revenuesTotal revenues1,524,485  941,293  3,039,592  1,799,728  Total revenues1,724,305 1,515,107 
Costs and expenses:Costs and expenses:Costs and expenses:
Cost of salesCost of sales184,520  135,740  347,017  230,832  Cost of sales192,329 162,497 
Research and development expensesResearch and development expenses420,928  379,091  869,456  718,581  Research and development expenses455,973 448,528 
Sales, general and administrative expensesSales, general and administrative expenses191,804  156,502  374,062  303,547  Sales, general and administrative expenses192,077 182,258 
Change in fair value of contingent considerationChange in fair value of contingent consideration9,200  —  10,800  —  Change in fair value of contingent consideration(3,900)1,600 
Total costs and expensesTotal costs and expenses806,452  671,333  1,601,335  1,252,960  Total costs and expenses836,479 794,883 
Income from operationsIncome from operations718,033  269,960  1,438,257  546,768  Income from operations887,826 720,224 
Interest incomeInterest income4,243  18,076  16,819  33,691  Interest income1,465 12,576 
Interest expenseInterest expense(13,871) (14,837) (28,007) (29,705) Interest expense(15,678)(14,136)
Other income, net116,365  53,939  55,235  96,549  
Income before (benefit from) provision for income taxes824,770  327,138  1,482,304  647,303  
(Benefit from) provision for income taxes(12,500) 59,711  42,281  111,245  
Other expense, netOther expense, net(52,653)(61,130)
Income before provision for income taxesIncome before provision for income taxes820,960 657,534 
Provision for income taxesProvision for income taxes167,822 54,781 
Net incomeNet income$837,270  $267,427  $1,440,023  $536,058  Net income$653,138 $602,753 
Net income per common share:Net income per common share:Net income per common share:
BasicBasic$3.22  $1.04  $5.54  $2.09  Basic$2.52 $2.32 
DilutedDiluted$3.18  $1.03  $5.46  $2.06  Diluted$2.49 $2.29 
Shares used in per share calculations:Shares used in per share calculations:Shares used in per share calculations:
BasicBasic259,637  256,154  260,013  255,941  Basic259,369 259,815 
DilutedDiluted263,403  259,822  263,746  260,015  Diluted261,916 263,515 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net income$837,270  $267,427  $1,440,023  $536,058  
Other comprehensive loss:
Unrealized holding gains on marketable securities, net2,714  451  1,950  1,047  
Unrealized losses on foreign currency forward contracts, net of tax of $4.7 million, $1.8 million, $(0.3) million and $3.3 million, respectively(19,680) (5,776) (898) (5,998) 
Foreign currency translation adjustment(10,538) (3,876) (13,200) 1,091  
Total other comprehensive loss(27,504) (9,201) (12,148) (3,860) 
Comprehensive income$809,766  $258,226  $1,427,875  $532,198  
Three Months Ended March 31,
20212020
Net income$653,138 $602,753 
Other comprehensive income:
Unrealized holding losses on marketable securities, net(218)(764)
Unrealized gains on foreign currency forward contracts, net of tax of $(9.3) million and $(5.0) million, respectively33,966 18,782 
Foreign currency translation adjustment1,430 (2,662)
Total other comprehensive income35,178 15,356 
Comprehensive income$688,316 $618,109 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except per share amounts)
June 30,December 31,March 31,December 31,
2020201920212020
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$4,831,332  $3,109,322  Cash and cash equivalents$6,304,330 $5,988,187 
Marketable securitiesMarketable securities619,437  698,972  Marketable securities619,638 670,710 
Accounts receivable, netAccounts receivable, net791,768  633,518  Accounts receivable, net977,551 885,352 
InventoriesInventories219,218  167,502  Inventories298,863 280,777 
Prepaid expenses and other current assetsPrepaid expenses and other current assets232,565  213,515  Prepaid expenses and other current assets338,925 308,353 
Total current assetsTotal current assets6,694,320  4,822,829  Total current assets8,539,307 8,133,379 
Property and equipment, netProperty and equipment, net728,357  745,080  Property and equipment, net986,123 958,534 
GoodwillGoodwill1,002,158  1,002,158  Goodwill1,002,158 1,002,158 
Intangible assetsIntangible assets400,000  400,000  Intangible assets400,000 400,000 
Deferred tax assetsDeferred tax assets1,214,968  1,190,815  Deferred tax assets815,890 882,779 
Operating lease assetsOperating lease assets322,319 325,564 
Other assetsOther assets176,564  157,583  Other assets49,262 49,394 
Total assetsTotal assets$10,216,367  $8,318,465  Total assets$12,115,059 $11,751,808 
Liabilities and Shareholders’ EquityLiabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$101,451  $87,610  Accounts payable$127,839 $155,139 
Accrued expensesAccrued expenses1,545,407  1,116,912  Accrued expenses1,532,037 1,404,971 
Other current liabilitiesOther current liabilities151,782  130,305  Other current liabilities284,174 317,423 
Total current liabilitiesTotal current liabilities1,798,640  1,334,827  Total current liabilities1,944,050 1,877,533 
Long-term finance lease liabilitiesLong-term finance lease liabilities522,067  538,576  Long-term finance lease liabilities530,330 539,042 
Long-term operating lease liabilitiesLong-term operating lease liabilities368,467 350,463 
Long-term contingent considerationLong-term contingent consideration187,300  176,500  Long-term contingent consideration185,700 189,600 
Other long-term liabilitiesOther long-term liabilities189,118  183,318  Other long-term liabilities106,258 108,355 
Total liabilitiesTotal liabilities2,697,125  2,233,221  Total liabilities3,134,805 3,064,993 
Commitments and contingenciesCommitments and contingencies—  —  Commitments and contingencies0 0 
Shareholders’ equity:Shareholders’ equity:Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000 shares authorized; NaN issued and outstandingPreferred stock, $0.01 par value; 1,000 shares authorized; NaN issued and outstanding—  —  Preferred stock, $0.01 par value; 1,000 shares authorized; NaN issued and outstanding0 0 
Common stock, $0.01 par value; 500,000 shares authorized, 260,124 and 258,993 shares issued and outstanding, respectively2,601  2,589  
Common stock, $0.01 par value; 500,000 shares authorized, 258,829 and 259,890 shares issued and outstanding, respectivelyCommon stock, $0.01 par value; 500,000 shares authorized, 258,829 and 259,890 shares issued and outstanding, respectively2,588 2,599 
Additional paid-in capitalAdditional paid-in capital7,943,717  7,937,606  Additional paid-in capital7,499,161 7,894,027 
Accumulated other comprehensive lossAccumulated other comprehensive loss(14,121) (1,973) Accumulated other comprehensive loss(33,302)(68,480)
Accumulated deficit(412,955) (1,852,978) 
Retained earningsRetained earnings1,511,807 858,669 
Total shareholders’ equityTotal shareholders’ equity7,519,242  6,085,244  Total shareholders’ equity8,980,254 8,686,815 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$10,216,367  $8,318,465  Total liabilities and shareholders’ equity$12,115,059 $11,751,808 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited)
(in thousands)
Three Months Ended
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balance at March 31, 2019256,351 $2,561 $7,475,909 $6,000 $(2,761,157)$4,723,313 
Other comprehensive loss, net of tax— — — (9,201)— (9,201)
Net income— — — — 267,427 267,427 
Repurchase of common stock(296)(3)(52,007)— — (52,010)
Issuance of common stock under benefit plans616 7 50,494 — — 50,501 
Stock-based compensation expense— — 89,935 — — 89,935 
Balance at June 30, 2019256,671 $2,565 $7,564,331 $(3,201)$(2,493,730)$5,069,965 
Balance at March 31, 2020259,079 $2,591 $7,695,905 $13,383 $(1,250,225)$6,461,654 
Other comprehensive loss, net of tax— — — (27,504)— (27,504)
Net income— — — — 837,270 837,270 
Common stock withheld for employee tax obligations(11)— (3,080)— — (3,080)
Issuance of common stock under benefit plans1,056 10 132,771 — — 132,781 
Stock-based compensation expense— — 118,121 — — 118,121 
Balance at June 30, 2020260,124 $2,601 $7,943,717 $(14,121)$(412,955)$7,519,242 
Six Months Ended
Common StockAdditional 
Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal 
Shareholders’ Equity
SharesAmount
Balance at December 31, 2018255,172 $2,546 $7,421,476 $659 $(2,989,478)$4,435,203 
Cumulative effect adjustment for adoption of new accounting guidance— — — — (40,310)(40,310)
Other comprehensive loss, net of tax— — — (3,860)— (3,860)
Net income— — — — 536,058 536,058 
Repurchase of common stock(833)(9)(150,008)— — (150,017)
Common stock withheld for employee tax obligations(27)— (5,832)— — (5,832)
Issuance of common stock under benefit plans2,359 28 114,517 — — 114,545 
Stock-based compensation expense— — 184,178 — — 184,178 
Balance at June 30, 2019256,671 $2,565 $7,564,331 $(3,201)$(2,493,730)$5,069,965 
Balance at December 31, 2019258,993 $2,589 $7,937,606 $(1,973)$(1,852,978)$6,085,244 
Other comprehensive loss, net of tax— — — (12,148)— (12,148)
Net income— — — — 1,440,023 1,440,023 
Repurchase of common stock(1,404)(14)(300,012)— — (300,026)
Common stock withheld for employee tax obligations(586)(6)(139,241)(139,247)
Issuance of common stock under benefit plans3,121 32 210,343 — — 210,375 
Stock-based compensation expense— — 235,021 — — 235,021 
Balance at June 30, 2020260,124 $2,601 $7,943,717 $(14,121)$(412,955)$7,519,242 
Three Months Ended
Common StockAdditional
Paid-in Capital		Accumulated Other Comprehensive Income (Loss)Retained Earnings (Accumulated Deficit)Total
Shareholders’ Equity
SharesAmount
Balance at December 31, 2019258,993 $2,589 $7,937,606 $(1,973)$(1,852,978)$6,085,244 
Other comprehensive income, net of tax— — — 15,356 — 15,356 
Net income— — — — 602,753 602,753 
Repurchase of common stock(1,404)(14)(300,012)— — (300,026)
Common stock withheld for employee tax obligations(575)(6)(136,161)— — (136,167)
Issuance of common stock under benefit plans2,065 22 77,572 — — 77,594 
Stock-based compensation expense— — 116,900 — — 116,900 
Balance at March 31, 2020259,079 $2,591 $7,695,905 $13,383 $(1,250,225)$6,461,654 
Balance at December 31, 2020259,890 $2,599 $7,894,027 $(68,480)$858,669 $8,686,815 
Other comprehensive income, net of tax— — — 35,178 — 35,178 
Net income— — — — 653,138 653,138 
Repurchase of common stock(1,989)(20)(424,932)— — (424,952)
Common stock withheld for employee tax obligations(472)(5)(102,135)— — (102,140)
Issuance of common stock under benefit plans1,400 14 15,164 — — 15,178 
Stock-based compensation expense— — 117,037 — — 117,037 
Balance at March 31, 2021258,829 $2,588 $7,499,161 $(33,302)$1,511,807 $8,980,254 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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VERTEX PHARMACEUTICALS INCORPORATED
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended June 30,Three Months Ended March 31,
2020201920212020
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net incomeNet income$1,440,023  $536,058  Net income$653,138 $602,753 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expenseStock-based compensation expense232,895  183,478  Stock-based compensation expense115,174 115,706 
Depreciation expenseDepreciation expense53,518  54,838  Depreciation expense28,834 26,821 
Increase in fair value of contingent consideration10,800  —  
(Decrease) increase in fair value of contingent consideration(Decrease) increase in fair value of contingent consideration(3,900)1,600 
Deferred income taxesDeferred income taxes8,963  87,358  Deferred income taxes57,043 36,705 
Gains on equity securities(65,116) (100,078) 
Losses on equity securitiesLosses on equity securities52,295 44,870 
Other non-cash items, netOther non-cash items, net16,307  6,006  Other non-cash items, net2,332 9,668 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivable, netAccounts receivable, net(164,139) (55,870) Accounts receivable, net(98,373)(223,672)
InventoriesInventories(64,386) (25,174) Inventories(22,785)(27,450)
Prepaid expenses and other assetsPrepaid expenses and other assets(28,923) (17,580) Prepaid expenses and other assets(13,319)2,790 
Accounts payableAccounts payable14,697  (28,074) Accounts payable(10,644)14,285 
Accrued expensesAccrued expenses369,851  113,968  Accrued expenses152,983 153,814 
Other liabilitiesOther liabilities29,735  33,603  Other liabilities8,277 57,808 
Net cash provided by operating activitiesNet cash provided by operating activities1,854,225  788,533  Net cash provided by operating activities921,055 815,698 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchases of available-for-sale debt securitiesPurchases of available-for-sale debt securities(126,577) (263,636) Purchases of available-for-sale debt securities(121,455)(75,265)
Maturities of available-for-sale debt securitiesMaturities of available-for-sale debt securities145,395  228,707  Maturities of available-for-sale debt securities118,072 60,145 
Sale of equity securitiesSale of equity securities127,874  —  Sale of equity securities0 72,036 
Expenditures for property and equipment(37,314) (34,399) 
Purchases of property and equipmentPurchases of property and equipment(70,926)(19,450)
Investment in equity securitiesInvestment in equity securities(5,800) (20,000) Investment in equity securities0 (5,800)
Net cash provided by (used in) investing activities103,578  (89,328) 
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(74,309)31,666 
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Issuances of common stock under benefit plansIssuances of common stock under benefit plans213,058  114,092  Issuances of common stock under benefit plans15,559 79,597 
Repurchases of common stockRepurchases of common stock(300,026) (150,017) Repurchases of common stock(424,952)(300,026)
Payments in connection with common stock withheld for employee tax obligationsPayments in connection with common stock withheld for employee tax obligations(139,247) (5,832) Payments in connection with common stock withheld for employee tax obligations(102,140)(136,167)
Payments on finance leasesPayments on finance leases(20,730) (18,926) Payments on finance leases(12,233)(10,287)
Proceeds related to finance leases5,833  1,002  
Advance from collaborator3,500  7,500  
Repayments of advanced funding(1,793) (2,823) 
Proceeds from finance leasesProceeds from finance leases3,632 5,833 
Other financing activitiesOther financing activities1,480 

1,620 
Net cash used in financing activitiesNet cash used in financing activities(239,405) (55,004) Net cash used in financing activities(518,654)(359,430)
Effect of changes in exchange rates on cashEffect of changes in exchange rates on cash(3,379) (808) Effect of changes in exchange rates on cash(4,030)(6,651)
Net increase in cash and cash equivalents1,715,019  643,393  
Net increase in cash, cash equivalents and restricted cashNet increase in cash, cash equivalents and restricted cash324,062 481,283 
Cash, cash equivalents and restricted cash—beginning of periodCash, cash equivalents and restricted cash—beginning of period3,120,681  2,658,253  Cash, cash equivalents and restricted cash—beginning of period5,988,845 3,120,681 
Cash, cash equivalents and restricted cash—end of periodCash, cash equivalents and restricted cash—end of period$4,835,700  $3,301,646  Cash, cash equivalents and restricted cash—end of period$6,312,907 $3,601,964 
Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:
Cash paid for interestCash paid for interest$27,347  $27,109  Cash paid for interest$14,534 $13,771 
Cash paid for income taxesCash paid for income taxes$36,813  $10,902  Cash paid for income taxes$10,691 $5,845 
Issuances of common stock from employee benefit plans receivable$137  $539  
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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” or the “Company”) 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 the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. The Company operates in 1 segment, pharmaceuticals. The Company has reclassified certain items from the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.
Certain information and footnote disclosures normally included in the Company’s 2019 Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2020March 31, 2021 and 2019.2020.
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, 2019,2020, which are contained in the Company’s 20192020 Annual Report on Form 10-K.
Use of Estimates
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management 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 the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with (i) determining the transaction price of revenues and (ii) accounting for intangible assets and contingent consideration. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections that management believes 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
Leases
On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) using the modified-retrospective method, which amended a number of aspects of lease accounting and required the Company to recognize right-of-use assets and liabilities on the balance sheet. As of January 1, 2019, the Company recorded a cumulative effect adjustment to increase its “Accumulated deficit” by $40.3 million, which related to its leases that were accounted for as build-to-suit leases under the previous accounting guidance.
Internal-Use Software
In 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which clarifies the accounting for implementation costs in cloud computing arrangements.  ASU 2018-15 became effective on January 1, 2020. The adoption of ASU 2018-15 resulted in an insignificant amount of additional assets recorded on the Company’s condensed consolidated balance sheet.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
Fair Value Measurement
In 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements for fair value measurements. ASU 2018-13 became effective on January 1, 2020. The adoption of ASU 2018-13 resulted in additional disclosures related to the Company’s Level 3 inputs. Please refer to Note E, “Fair Value Measurements,” for further information.
Credit Losses
In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, ASU 2016-13 requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 became effective on January 1, 2020. The adoption of ASU 2016-13 did not have a significant impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards
Income Taxes
In 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) (“ASU 2019-12”), which simplifies the accounting for income taxes. ASU 2019-12 isbecame effective on January 1, 2021. The Company is evaluating the impact the adoption of ASU 2019-12 maydid not have a significant impact on itsthe Company’s condensed consolidated financial statements.
For a discussion of other recent accounting pronouncements please refer to Note A, “Nature of Business and Accounting Policies,” in the Company’s 20192020 Annual Report on Form 10-K.
Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note A, “Nature of Business and Accounting Policies,” in its 20192020 Annual Report on Form 10-K.


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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
B.Revenue Recognition
Disaggregation of Revenue
Revenues by Product
Product revenues, net consisted of the following:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202020192020201920212020
(in thousands)(in thousands)
TRIKAFTA$917,715  $—  $1,812,948  $—  
TRIKAFTA/KAFTRIOTRIKAFTA/KAFTRIO$1,193,217 $895,233 
SYMDEKO/SYMKEVISYMDEKO/SYMKEVI171,729  361,832  344,888  682,107  SYMDEKO/SYMKEVI125,049 173,159 
ORKAMBIORKAMBI231,981  316,441  466,119  609,448  ORKAMBI218,697 234,138 
KALYDECOKALYDECO203,060  262,107  415,637  506,078  KALYDECO186,342 212,577 
Total product revenues, net*
$1,524,485  $940,380  $3,039,592  $1,797,633  
Total product revenues, netTotal product revenues, net$1,723,305 $1,515,107 
* The preceding table does not include collaborative and royalty revenues.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
Product Revenues by Geographic Location
NetTotal net product revenues are attributed to countriesby geographic region, based on the location of the customer. Collaborative and royalty revenues are attributed to countries based on the location of the Company’s subsidiary associated with the collaborative arrangement related to such revenues. Total revenues from external customers and collaborators by geographic regioncustomer, consisted of the following:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202020192020201920212020
(in thousands)(in thousands)
United StatesUnited States$1,210,314  $700,618  $2,397,902  $1,341,721  United States$1,253,433 $1,187,588 
Outside of the United StatesOutside of the United StatesOutside of the United States
EuropeEurope257,681  180,196  515,072  347,947  Europe404,969 257,391 
OtherOther56,490  60,479  126,618  110,060  Other64,903 70,128 
Total revenues outside of the United States314,171  240,675  641,690  458,007  
Total revenues$1,524,485  $941,293  $3,039,592  $1,799,728  
Total product revenues outside of the United StatesTotal product revenues outside of the United States469,872 327,519 
Total product revenues, netTotal product revenues, net$1,723,305 $1,515,107 
Contract Liabilities
The Company recordedhad contract liabilities of $70.7$181.2 million and $62.3$191.5 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively, related to annual contracts with government-owned and supported customers in international markets that limit the amount of annual reimbursement the Company can receive. Upon exceeding the annual reimbursement amount, products are provided free of charge, which is a material right. These contracts include upfront payments and fees. The Company defers a portion of the consideration received for shipments made up to the annual reimbursement limit as a portion of “Other current liabilities.” The deferred amount is recognized as revenue when the free products are shipped. The Company’s product revenue contracts include performance obligations that are one year or less.
The Company’s contract liabilities at the end of each fiscal year relate to contracts with annual reimbursement limits in international markets in which the annual period associated with the contract is not the same as the Company’s fiscal year. In these markets, the Company recognizes 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.Collaborative Arrangements
The Company has entered into numerous agreements pursuant to which it collaborates with third parties on research, development and commercialization programs, including in-license and out-license agreements.
The Company’s in-license and out-license agreements that had a significant impact on its financial statements for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, or were new or otherwise revised during the three and six months ended June 30, 2020,March 31,

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
2021, are described below. Additional in-license and out-license agreements were described in Note B, “Collaborative Arrangements,” of the Company’s 20192020 Annual Report on Form 10-K.
In-license Agreements
The Company has entered into a number of license agreements in order to advance and obtain access to technologies and services related to its research and early-development activities. The Company is generally required to make an upfront payment upon execution of the license agreement; development, regulatory and commercialization milestones payments upon the achievement of certain product research, development and commercialization objectives; and royalty payments on future sales, if any, of commercial products resulting from the collaboration.
Pursuant to the terms of its in-license agreements, the Company’s collaborators typically lead the discovery efforts and the Company leads all preclinical, development and commercialization activities associated with the advancement of any drug candidates and funds all expenses.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company typically can terminate its in-license agreements by providing advance notice to its collaborators; the required length of notice is dependent on whether any product developed under the license agreement has received marketing approval. The Company’s license agreements may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, these license agreements generally remain in effect until the date on which the royalty term and all payment obligations with respect to all products in all countries have expired.
CRISPR Therapeutics AG - CRISPR-Cas9 Gene-editing Therapies
In 2015, the Company 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. The Company had the exclusive right to license certain targets. In the fourth quarter of 2019, the Company elected to exclusively license 3 targets, including cystic fibrosis, pursuant to the CRISPR Agreement. For each of the 3 targets that the Company elected to license, CRISPR has the potential to receive up to an additional $410.0 million in development, regulatory and commercial milestones as well as royalties on net product sales.
In 2017, the Company entered into a co-developmentjoint development and co-commercializationcommercialization agreement with CRISPR pursuant to the terms of the CRISPR Agreement (the “Original CTX001 JDCA”), under which the Company and CRISPR are co-developing and willpreparing to co-commercialize CTX001 (the “CTX001 Co-Co Agreement”) for the treatment of hemoglobinopathies, including treatments for sickle cell disease and beta thalassemia. As part of the collaboration, the Company and CRISPR share equally all development costs and potential worldwide revenues related to potential hemoglobinopathy treatments. The Company concluded that the Original CTX001 Co-Co AgreementJDCA is a cost-sharing arrangement, which results in the net impact of the arrangement being recorded in “Research and development expenses” in its condensed consolidated statements of operations. During the three and six months ended June 30,March 31, 2021 and 2020, the net expense related to the Original CTX001 Co-Co AgreementJDCA was $9.8$20.0 million and $19.0 million, respectively. During the three and six months ended June 30, 2019, the net expense related to the CTX001 Co-Co Agreement was $7.5 million and $14.6$9.3 million, respectively.
In July 2019,April 2021, the Company entered into a separate strategicand CRISPR amended and restated the Original CTX001 JDCA (the “A&R JDCA”), pursuant to which the parties agreed to, among other things, (a) adjust the governance structure for the collaboration and adjust the responsibilities of each party thereunder; (b) adjust the allocation of net profits and net losses between the parties; and (c) exclusively license agreement (the “CRISPR DMD/DM1 Agreement”) with CRISPR. Pursuant(subject to this agreement,CRISPR’s reserved rights to conduct certain activities) certain intellectual property rights to the Company received an exclusive worldwide licenserelating to the products that may be researched, developed, manufactured and commercialized under such agreement. The closing of the transaction contemplated under the A&R JDCA is subject to certain conditions, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and any other required antitrust clearance.
After the effective date of the closing of the transaction (the “Effective Date”), the Company will lead global development, manufacturing and commercialization of CTX001, with support from CRISPR. Subject to the terms and conditions of the A&R JDCA, the Company will have the right to conduct all research, development, manufacturing and commercialization activities relating to the product candidates and products under the A&R JDCA (including CTX001) throughout the world subject to CRISPR’s existingreserved right to conduct certain activities.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
In connection with the closing of the transaction contemplated by the A&R JDCA, the Company will pay a $900.0 million upfront payment to CRISPR and future intellectual property for Duchenne muscular dystrophy (“DMD”) and myotonic dystrophy type 1 (“DM1”). Inan additional one-time $200.0 million milestone payment upon receipt of the first marketing approval of CTX001 from the U.S. Food or Drug Administration or the European Commission. The Company and CRISPR will continue to share equally all net profits and net losses incurred under the A&R JDCA through June 30, 2021, subject to adjustment based on the timing of antitrust clearance. Beginning July 1, 2021 (or the first day of the calendar quarter of 2020,in which antitrust clearance occurs), with respect to CTX001, the net profits and net losses incurred pursuant to the A&R JDCA will be allocated 60% to the Company recorded $25.0and 40% to CRISPR, while all other product candidate and products will continue to have net profits and net losses shared equally. The Company expects to record the $900.0 million upfront payment to “Research and development expenses” related to a pre-clinical milestone earnedupon closing of the transaction contemplated by CRISPR under the CRISPR DMD/DM1 Agreement. CRISPR has the potential to receive up to an additional $800.0 million in research, development, regulatory and commercial milestones for the DMD and DM1 programs as well as royalties on net product sales. CRISPR has the option to co-develop and co-commercialize all DM1 products globally and forego the milestones and royalties associated with the DM1 program. The Company funds all expenses associated with the collaboration except for research costs for specified guide RNA research conducted by CRISPR, which the Company and CRISPR share equally.
Please refer to Note F, “Marketable Securities and Equity Investments,” for further information regarding the Company’s investment in CRISPR’s common stock.A&R JDCA.
Out-license Agreements
The Company has entered into licensing agreements pursuant to which it has out-licensed rights to certain drug candidates to third-party collaborators. Pursuant to these out-license agreements, the Company’s collaborators become responsible for all costs related to the continued development of such drug candidates and obtain development and commercialization rights to these drug candidates. Depending on the terms of the agreements, the Company’s collaborators may be required to make upfront payments, milestone payments upon the achievement of certain product research and development objectives andand may also be required to pay royalties on future sales, if any, of commercial products resulting from the collaboration. The termination provisions associated with these collaborations are generally the same as those described above related to the Company’s in-license agreements. None of the Company’s out-license agreements had a significant impact on the Company’s condensed consolidated statement of operations during the three and six months ended June 30, 2020March 31, 2021 and 2019.

2020.
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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
Cystic Fibrosis Foundation
The Company has a research, development and commercialization agreement that was originally entered into in 2004 with the Cystic Fibrosis Foundation, (“CFF”), as successor in interest to the Cystic Fibrosis Foundation Therapeutics, Inc. This agreement was most recently amended in 2016. Pursuant to the agreement, as amended, the Company agreed to pay royalties ranging from low-single digits to mid-single digits on potential sales of certain compounds first synthesized and/or tested between March 1, 2014 and August 31, 2016, including elexacaftor, and tiered royalties ranging from single digits to sub-teens on covered compounds first synthesized and/or tested during a research term on or before February 28, 2014, including KALYDECO (ivacaftor), ORKAMBI (lumacaftor in combination with ivacaftor) and SYMDEKO/SYMKEVI (tezacaftor in combination with ivacaftor). For combination products, such as ORKAMBI, SYMDEKO/SYMKEVI and TRIKAFTATRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), sales are allocated equally to each of the active pharmaceutical ingredients in the combination product.

D.Earnings Per Share
Basic net income per common share is based upon the weighted-average number of common shares outstanding.outstanding during the period. Diluted net income per common share utilizing the treasurytreasury-stock method is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table sets forth the computation of basic and diluted net income per common share for the periods ended:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202020192020201920212020
(in thousands, except per share amounts)(in thousands, except per share amounts)
Net incomeNet income$837,270  $267,427  $1,440,023  $536,058  Net income$653,138 $602,753 
Basic weighted-average common shares outstandingBasic weighted-average common shares outstanding259,637  256,154  260,013  255,941  Basic weighted-average common shares outstanding259,369 259,815 
Effect of potentially dilutive securities:Effect of potentially dilutive securities:Effect of potentially dilutive securities:
Stock options Stock options2,054  2,225  1,961  2,405   Stock options1,263 1,868 
Restricted stock and restricted stock units (including PSUs)1,704  1,440  1,752  1,655  
Restricted stock units (including PSUs) Restricted stock units (including PSUs)1,276 1,801 
Employee stock purchase program Employee stock purchase program8  3  20  14   Employee stock purchase program8 31 
Diluted weighted-average common shares outstandingDiluted weighted-average common shares outstanding263,403  259,822  263,746  260,015  Diluted weighted-average common shares outstanding261,916 263,515 
Basic net income per common shareBasic net income per common share$3.22  $1.04  $5.54  $2.09  Basic net income per common share$2.52 $2.32 
Diluted net income per common shareDiluted net income per common share$3.18  $1.03  $5.46  $2.06  Diluted net income per common share$2.49 $2.29 
The Company did not include the securities in the following table in the computation of the net income per common share because the effect would have been anti-dilutive during each period:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202020192020201920212020
(in thousands)(in thousands)
Stock optionsStock options7  3,207  443  3,022  Stock options356 879 
Unvested restricted stock and restricted stock units (including PSUs)5  3  218  4  
Unvested restricted stock units (including PSUs)Unvested restricted stock units (including PSUs)712 430 

E.Fair Value Measurements
The following fair value hierarchy is used to classify assets and liabilities based on observable inputs and unobservable inputs used in order to determine the fair value of the Company’s financial assets and liabilities:

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. The Company maintains strategic investments separately from the investment policy that governs its other cash, cash equivalents and marketable securities as described in “NoteNote F, “Marketable Securities and Equity Investments.” Additionally, the Company utilizes foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on its condensed consolidated statement of operations.
During the three and six months ended June 30,March 31, 2021 and 2020, and 2019, the Company did not record any other-than-temporary impairment charges related to its financial assets.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following tables set forth the Company’s financial assets and liabilities subject to fair value measurements by level within the fair value hierarchy (and does not include $2.3$2.4 billion and $2.3$2.8 billion of cash as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively):
As of June 30, 2020As of December 31, 2019As of March 31, 2021As of December 31, 2020
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
(in thousands)(in thousands)
Financial instruments carried at fair value (asset positions):Financial instruments carried at fair value (asset positions):Financial instruments carried at fair value (asset positions):
Cash equivalents:Cash equivalents:Cash equivalents:
Money market fundsMoney market funds$2,476,713  $2,476,713  $—  $—  $791,039  $791,039  $—  $—  Money market funds$3,890,303 $3,890,303 $0 $0 $3,141,053 $3,141,053 $0 $0 
Corporate debt securities4,835  —  4,835  —  6,070  —  6,070  —  
Commercial paper93,107  —  93,107  —  29,472  —  29,472  —  
Marketable securities:Marketable securities:Marketable securities:
Corporate equity securitiesCorporate equity securities219,327  209,214  10,113  —  282,084  261,797  20,287  —  Corporate equity securities143,486 143,486 0 0 195,781 15,650 180,131 0 
Government-sponsored enterprise securitiesGovernment-sponsored enterprise securities11,253  11,253  —  —  12,733  12,733  —  —  Government-sponsored enterprise securities62,362 62,362 0 0 80,063 80,063 0 0 
Corporate debt securitiesCorporate debt securities293,976  —  293,976  —  301,799  —  301,799  —  Corporate debt securities155,716 0 155,716 0 231,598 0 231,598 0 
Commercial paperCommercial paper94,881  —  94,881  —  102,356  —  102,356  —  Commercial paper258,074 0 258,074 0 163,268 0 163,268 0 
Prepaid expenses and other current assets:Prepaid expenses and other current assets:Prepaid expenses and other current assets:
Foreign currency forward contractsForeign currency forward contracts8,054  —  8,054  —  9,725  —  9,725  —  Foreign currency forward contracts7,039 0 7,039 0 0 0 0 0 
Other assets:Other assets:Other assets:
Foreign currency forward contractsForeign currency forward contracts44  —  44  —  —  —  —  —  Foreign currency forward contracts1,944 0 1,944 0 0 0 0 0 
Total financial assetsTotal financial assets$3,202,190  $2,697,180  $505,010  $—  $1,535,278  $1,065,569  $469,709  $—  Total financial assets$4,518,924 $4,096,151 $422,773 $0 $3,811,763 $3,236,766 $574,997 $0 
Financial instruments carried at fair value (liability positions):Financial instruments carried at fair value (liability positions):Financial instruments carried at fair value (liability positions):
Other current liabilities:Other current liabilities:Other current liabilities:
Foreign currency forward contractsForeign currency forward contracts$(4,871) $—  $(4,871) $—  $(5,533) $—  $(5,533) $—  Foreign currency forward contracts$(28,743)$0 $(28,743)$0 $(59,184)$0 $(59,184)$0 
Long-term contingent considerationLong-term contingent consideration(187,300) —  —  (187,300) (176,500) —  —  (176,500) Long-term contingent consideration(185,700)0 0 (185,700)(189,600)0 0 (189,600)
Other long-term liabilities:Other long-term liabilities:Other long-term liabilities:
Foreign currency forward contractsForeign currency forward contracts(1,462) —  (1,462) —  (1,821) —  (1,821) —  Foreign currency forward contracts(433)0 (433)0 (4,283)0 (4,283)0 
Total financial liabilitiesTotal financial liabilities$(193,633) $—  $(6,333) $(187,300) $(183,854) $—  $(7,354) $(176,500) Total financial liabilities$(214,876)$0 $(29,176)$(185,700)$(253,067)$0 $(63,467)$(189,600)
Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
Fair Value of Corporate Equity Securities
The Company maintains strategic investments in corporate equity securities separately from the investment policy that governs its other cash, cash equivalents and marketable securities. The Company classifies its investments in publicly traded companiescorporate equity securities as “Marketable securities” on its condensed consolidated balance sheets. Generally, the Company’s investments in the common stock of these publicly traded companies are valued based on Level 1 inputs because they have readily determinable fair values. However, certain of the Company’s investments in publicly traded companies have been or continue to be valued based on Level 2 inputs due to transfer restrictions associated with these investments. Please refer to Note F, “Marketable Securities and Equity Investments,” for further information on these investments.
Fair Value of Contingent Consideration
In 2019, the Company acquired Exonics Therapeutics, Inc. (“Exonics”), a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including DM1. The Company’s Level 3 contingent consideration liabilities are related to $678.3 million of development and regulatory milestones potentially payable to Exonics’ former equity holders. The Company bases its estimates of the probability of achieving the milestones relevant to the fair value of contingent payments on industry data attributable to rare diseases. The discount rates used in the valuation model for contingent payments, which were between 0.7%0.6% and 2%,2.4% as of March 31, 2021, represent a measure of credit risk and market risk associated with settling the liabilities. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period. Due to the uncertainties associated with development and commercialization of a drug candidatecandidates in the pharmaceutical industry and the Company'seffects of

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
changes in other assumptions including discount rates, the Company expects its estimates regarding the fair value of contingent consideration willto change in the future, resulting in adjustments to the fair value of the Company’s contingent consideration liabilities, and the effect of any such adjustments could be material.
The following table represents a rollforward of the fair value of the Company’s contingent consideration liabilities:
SixThree Months Ended June 30, 2020March 31, 2021
(in thousands)
Balance at December 31, 20192020$176,500189,600 
IncreaseDecrease in fair value of contingent payments10,800 (3,900)
Balance at June 30, 2020March 31, 2021$187,300185,700 
The “Increase in fair value of contingent payments” in the table above was primarily due to changes in market interest rates.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
F.Marketable Securities and Equity Investments
A summary of the Company’s cash equivalents and marketable securities, which are recorded at fair value (and do not include $2.3$2.4 billion and $2.3$2.8 billion of cash as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively), is shown below:
As of June 30, 2020As of December 31, 2019
Amortized CostGross 
Unrealized 
GainsGross 
Unrealized 
LossesFair ValueAmortized CostGross 
Unrealized 
GainsGross 
Unrealized 
LossesFair Value
(in thousands)
Cash equivalents:
Money market funds$2,476,713 $— $— $2,476,713 $791,039 $— $— $791,039 
Corporate debt securities4,836 — (1)4,835 6,070 — — 6,070 
Commercial paper93,084 23 — 93,107 29,470 3 (1)29,472 
Total cash equivalents2,574,633 23 (1)2,574,655 826,579 3 (1)826,581 
Marketable securities:
Government-sponsored enterprise securities11,198 55 — 11,253 12,689 44 — 12,733 
Corporate debt securities292,085 1,897 (6)293,976 301,458 391 (50)301,799 
Commercial paper94,396 492 (7)94,881 102,240 121 (5)102,356 
Total marketable debt securities397,679 2,444 (13)400,110 416,387 556 (55)416,888 
Corporate equity securities67,054 152,273 — 219,327 113,829 168,255 — 282,084 
Total marketable securities$464,733 $154,717 $(13)$619,437 $530,216 $168,811 $(55)$698,972 
As of March 31, 2021As of December 31, 2020
Amortized CostGross
Unrealized
Gains		Gross
Unrealized
Losses
Fair
Value
Amortized CostGross
Unrealized
Gains		Gross
Unrealized
Losses
Fair
Value
(in thousands)
Cash equivalents:
Money market funds$3,890,303 $0 $0 $3,890,303 $3,141,053 $0 $0 $3,141,053 
Total cash equivalents$3,890,303 $0 $0 $3,890,303 $3,141,053 $0 $0 $3,141,053 
Marketable securities:
Government-sponsored enterprise securities$62,332 $30 $0 $62,362 $80,046 $17 $0 $80,063 
Corporate debt securities155,636 126 (46)155,716 231,263 377 (42)231,598 
Commercial paper258,068 27 (21)258,074 163,286 19 (37)163,268 
Total marketable debt securities476,036 183 (67)476,152 474,595 413 (79)474,929 
Corporate equity securities51,427 92,059 0 143,486 51,427 144,354 0 195,781 
Total marketable securities$527,463 $92,242 $(67)$619,638 $526,022 $144,767 $(79)$670,710 
Available-for-sale debt securities were classified on the Company's condensed consolidated balance sheets at fair value as follows:
As of June 30, 2020As of December 31, 2019As of March 31, 2021As of December 31, 2020
(in thousands)(in thousands)
Cash and cash equivalentsCash and cash equivalents$2,574,655  $826,581  Cash and cash equivalents$3,890,303 $3,141,053 
Marketable securitiesMarketable securities400,110  416,888  Marketable securities476,152 474,929 
TotalTotal$2,974,765  $1,243,469  Total$4,366,455 $3,615,982 
Available-for-sale debt securities by contractual maturity were as follows:
As of June 30, 2020As of December 31, 2019As of March 31, 2021As of December 31, 2020
(in thousands)(in thousands)
Matures within one yearMatures within one year$2,939,879  $1,137,942  Matures within one year$4,358,433 $3,526,185 
Matures after one year through five yearsMatures after one year through five years34,886  105,527  Matures after one year through five years8,022 89,797 
TotalTotal$2,974,765  $1,243,469  Total$4,366,455 $3,615,982 
The Company has a limited number of available-for-sale debt securities in insignificant loss positions as of June 30, 2020,March 31, 2021, which it does not intend to sell and has concluded it will not be required to sell before recovery of the amortized costs

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
for the investments at maturity. The Company did 0t record any charges for other-than-temporary declines in the fair value of available-for-sale debt securities or gross realized gains or losses in the three and six months ended June 30, 2020March 31, 2021 and 2019.
As of June 30, 2020 and December 31, 2019, the total fair value of the Company’s strategic investments in the common stock of publicly traded companies, which was primarily related to its investment in CRISPR, was $219.3 million and $282.1 million, respectively, and was classified as “Marketable securities” on its condensed consolidated balance sheets.2020.
The Company records changes in the fair value of its investments in corporate equity securities to “Other income,expense, net” on its condensed consolidated statements of operations. During the three and six months ended June 30,March 31, 2021 and 2020, the Company recordedCompany’s net unrealized gains of $85.5 million and $35.2 million, respectively,losses on corporate equity securities held at the conclusion of each period were as of Junefollows:

Three Months Ended March 31,
20212020
(in thousands)
Net unrealized losses$(52,295)$(39,440)
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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
30, 2020. During the three and six months ended June 30, 2019, the Company recorded net unrealized gains of $56.5 million and $100.1 million, respectively, on corporate equity securities held as of June 30, 2019. During the six months ended June 30,March 31, 2020, the Company received proceeds of $127.9$72.0 million related to the sale of the common stock of publicly traded companies, which had a total original weighted-average cost basis of $46.8$26.7 million. There were 0 sales of the common stock of publicly traded companies during the sixthree months ended June 30, 2019.March 31, 2021.
As of June 30, 2020,March 31, 2021, the carrying value of the Company’s equity investments without readily determinable fair values, which are recorded in “Other assets” on its condensed consolidated balance sheets, was $46.6$20.8 million.

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 TaxForeign Currency Translation AdjustmentUnrealized Holding Gains (Losses), Net of TaxTotal
Foreign Currency Translation AdjustmentOn Available-For-Sale Debt SecuritiesOn Foreign Currency Forward ContractsTotalForeign Currency Translation AdjustmentOn Foreign Currency Forward ContractsTotal
(in thousands)
Balance at December 31, 2020Balance at December 31, 2020$(15,678)$334 $(53,136)$(68,480)
Other comprehensive income (loss) before reclassificationsOther comprehensive income (loss) before reclassifications1,430 (218)21,019 22,231 
Amounts reclassified from accumulated other comprehensive income (loss)Amounts reclassified from accumulated other comprehensive income (loss)0 0 12,947 12,947 
Net current period other comprehensive income (loss)Net current period other comprehensive income (loss)1,430 (218)33,966 35,178 
Balance at March 31, 2021Balance at March 31, 2021$(14,248)$116 $(19,170)$(33,302)
(in thousands)
Balance at December 31, 2019Balance at December 31, 2019$(895) $503  $(1,581) $(1,973) Balance at December 31, 2019$(895)$503 $(1,581)$(1,973)
Other comprehensive (loss) income before reclassificationsOther comprehensive (loss) income before reclassifications(13,200) 1,950  11,079  (171) Other comprehensive (loss) income before reclassifications(2,662)(764)25,772 22,346 
Amounts reclassified from accumulated other comprehensive income (loss)Amounts reclassified from accumulated other comprehensive income (loss)—  —  (11,977) (11,977) Amounts reclassified from accumulated other comprehensive income (loss)0 0 (6,990)(6,990)
Net current period other comprehensive (loss) incomeNet current period other comprehensive (loss) income(13,200) 1,950  (898) (12,148) Net current period other comprehensive (loss) income(2,662)(764)18,782 15,356 
Balance at June 30, 2020$(14,095) $2,453  $(2,479) $(14,121) 
Balance at December 31, 2018$(11,227) $(536) $12,422  $659  
Other comprehensive income before reclassifications1,091  1,047  5,793  7,931  
Amounts reclassified from accumulated other comprehensive income (loss)—  —  (11,791) (11,791) 
Net current period other comprehensive income (loss)1,091  1,047  (5,998) (3,860) 
Balance at June 30, 2019$(10,136) $511  $6,424  $(3,201) 
Balance at March 31, 2020Balance at March 31, 2020$(3,557)$(261)$17,201 $13,383 

H.Hedging
Foreign currency forward contracts - Designated as hedging instruments
The Company maintains a hedging program intended to mitigate the effect of changes in foreign exchange rates for a portion of the Company’s 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. The Company recognizes realized gains and losses for the effective portion of such contracts in “Product revenues, net” in its condensed consolidated statements of operations in the same period that it recognizes the product revenues that were impacted by the hedged foreign exchange rate changes.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The Company formally documents the relationship between foreign currency forward contracts (hedging instruments) and forecasted product revenues (hedged items), as well as the Company’s 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. The Company also formally assesses, 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 the Company 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, the Company would discontinue hedge accounting

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
treatment prospectively. The Company measures effectiveness based on the change in fair value of the forward contracts and the fair value of the hypothetical foreign currency forward contracts with terms that match the critical terms of the risk being hedged. As of June 30, 2020,March 31, 2021, all hedges were determined to be highly effective.
The Company considers the impact of its counterparties’ credit risk on the fair value of the foreign currency forward contracts. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, credit risk did not change the fair value of the Company’s foreign currency forward contracts.
The following table summarizes the notional amount in U.S. dollars of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP:
As of June 30, 2020As of December 31, 2019As of March 31, 2021As of December 31, 2020
Foreign CurrencyForeign Currency(in thousands)Foreign Currency(in thousands)
EuroEuro$633,770  $501,197  Euro$892,995 $745,099 
British pound sterlingBritish pound sterling150,407  87,032  British pound sterling250,528 160,427 
Australian dollarAustralian dollar89,443  89,705  Australian dollar100,733 99,922 
Canadian dollarCanadian dollar57,578  50,452  Canadian dollar80,122 86,468 
Total foreign currency forward contractsTotal foreign currency forward contracts$931,198  $728,386  Total foreign currency forward contracts$1,324,378 $1,091,916 
Foreign currency forward contracts - Not designated as hedging instruments
The Company also enters into foreign currency forward contracts with contractual maturities of less than one month, thatwhich 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. The Company recognizes realized gains and losses for such contracts in “Other income,expense, net” in its condensed consolidated statements of operations each period. As of June 30, 2020,March 31, 2021, the notional amount of the Company’s outstanding foreign currency forward contracts where hedge accounting under U.S. GAAP is not applied was $574.6$386.7 million.
During the three and six months ended June 30,March 31, 2021 and 2020, and 2019, the Company recognized the following related to foreign currency forward contacts in its condensed consolidated statements of operations:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended March 31,
202020192020201920212020
(in thousands)(in thousands)
Designated as hedging instruments - Reclassified from AOCIDesignated as hedging instruments - Reclassified from AOCIDesignated as hedging instruments - Reclassified from AOCI
Product revenues, netProduct revenues, net$6,366  $8,238  $15,288  $15,077  Product revenues, net$(16,518)$8,922 
Not designated as hedging instrumentsNot designated as hedging instrumentsNot designated as hedging instruments
Other income, net$(6,056) $(1,089) $10,173  $2,062  
Other expense, netOther expense, net$(7,997)$(16,229)
Total reported in the Condensed Consolidated Statement of OperationsTotal reported in the Condensed Consolidated Statement of OperationsTotal reported in the Condensed Consolidated Statement of Operations
Product revenues, netProduct revenues, net$1,524,485  $940,380  $3,039,592  $1,797,633  Product revenues, net$1,723,305 $1,515,107 
Other income, net$116,365  $53,939  $55,235  $96,549  
Other expense, netOther expense, net$(52,653)$(61,130)

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table summarizes the fair value of the Company’s outstanding foreign currency forward contracts designated as cash flow hedges under U.S. GAAP included on its condensed consolidated balance sheets:
As of June 30, 2020
As of March 31, 2021As of March 31, 2021
AssetsAssetsLiabilitiesAssetsLiabilities
ClassificationClassificationFair ValueClassificationFair ValueClassificationFair ValueClassificationFair Value
(in thousands)(in thousands)(in thousands)
Prepaid expenses and other current assetsPrepaid expenses and other current assets$8,054  Other current liabilities$(4,871) Prepaid expenses and other current assets$7,039 Other current liabilities$(28,743)
Other assetsOther assets44  Other long-term liabilities(1,462) Other assets1,944 Other long-term liabilities(433)
Total assetsTotal assets$8,098  Total liabilities$(6,333) Total assets$8,983 Total liabilities$(29,176)

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
As of December 31, 2019
As of December 31, 2020As of December 31, 2020
AssetsAssetsLiabilitiesAssetsLiabilities
ClassificationClassificationFair ValueClassificationFair ValueClassificationFair ValueClassificationFair Value
(in thousands)(in thousands)(in thousands)
Prepaid expenses and other current assetsPrepaid expenses and other current assets$9,725  Other current liabilities$(5,533) Prepaid expenses and other current assets$0 Other current liabilities$(59,184)
Other assetsOther assets—  Other long-term liabilities(1,821) Other assets0 Other long-term liabilities(4,283)
Total assetsTotal assets$9,725  Total liabilities$(7,354) Total assets$0 Total liabilities$(63,467)
As of June 30, 2020,March 31, 2021, the Company expects 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.
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 the Company’s condensed consolidated balance sheets:
As of June 30, 2020As of March 31, 2021
Gross Amounts RecognizedGross Amounts OffsetGross Amounts PresentedGross Amounts Not OffsetLegal OffsetGross Amounts RecognizedGross Amounts OffsetGross Amounts PresentedGross Amounts Not OffsetLegal Offset
Foreign currency forward contractsForeign currency forward contracts(in thousands)Foreign currency forward contracts(in thousands)
Total assetsTotal assets$8,098  $—  $8,098  $(6,333) $1,765  Total assets$8,983 $0 $8,983 $(8,983)$0 
Total liabilitiesTotal liabilities(6,333) —  (6,333) 6,333  —  Total liabilities(29,176)0 (29,176)8,983 (20,193)
As of December 31, 2019As of December 31, 2020
Gross Amounts RecognizedGross Amounts OffsetGross Amounts PresentedGross Amounts Not OffsetLegal OffsetGross Amounts RecognizedGross Amounts OffsetGross Amounts PresentedGross Amounts Not OffsetLegal Offset
Foreign currency forward contractsForeign currency forward contracts(in thousands)Foreign currency forward contracts(in thousands)
Total assetsTotal assets$9,725  $—  $9,725  $(7,354) $2,371  Total assets$0 $0 $0 $0 $0 
Total liabilitiesTotal liabilities(7,354) —  (7,354) 7,354  —  Total liabilities(63,467)0 (63,467)0 (63,467)

I.Inventories
Inventories consisted of the following:
As of June 30, 2020As of December 31, 2019As of March 31, 2021As of December 31, 2020
(in thousands)(in thousands)
Raw materialsRaw materials$30,162  $26,247  Raw materials$44,921 $46,232 
Work-in-processWork-in-process134,889  107,021  Work-in-process170,721 161,324 
Finished goodsFinished goods54,167  34,234  Finished goods83,221 73,221 
TotalTotal$219,218  $167,502  Total$298,863 $280,777 


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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
J.Stock-based Compensation Expense and Share Repurchase Programs
Stock-based compensation expense
During the three and six months ended June 30,March 31, 2021 and 2020, and 2019, the Company recognized the following stock-based compensation expense:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
Stock-based compensation expense by type of award:
Restricted stock and restricted stock units (including PSUs)$98,419  $60,966  $195,568  $124,476  
Stock options16,847  26,160  34,113  54,316  
ESPP share issuances2,855  2,809  5,340  5,386  
Stock-based compensation expense related to inventories(932) (248) (2,126) (700) 
Total stock-based compensation expense included in costs and expenses$117,189  $89,687  $232,895  $183,478  
Stock-based compensation expense by line item:
Cost of sales$1,387  $1,503  $2,748  $2,841  
Research and development expenses70,275  55,632  142,962  115,347  
Sales, general and administrative expenses45,527  32,552  87,185  65,290  
Total stock-based compensation expense included in costs and expenses117,189  89,687  232,895  183,478  
Income tax effect(31,151) (26,118) (95,397) (65,642) 
Total stock-based compensation expense, net of tax$86,038  $63,569  $137,498  $117,836  
The following table sets forth the Company’s unrecognized stock-based compensation expense as of June 30, 2020, by type of award and the weighted-average period over which that expense is expected to be recognized:
As of June 30, 2020
Unrecognized ExpenseWeighted-average 
Recognition Period
(in thousands)(in years)
Type of award:
Restricted stock units (including PSUs)$473,493 2.08
Stock options$91,779 2.15
ESPP share issuances$6,489 0.59

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes information about stock options outstanding and exercisable as of June 30, 2020:
Options OutstandingOptions Exercisable
Range of
Exercise Prices
Number 
OutstandingWeighted-average 
Remaining 
Contractual LifeWeighted-average 
Exercise PriceNumber 
ExercisableWeighted-average 
Exercise Price
(in thousands)(in years)(per share)(in thousands)(per share)
$33.82–$40.0067 1.27$37.85 67 $37.85 
$40.01–$60.00166 2.20$47.20 166 $47.20 
$60.01–$80.00107 3.77$74.83 105 $74.83 
$80.01–$100.001,095 5.92$88.92 889 $89.33 
$100.01–$120.00132 4.64$109.27 130 $109.20 
$120.01–$140.00288 5.23$129.41 286 $129.43 
$140.01–$160.00784 7.61$155.49 340 $155.39 
$160.01–$180.00619 8.02$168.32 252 $165.43 
$180.01–$200.001,307 8.40$185.32 365 $184.82 
$200.01–$286.2723 9.92$286.27 23 $286.27 
Total4,588 6.89$139.99 2,623 $121.00 
Three Months Ended March 31,
20212020
(in thousands)
Stock-based compensation expense by type of award:
Restricted stock units (including PSUs) and restricted stock$100,826 $97,149 
Stock options10,596 17,266 
ESPP share issuances5,615 2,485 
Stock-based compensation expense related to inventories(1,863)(1,194)
Total stock-based compensation expense included in costs and expenses$115,174 $115,706 
Stock-based compensation expense by line item:
Cost of sales$1,431 $1,361 
Research and development expenses72,802 72,687 
Sales, general and administrative expenses40,941 41,658 
Total stock-based compensation expense included in costs and expenses115,174 115,706 
Income tax effect(31,251)(64,246)
Total stock-based compensation expense, net of tax$83,923 $51,460 
Share repurchase programs
During 2018,In 2019, the Company’s Board of Directors approved a share repurchase program (the “2018“2019 Share Repurchase Program”), pursuant to which the Company repurchased $500.0 million of its common stock in 20182019 and 2019.2020. During the sixthree months ended June 30, 2019, the Company repurchased 832,186 shares of its common stock under the share repurchase program for an aggregate of $150.0 million including commissions and fees. As of June 30, 2019, the Company had repurchased the entire $500.0 million it was authorized to repurchase of its common stock under the 2018 Share Repurchase Program.
During 2019, the Company’s Board of Directors approved a new share repurchase program (the “2019 Share Repurchase Program”), pursuant to which the Company is authorized to repurchase up to $500.0 million of its common stock between August 1, 2019 and DecemberMarch 31, 2020. The Company expects to fund further repurchases of its common stock through a combination of cash on hand and cash generated by operations.
As of June 30, 2020, there was a total of $164.0 million remaining for repurchases under the 2019 Share Repurchase Program. During the six months ended June 30, 2020, the Company repurchased 1,403,868 shares of its common stock under the 2019 Share Repurchase Program for an aggregate of $300.0 million.
In November 2020, the Company’s Board of Directors approved a new share repurchase program (the “2020 Share Repurchase Program”), pursuant to which the Company was authorized to repurchase up to $500.0 million including commissions and fees. Underof its common stock by December 31, 2022. During the 2019three months ended March 31, 2021, the Company repurchased 1,988,941 shares of its common stock under the 2020 Share Repurchase Program for an aggregate of $424.9 million. As of March 31, 2021, the Company ishad repurchased the entire $500.0 million it was authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases are made pursuant to Rule 10b5-1 plans or other means as determined byrepurchase of its common stock under the Company’s management and in accordance with the requirements of the SEC.2020 Share Repurchase Program.

K.Income Taxes
The Company is subject to U.S. federal, state, and foreign income taxes. For the three and six months ended June 30,March 31, 2021 and 2020, the Company recorded a benefit from income taxes of $12.5 million and a provision for income taxes of $42.3 million, respectively. For the three and six months ended June 30, 2019, the Company recorded provisions for income taxes of $59.7$167.8 million and $111.2$54.8 million, respectively.
The Company’s effective tax rate of 20% for the three and six months ended June 30, 2020 was lower than the U.S. statutory rate primarily due to a discrete tax benefit associated with an intra-entity transfer of intellectual property rights to the United Kingdom in the second quarter of 2020, a discrete tax benefit associated with the write-off of a long-term intercompany receivable in the first quarter of 2020 and excess tax benefits related to stock-based compensation. The Company’s effective tax rate for the three and six months ended June 30, 2019March 31, 2021 was lower than the U.S. statutory rate primarily due to excess tax benefits related to stock-based compensation.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
In the second quarter of 2020, the Company completed an intra-entity transfer of intellectual property rights to the United Kingdom resulting in a deferred tax benefit of $187.0 million. The Company expects to be able to utilize the deferred tax asset resulting from the intra-entity transfer.
The Company released its valuation allowance on the majority of its net operating losses and other deferred tax assets as of December 31, 2018. Starting in 2019, the Company began recording a provision for income taxes on its pre-tax income using anCompany’s effective tax rate approximatingof 8% for the three months ended March 31, 2020 was lower than the U.S. statutory rates. Duerate primarily due to a discrete benefit related to the Company's abilitywrite-off of a long-term intercompany receivable and excess tax benefits related to offset its pre-tax income against previously benefited net operating losses and credits, it expects a portion of its tax provision to represent a non-cash expense until its net operating losses and credits have been fully utilized.stock-based compensation.
The Company maintained a valuation allowance of $205.2 million related primarily to U.S. state and foreign tax attributes as of December 31, 2019. On a periodic basis, the Company reassesses any valuation allowances that it maintains on its deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets.
In March As of December 31, 2020, the Coronavirus Aid, ReliefCompany maintained a valuation allowance of $213.8 million related primarily to U.S. state and Economic Securityforeign tax attributes.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
As part of the Tax Cut and Jobs Act (the “CARES Act”of 2017, the Company is subject to a territorial tax system in which the requirement is to establish an accounting policy in providing for tax on Global Intangible Low Taxed Income (“GILTI”) was signed into law. The CARES Act includes provisions relating to several aspects of corporate income taxes.earned by certain foreign subsidiaries. The Company does not currently expecthas elected to treat the CARES Act to haveimpact of GILTI as a significant impact oncurrent tax expense in its provision for income taxes; however, it will continue to monitor the provisions of the CARES Act in relation to its operations.taxes.
The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the benefits recognized in the consolidated financial statements. As of June 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had $68.4$81.8 million and $33.9$75.8 million, respectively, of grossnet unrecognized tax benefits, which would affect the Company’s tax rate if recognized. The Company does not expect that its unrecognized tax benefits will materially increasechange within the next twelve months. The Company accrues interest and penalties related to unrecognized tax benefits as a component of its provision for income taxes. The Company did not recognize any material interest or penalties related to uncertain tax positions during the three and six months ended June 30, 2020March 31, 2021 and 2019.2020.
As of June 30, 2020,March 31, 2021, foreign earnings, which were not significant, have been retained by foreign subsidiaries for indefinite reinvestment. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to withholding taxes payable to the various foreign countries.
The Company files U.S. federal income tax returns and income tax returns in various state, local and foreign jurisdictions. The Company is no longer subject to any tax assessment from an income tax examination in the United StatesU.S. or any other major taxing jurisdiction for years before 2011, except where the Company has net operating losses or tax credit carryforwards that originate before 2011. The Company has various income tax audits ongoing at any time throughout the world. No significant adjustments have been reported for any jurisdiction under audit.

L.Commitments and Contingencies
Revolving Credit FacilityFacilities
In September 2019, theThe Company and certain of its subsidiaries have entered into a Credit Agreement2 credit agreements (the “2019 Credit Agreement”“Credit Agreements”) with Bank of America, N.A., as administrative agent and the lenders referred to therein.therein (the “Lenders”). The 2019 Credit Agreement provides for a $500.0 million unsecured revolving facility, which wasAgreements were not drawn upon at closing.closing and the Company has not drawn upon them to date. Amounts drawn pursuant to the 2019 Credit Agreement,Agreements, if any, maywill be used to finance the Company’s working capital needs, and for general corporate or other lawful purposes. The Company had 0 borrowings outstanding under the 2019 Credit Agreement as of June 30, 2020 and December 31, 2019. The 2019 Credit Agreement also provides that, subject to satisfaction of certain conditions, the Company may request that the borrowing capacity under the 2019 Credit Agreement be increased by an additional $500.0 million. The 2019 Credit Agreement, which matures on September 17, 2024, superseded the Company’s credit agreement entered into in 2016 with Bank of America, N.A serving in the same capacity. Additionally, the 2019 Credit Agreement provides a sublimit of $50.0 million for letters of credit.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
Direct costs related to the 2019 Credit Agreement, which were not material to the Company’s financial statements, were deferred and will be recorded over the term of the 2019 Credit Agreement.
Any amounts borrowed under the 2019 Credit AgreementAgreements will bear interest, at the Company’s option, at either a base rate or a Eurocurrency rate, in each case plus an applicable margin. Under the 2019 Credit Agreement, the applicable margins on base rate loans range from 0.125% to 0.50% and the applicable margins on Eurocurrency loans range from 1.125% to 1.50%, in each casemargin based on the Company’s consolidated leverage ratio (the ratio of the Company’s total consolidated funded indebtedness to the Company’s consolidated EBITDA for the most recently completed four fiscal quarter period).
In September 2019, the Company and certain of its subsidiaries entered into a $500.0 million unsecured revolving facility (the “2019 Credit Agreement”) with the Lenders, which matures on September 17, 2024. Under the 2019 Credit Agreement, the applicable margins on base rate loans range from 0.125% to 0.500% and the applicable margins on Eurocurrency loans range from 1.125% to 1.500%. The 2019 Credit Agreement provides a sublimit of $50.0 million for letters of credit.
In September 2020, the Company and certain of its subsidiaries entered into a $2.0 billion unsecured revolving facility (the “2020 Credit Agreement”) with the Lenders, which matures on September 18, 2022. Under the 2020 Credit Agreement, the applicable margins on base rate loans range from 0.500% to 0.875% and the applicable margins on Eurocurrency loans range from 1.500% to 1.875%. The 2020 Credit Agreement does not support letters of credit.
Subject to satisfaction of certain conditions, the Company may request that the borrowing capacity for each of the Credit Agreements be increased by an additional $500.0 million. Any amounts borrowed pursuant to the 2019 Credit AgreementAgreements are guaranteed by certain of the Company’s existing and future domestic subsidiaries, subject to certain exceptions.
The 2019 Credit Agreement containsAgreements contain customary representations and warranties and affirmative and negative covenants, including financial covenants to maintain (i)(x) 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 and (ii)(y) a consolidated interest coverage ratio (the ratioof

18
Table of the Company’s consolidated EBITDAContents
VERTEX PHARMACEUTICALS INCORPORATED
Notes to its consolidated interest expenses for the most recently completed four fiscal quarter period) of Condensed Consolidated Financial Statements (unaudited)
2.50 to 1.00, in each case measured on a quarterly basis. As of March 31, 2021, the Company was in compliance with the covenants described above. The 2019 Credit AgreementAgreements also containscontain 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. As
Direct costs related to the Credit Agreements, which were not material to the Company’s financial statements, were deferred and recorded over the term of June 30, 2020, the Company was in compliance with the covenants described above.Credit Agreements.
Guaranties and Indemnifications
As permitted under Massachusetts law, the Company’s Articles of Organization and By-laws provide that the Company will indemnify certain of its officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchased directors’ and officers’ liability insurance policies that could reduce its monetary exposure and enable it to recover a portion of any future amounts paid. NaN indemnification claims currently are outstanding, and the Company believes the estimated fair value of these indemnification arrangements is minimal.
The Company customarily agrees in the ordinary course of its business to indemnification provisions in agreements with clinical trial investigators and sites in its drug development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreements involving parties performing services for the Company and its real estate leases. The Company also customarily agrees to certain indemnification provisions in its drug discovery, development and commercialization collaboration agreements. With respect to the Company’s clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal injury or property damage, violations of law or certain breaches of the Company’s contractual obligations arising out of the research or clinical testing of the Company’s compounds or drug candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by the Company, to violations of law by the Company or to certain breaches of the Company’s contractual obligations. The indemnification provisions appearing in the Company’s collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited indemnification for its collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although the Company believes the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these provisions is generally unlimited. The Company has purchased insurance policies covering personal injury, property damage and general liability that reduce its exposure for indemnification and would enable it in many cases to recover all or a portion of any future amounts paid. The Company has never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal.

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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements
(unaudited)
Other Contingencies
The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingent liabilities when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. There were 0 material contingent liabilities accrued as of June 30, 2020March 31, 2021 or December 31, 2019.2020.


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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)
M.Additional Cash Flow Information
The cash, cash equivalents and restricted cash at the beginning and ending of each period presented in the Company’s condensed consolidated statements of cash flows consisted of the following:
Six Months Ended June 30,Three Months Ended March 31,
2020201920212020
Beginning of periodEnd of periodBeginning of periodEnd of periodBeginning of periodEnd of periodBeginning of periodEnd of period
(in thousands)(in thousands)
Cash and cash equivalentsCash and cash equivalents$3,109,322  $4,831,332  $2,650,134  $3,294,684  Cash and cash equivalents$5,988,187 $6,304,330 $3,109,322 $3,593,412 
Prepaid expenses and other current assetsPrepaid expenses and other current assets8,004  4,368  4,910  6,962  Prepaid expenses and other current assets658 8,577 8,004 8,552 
Other assetsOther assets3,355  —  3,209  —  Other assets0 0 3,355 0 
Cash, cash equivalents and restricted cash per statement of cash flows$3,120,681  $4,835,700  $2,658,253  $3,301,646  
Cash, cash equivalents and restricted cash per condensed consolidated statement of cash flowsCash, cash equivalents and restricted cash per condensed consolidated statement of cash flows$5,988,845 $6,312,907 $3,120,681 $3,601,964 


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VERTEX PHARMACEUTICALS INCORPORATED
Notes to Condensed Consolidated Financial Statements (unaudited)


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Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
We invest in scientific innovation to create transformative medicines for people with serious diseases with a focus on specialty markets. We have four approved medicines to treat cystic fibrosis, or CF, a life-threatening genetic disease, and are focused on expandingincreasing the number of people with CF patients eligible forand able to receive our medicines.current medicines through label expansions, approval of new medicines and expanded reimbursement. We are broadening our pipeline into additional disease areas through internal research efforts and accessing external innovation through business development transactions.
In October 2019, TRIKAFTA (elexacaftor/tezacaftor/ivacaftor and ivacaftor), our triple-combinationOur triple combination regimen, TRIKAFTA/KAFTRIO, was approved by the U.S. Food and Drug Administration, or FDA, for the treatment of patients with CF 12 years of age and older who have at least one F508del mutationin 2019 in the cystic fibrosis transmembrane conductance regulator,United States, or CFTR, gene. Approval of TRIKAFTAU.S., and in 2020 in the U.S. increased the number of CF patients eligible for our medicines by approximately 6,000 and provided an additional treatment option for many patients who are also eligible for one of our previously approved products.European Union, or E.U. Collectively, our four medicines are currently approved to treat approximately 60%the majority of the 75,000approximately 83,000 people with CF patients in North America, Europe and Australia. We are seeking approval from the European Commission for our triple combination regimen for patients with CF 12 years of age and older with specific mutations in their CFTR gene. If our triple combination is approved by the European Commission, up to 10,000 patients will be newly eligible for our medicines. We are evaluating our triple combinationmedicines in additional patient populations, including younger patientschildren, with the goal of having small molecule treatments for up to 90% of patientspeople with CF. We are also pursuing genetic therapies to address the remaining 10% of CF patients.people with CF.
Beyond CF, ourwe continue to research and develop small molecule programs include programs focused on developing treatmentsdrug candidates for the treatment of serious diseases, including alpha-1 antitrypsin, or AAT, deficiency, APOL1-mediated kidney diseases and pain. We are also focused on developing cell and genetic therapies for various diseases in our pipeline, including sickle cell disease, or SCD, beta thalassemia, type 1 diabetes, or T1D, Duchenne muscular dystrophy, or DMD, myotonic dystrophy, or DM1, and CF. We are evaluating CTX001, a genetic therapy, as a potential treatment for sickle cell disease, or SCD and transfusion-dependent beta thalassemia, or TDT, the most severe form of beta thalassemia, in Phase 1/2 clinical trials in collaboration with CRISPR Therapeutics AG, or CRISPR. In 2019, through a series of strategic transactions,T1D, we acquired preclinical programs to develop cell-based therapies for type 1 diabetes, or T1D, and preclinical genetic therapyare pursuing two programs for Duchenne muscular dystrophy, or DMD,the transplant of functional islets into patients: transplantation of islet cells alone, using immunosuppression to protect the implanted cells, and myotonic dystrophy type 1, or DM1.implantation of the islet cells inside a novel immunoprotective device.
Financial Highlights
Revenues
In the secondfirst quarter of 2020,2021, our net product revenues continued to increase due to the approvaluptake of KAFTRIO in Europe and continued performance of TRIKAFTA in late 2019 and uptake of our medicines in ex-U.S. markets following completion of reimbursement agreements in 2019.the U.S.

Expenses
Our combinedtotal R&D and SG&A expenses increased to $612.7$648.1 million in the secondfirst quarter of 2020 from $535.62021 as compared to $630.8 million in the secondfirst quarter of 2019.2020. In the secondfirst quarter of 2020,2021, cost of sales was 12%approximately 11% of our net product revenues.


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Balance Sheet
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Business Updates
Cystic Fibrosis
TRIKAFTA/KAFTRIO (elexacaftor in combinationWe expect to continue to grow our CF business by increasing the number of people with tezacaftorCF eligible and ivacaftor)able to receive our medicines.
Since the beginning of 2021, we have made the following progress with respect to our CF business.
•InThe Australian Therapeutic Goods Administration approved the U.S., mostuse of the approximately 18,000 eligible patients 12 years of ageTRIKAFTA (elexacaftor/tezacaftor/ivacaftor and older have initiated treatment with TRIKAFTA following its approval in October 2019.
•In June 2020, the European Medicines Agency’s Committeeivacaftor) for Medicinal Products for Human Use, or CHMP, adopted a positive opinion for our triple combination, which we intend to market as KAFTRIO in Europe if approved. This opinion was based on the Marketing Authorization Application, or MAA, we submitted to the European Medicines Agency, or EMA, in 2019 and is for the treatment of patients with CF 12 years of age and older with one F508del mutation and one minimal function mutation or two F508del mutations. The CHMP’s positive opinion will be reviewed by the European Commission, which has the authority to approve the MAA.
•In June 2020, we expanded our reimbursement agreement with the National Health Service, or NHS, England to include KAFTRIO, subject to approval of the medicine. If approved, KAFTRIO will be available to patients with CF in England 12 years of age and older with one F508del mutation and one minimal function mutation or two F508del mutations.
•In July 2020, we announced positive Phase 3 clinical trial results for TRIKAFTA in patients with CF 12 years and older who have one copy of the F508del mutation and one gating or residual function mutation. In the U.S., this clinical trial was a post-marketing commitment and TRIKAFTA is already approved for use in patientspeople with CF 12 years of age and older who have at least one copy of the F508del mutation, which includes the populations evaluated in this clinical trial. The data from this clinical trial will be submitted to the EMA to support a potential indication expansion of the European Union, or EU, label, after initial approval has been granted for our triple combination.mutation.
•Data fromWe filed our Phase 3 clinical trial evaluatingpost-marketing application with the useEuropean Medicines Agency, or EMA, for the expanded indication of our triple combination regimen inKAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor)to include children with CF 6 to 11 years of age with CF who have two copies of the age.F508del mutation or who have one F508del mutation and one minimal function mutation is expected in the second half of 2020. If the data from this clinical trial is positive, we plan to submit a supplemental New Drug Application, or sNDA, to the FDA in the fourth quarter of 2020 for children 6 to 11 years of age with at least one F508del mutation, followed by regulatory submissions in other countries.
SYMDEKO/SYMKEVI (tezacaftor in combination with ivacaftor)
•The EMA reviewTRIKAFTA/KAFTRIO is now approved and reimbursed or accessible in 12 countries outside the U.S., including Denmark, Germany, Ireland, Israel, Switzerland and the countries within the UK.
Pipeline
We continue to advance a pipeline of potentially transformative small molecule, cell and genetic therapies aimed at serious diseases. Since the application for usebeginning of SYMKEVI2021, we have made the following progress in children 6 through 11 years of age in Europe is ongoing. If approved, this will be the first CFTR modulator to treat patients 6 through 11 years of age with residual function mutations in the EU.
KALYDECO (ivacaftor)
•In June 2020, the European Commission granted approval of the label extension for KALYDECO for treatment in patients six months of age and older who have the R117H mutation.
Pipelineactivities supporting these efforts.
Beta Thalassemia and Sickle Cell Disease
•In June 2020, weWe and our collaborator, CRISPR, provided new clinical data atare evaluating the European Hematology Association Congress fromuse of a non-viral ex vivo CRISPR gene-editing therapy for the two ongoing Phase 1/2treatment of TDT and SCD. This approach aims to edit a person’s hematopoietic stem cells to produce fetal hemoglobin in red blood cells, which has the potential to reduce or eliminate symptoms associated with the diseases.
•To date, more than 30 patients have been dosed in the clinical trials of the investigational CRISPR/Cas9 gene-editingto evaluate CTX001 as a potential one-time curative therapy CTX001 in patients with TDT and in patientsfor people with severe SCD. Data from two TDT patients demonstrated clinical proof-of-concept for CTX001 in this disease. Longer duration data from one SCD patient showed a durable effect on HbF levels and the patient was free of vaso-occlusive crises. Screening, enrollment and mobilization of these trials is ongoing; conditioningTDT. Enrollment and dosing are ongoing in boththese clinical trials, have been resumed following temporary pauses related to the spread of the novel coronavirus, or COVID-19. We and CRISPRwe expect to report data from additional patientscomplete enrollment in the second half of 2020.2021.

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Table of ContentsIn April, the EMA granted Priority Medicines Designation to CTX001 for TDT.
Alpha-1 Antitrypsin Deficiency
•We are evaluating multiple compounds with the potential to correct the misfolding of Z-AAT protein in the liver, in order to increase the systemic levels of functional AAT in the blood.AAT. Misfolded Z-AAT protein is the root cause of AAT deficiency.deficiency and our small molecule corrector program targets both the liver and lung manifestations of the disease.
•Enrollment and dosing have been re-initiated at some but not all sites following a temporary COVID-19-related pausePatients enrolled in a Phase 2 proof-of-concept clinical trial designed to evaluate the levels of circulating, functional AAT protein after treatment with VX-814. We expect data from this clinical trial at the end of 2020 or in the first quarter of 2021.
•In July 2020, we initiated a Phase 2 proof-of-concept clinical trial for a secondthe Z-AAT corrector, VX-864.VX-864, have completed the 28-day dosing period. This clinical trial includes a 28-day safety follow-up period that is ongoing. We expect results from this clinical trial in the second quarter of 2021.
APOL1-Mediated Kidney Diseases
•We are evaluating the potential of inhibitors of APOL1 function to reduce proteinuria in people with seriousAPOL1-mediated kidney disease,diseases, including focal segmental glomerulosclerosis, or FSGS.
•Enrollment is underway at multiple clinical trial sitesongoing in a Phase 2 proof-of-concept clinical trial designed to evaluate the reduction ofin proteinuria in people with APOL1-mediated FSGS after treatment with VX-147. We expect results from this clinical trial in the second half 2021.
Type 1 Diabetes
•We are developingevaluating a cell therapy designed to replace insulin-producing islet cells in patientspeople with T1D. Two opportunities existWe are pursuing two programs for the transplant of these fully-differentiated functional islets into patients: transplantation of islet cells alone, using immunosuppression to protect the implanted cells, and implantation of the islet cells inside a novel immunoprotective device.

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•In March, the U.S. Food and Drug Administration, or FDA, granted Fast Track Designation and we initiated a Phase 1/2 clinical trial evaluating VX-880, our islet cells alone program. This clinical trial involves an infusion of fully differentiated, functional islet cells, and chronic administration of concomitant immunosuppressive therapy, to protect the islet cells from immune rejection.
Pain
•We plan to submit an IND applicationare evaluating selective small molecule inhibitors of NaV1.8, a genetically validated, novel target for the treatment of pain, with the goal of preventing pain signals traveling from the sensory nerves to the FDAcentral nervous system. We have previously demonstrated clinical proof-of-concept with a small molecule investigational treatment targeting NaV1.8, VX-150, in multiple pain indications including acute pain, neuropathic pain and musculoskeletal pain.
•Our selective NaV1.8 inhibitor, VX-548, demonstrated favorable safety, tolerability and pharmacokinetic profiles in Phase 1 clinical trials. In these clinical trials, the molecule exhibited a favorable profile at doses considerably lower than those required with our previous NaV1.8 inhibitors.
•We expect to advance VX-548 into Phase 2 proof-of-concept clinical trials for acute pain in the second half of 2021.
Investments in External Innovation
•In April, we amended our collaboration with CRISPR for the first program (transplantationCTX001 programs in TDT and SCD. Under the terms of islet cells alone) in late 2020the revised collaboration agreement, we will lead worldwide development, manufacturing and commercialization of CTX001. Under the revised collaboration agreement, 60% of the net profits and net losses for CTX001 will be allocated to support evaluationus and 40% of this potential therapy in patientsthe net profits and net losses for CTX001 will be allocated to CRISPR. In connection with T1D.the closing of the transaction, we will pay a $900.0 million upfront payment to CRISPR and an additional one-time $200.0 million milestone payment upon regulatory approval of CTX001.
•In April, we entered into a research collaboration with Obsidian Therapeutics, Inc., or Obsidian, aimed at the discovery of novel therapies that regulate gene-editing for the treatment of serious diseases. This collaboration enables us to leverage Obsidian’s cytoDRiVE® platform technology to discover gene-editing medicines whose therapeutic activity can be precisely controlled using small molecules.
COVID-19
We continue to monitor the impacts of the COVID-19 global pandemic on our business. COVID-19 has not affected our supply chain or the demand for our medicines, and we believe that we will be able to continue to supply all of our approved medicines to our patients globally. We have adjusted our business operations in response to COVID-19, with a majority of our employees continuing to work remotely. In addition, we have re-initiated enrollmentWe continue to monitor local COVID-19 trends and dosing ingovernment guidance for each of our site locations, and are utilizing a phased, site-specific approach to assess employee access to our sites. Currently, all of our ongoing clinical trialsresearch and initiated new clinical trials despite some temporary pausesmanufacturing sites are open to enrollmentessential employees, as permitted by local laws. To provide a safe working environment for our on-site employees, we have, among other things, limited employee numbers at our open sites and dosing caused by COVID-19.increased safety measures, including at home and on-site testing in the U.S., enhanced cleaning and sanitation protocols, required use of personal protective equipment for all on-site employees, hand sanitation stations throughout our open sites and implementation of various social distancing measures while on-site.
Research
We continue to invest in our research programs and foster scientific innovation in order to identify and develop transformative medicines. Our strategy is to combine transformative advances in the understanding of human disease and the science of therapeutics in order to identify and develop new medicines. We believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug 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.

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Drug Discovery and Development
Discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Potential drug candidates are subjected to rigorous evaluations, driven in part by stringent regulatory considerations, designed to generate information concerning efficacy, side effects, proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product. Most chemical compounds that are investigated as potential drug candidates never progress into development, and most drug candidates that do advance into development never receive marketing approval. Because ourOur investments in drug candidates are subject to considerable risks, werisks. We closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific, business and commercial insights,

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with the objective of balancing risk and potential. This process can result in abruptrapid 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. For example, in 2020, we discontinued development of VX-814, a drug candidate for the treatment of AAT deficiency, based on the safety and pharmacokinetic profile of VX-814 observed in a Phase 2 clinical trial.
If we believe that data from a completed registration program support approval of a drug candidate, we submit an NDA or BLA to the FDA requesting approval to market the drug candidate in the United StatesU.S. and seek analogous approvals from comparable regulatory authorities in jurisdictions outside the United States.U.S. To obtain approval, we must, among other things, demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities, processes and controls for the manufacture of the drug candidate are adequate. The FDA and ex-U.S. regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease, and could delay, limit or deny regulatory approval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for the drug candidate involved will be harmed.
Regulatory Compliance
Our marketing of pharmaceutical products is subject to extensive and complex laws and regulations. We have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems and through the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various U.S. federal and state laws, and comparable laws in other jurisdictions, pertaining to health care fraud and abuse, including anti-kickback and false claims laws, and laws prohibiting the promotion of drugs for unapproved or off-label uses. Anti-kickback laws generally make it illegal for a prescription drug manufacturer to knowingly and willfully solicit, offer, receive or pay any remuneration in return for or to induce the referral of business, including the purchase or prescription of a particular drug that is reimbursed by a state or federal health care program. False claims laws prohibit anyone from knowingly or willfully presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. We are subject to laws and regulations that regulate the sales and marketing practices of pharmaceutical manufacturers, as well as laws such as the U.S. Foreign Corrupt Practices Act, which govern our international business practices with respect to payments to government officials. In addition, we are subject to various data protection and privacy laws and regulations in the U.S., E.U., U.K., Canada, Australia and other jurisdictions. We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs globally.
Reimbursement
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. We dedicate substantial management and other resources in order 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 in order to promptly obtain appropriate levels of reimbursement for our CF medicines. 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

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individual states, to ensure that payors recognize the significant benefits that our medicines provide by treating the underlying cause of CF and continue to provide access to our medicines.
In Europe and other ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country basis. This is necessary for each new medicine, as well as for label expansions for our current medicines in most countries.medicines. We successfully obtained reimbursement for KALYDECO in each significant ex-U.S. market within two years of approval, but experienced significant challenges in obtaining reimbursement for ORKAMBI in certain ex-U.S. markets. With the completion of reimbursement discussions in England and France in 2019, we have reimbursement for ORKAMBI or SYMKEVI in most of our significant ex-U.S. markets. In addition, in several ex-U.S. markets, including England, Ireland, Denmark and Australia, our reimbursement agreements include innovative arrangements that provide a pathway to access and rapid reimbursement for certain future CF medicines. For example, our existing reimbursement agreements in England, Ireland, and IrelandDenmark have been expanded to include our triple combination regimen pending approval by the European Commission.KAFTRIO. We expect to continue to focus significant resources to obtain appropriate reimbursement for our products in ex-U.S. markets.

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Strategic Transactions
Acquisitions
As part of our business strategy, we seek to acquire drugs, drug candidates and other technologies and businesses that have the potential to complement our ongoing research and development efforts. In 2019, we invested significantly in business development transactions designed to augment our pipeline, including the acquisition of Semma Therapeutics, Inc., or Semma, a privately-held company focused on the use of stem cell-derived human islets as a potentially curative treatment for T1D, and Exonics Therapeutics, Inc., or Exonics, a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including DM1. In the Semma acquisition, we paid approximately $950.0 million in cash to Semma equity holders. In the Exonics acquisition, we paid approximately $245.0 million upfront to Exonics equity holders and agreed to additional payments based upon successful achievement of specified development and regulatory milestones. We expect to continue to identify and evaluate potential acquisitions thatand may be similar toinclude larger transactions or different from the transactions that we have engaged in previously.
Both of our 2019 acquisitions were accounted for as business combinations.  As of the acquisition date for each transaction, the cash payments, as well as the fair value of contingent consideration for Exonics, were allocated primarily to goodwill and the fair value of several in-process research and development assets that we acquired.  The fair value of contingent consideration related to Exonics was recorded as a liability and will be adjusted on a quarterly basis in the future.  As a result, these acquisitions are primarily reflected in additional assets and liabilities on our condensed consolidated balance sheet.  Please refer to Note C, “Acquisitions,” and our critical accounting policies, “Acquisitions,” in our 2019 Annual Report on Form 10-K for further information regarding the significant judgments and estimates related to our 2019 acquisitions.later-stage assets.
Collaboration and Licensing Arrangements
We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of drugs, drug candidates and other technologies that have the potential to complement our ongoing research and development efforts. 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.
In-License Agreements
We have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license drug candidates or technologies that enhance our pipeline and/or our research capabilities. Over the last several years, we entered into collaboration agreements with a number of companies, including Affinia Therapeutics, Inc., Arbor Biotechnologies, Inc., CRISPR, Kymera Therapeutics, Inc., Moderna, Inc., Molecular Templates, Inc., Obsidian, and Molecular Templates,Skyhawk Therapeutics, Inc. Generally, when we in-license a technology or drug 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 research and development expenses; however, depending on many factors, including the structure of the collaboration, the significance of the in-licensed drug candidate to the collaborator’s operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly. In the first halfquarter of 20202021 and 2019,2020, our research and development expenses included $63.3$1.7 million and $57.6$36.3 million, respectively, related to upfront and milestones payments pursuant to our collaboration agreements.
Joint Development and Commercialization Agreement with CRISPR
In 2017, we entered into a joint development and commercialization agreement, or JDCA, with CRISPR pursuant to which we are co-developing and preparing to co-commercialize CTX001 for TDT and SCD. This JDCA was entered into following our exercise of an option to co-develop and co-commercialize the hemoglobinopathies program that was contained in the collaboration agreement that we entered into with CRISPR in 2015.
In April 2021, we and CRISPR entered into an amended and restated joint development and commercialization agreement, or A&R JDCA. Under the terms of the A&R JDCA, we will lead worldwide development, manufacturing and commercialization of CTX001. Additionally, 60% of the net profits and net losses for CTX001 will be allocated to us and

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40% of the net profits and net losses for CTX001 will be allocated to CRISPR. In connection with the closing of the transaction, we will pay a $900.0 million upfront payment to CRISPR and an additional one-time $200.0 million milestone payment upon regulatory approval of CTX001. The closing of the transaction contemplated by the A&R JDCA is subject to certain conditions including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act and any other required antitrust clearance. We expect to record the $900.0 million upfront payment to “Research and development expenses” upon closing of the transaction contemplated by the A&R JDCA.
Out-License Agreements
We also have out-licensed internally developed programs to collaborators who are leading the development of these programs. These out-license arrangements include our agreementsagreement with Janssen Pharmaceuticals, Inc., or Janssen, which is evaluating pimodivir in Phase 3 clinical trials for the treatment of influenza; and Merck KGaA, Darmstadt, Germany, which licensed oncology research and development programs from us in early 2017. Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development and commercialization costs associated with these programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur

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significant expenses in connection with these programs and have the potential for future collaborative and royalty revenues resulting from these programs.
Please refer to Note C, “Collaborative Arrangements,” for further information regarding our in-license agreements and out-license agreements.
Strategic Investments
In connection with our business development activities, we have periodically made equity investments in our collaborators. As of June 30, 2020,March 31, 2021, we held strategic equity investments in public companies including CRISPR, and certain private companies, and we plan to make additional strategic equity investments in the future. While we invest the majority of our cash, cash equivalents and marketable securities in instruments that meet specific credit quality standards and limit our exposure to any one issue or type of instrument, our strategic investments are maintained and managed separately from our other cash, cash equivalents and marketable securities. Any changes in the fair value of equity investments with readily determinable fair values (including publicly traded securities such as CRISPR)securities) are recorded to other income (expense), net in our condensed consolidated statement of operations. For equity investments without readily determinable fair values including equity investments in private companies, each reporting period we are required to re-evaluate the carrying value of the investment, which may result in other income (expense).
In the first halfquarter of 20202021 and 2019,2020, we recorded within other income (expense), net gainslosses of $65.1$52.3 million and $100.1$44.9 million, respectively, related to changes in the fair value of our strategic investments, and from sales of certain equity investments. As of March 31, 2021, the fair value of our investments in publicly traded companies was $143.5 million. To the extent that we continue to hold strategic investments, particularly strategic investments in publicly traded companies, we will record other income (expense) related to these strategic investments on a quarterly basis. Due to the increased volatility of the global markets, including as a result of COVID-19, and the high volatility of stocks in the biotechnology industry, we expect the value of these strategic investments to fluctuate and that the increases or decreases in the fair value of these strategic investments will continue to have material impacts on our net income (expense) and our profitability on a quarterly and/or annual basis.

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RESULTS OF OPERATIONS
Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands, except percentages)(in thousands, except percentages and per share amounts)
RevenuesRevenues$1,524,485  $941,293  $583,192  62 %$3,039,592  $1,799,728  $1,239,864  69 %Revenues$1,724,305 $1,515,107 $209,198 14 %
Operating costs and expensesOperating costs and expenses806,452  671,333  135,119  20 %1,601,335  1,252,960  348,375  28 %Operating costs and expenses836,479 794,883 41,596 5 %
Income from operationsIncome from operations718,033  269,960  448,073  166 %1,438,257  546,768  891,489  163 %Income from operations887,826 720,224 167,602 23 %
Other non-operating income, net106,737  57,178  49,559  87 %44,047  100,535  (56,488) (56)%
(Benefit from) provision for income taxes(12,500) 59,711  ****42,281  111,245  (68,964) (62)%
Other non-operating expense, netOther non-operating expense, net(66,866)(62,690)(4,176)7 %
Provision for income taxesProvision for income taxes167,822 54,781 113,041 206 %
Net incomeNet income$837,270  $267,427  $569,843  213 %$1,440,023  $536,058  $903,965  169 %Net income$653,138 $602,753 $50,385 8 %
Net income per diluted common shareNet income per diluted common share$3.18  $1.03  $5.46  $2.06  Net income per diluted common share$2.49 $2.29 
Diluted shares used in per share calculationsDiluted shares used in per share calculations263,403  259,822  263,746  260,015  Diluted shares used in per share calculations261,916 263,515 
** Not meaningful
Net Income
Our net income increased in the secondfirst quarter and first half of 20202021 as compared to the secondfirst quarter and first half of 20192020 primarily due to significant increasesincreased revenues resulting from the uptake of KAFTRIO in our revenues, partially offset by increases in our operating expenses. The increase in revenues was primarily due to the U.S. approvalEurope and continued performance of TRIKAFTA in the fourth quarter of 2019. The increases inU.S. Our increased revenues were partially offset by increased operating costs and expenses, were theprimarily as a result of increased cost of sales consistent with increased product revenues, and an increase in the provision for income taxes. The increase in our provision for income taxes was the result of our increased investmentprofitability and a discrete tax benefit recognized in research and development and increased sales, and general and administrative expenses to support our business.the first quarter of 2020 for which there was no corresponding benefit in the first quarter of 2021.
Revenues
Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands)(in thousands, except percentages)
Product revenues, netProduct revenues, net$1,524,485  $940,380  $584,105  62 %$3,039,592  $1,797,633  $1,241,959  69 %Product revenues, net$1,723,305 $1,515,107 $208,198 14 %
Collaborative and royalty revenues—  913  (913) **—  2,095  (2,095) **
Other revenuesOther revenues1,000 — 1,000 **
Total revenuesTotal revenues$1,524,485  $941,293  $583,192  62 %$3,039,592  $1,799,728  $1,239,864  69 %Total revenues$1,724,305 $1,515,107 $209,198 14 %
** Not meaningful** Not meaningful
Product Revenues, Net
Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands, except percentages)(in thousands, except percentages)
TRIKAFTA$917,715  $—  $917,715  **$1,812,948  $—  $1,812,948  **
TRIKAFTA/KAFTRIOTRIKAFTA/KAFTRIO$1,193,217 $895,233 $297,984 33 %
SYMDEKO/SYMKEVISYMDEKO/SYMKEVI171,729  361,832  (190,103) (53)%344,888  682,107  (337,219) (49)%SYMDEKO/SYMKEVI125,049 173,159 (48,110)(28)%
ORKAMBIORKAMBI231,981  316,441  (84,460) (27)%466,119  609,448  (143,329) (24)%ORKAMBI218,697 234,138 (15,441)(7)%
KALYDECOKALYDECO203,060  262,107  (59,047) (23)%415,637  506,078  (90,441) (18)%KALYDECO186,342 212,577 (26,235)(12)%
Total product revenues, netTotal product revenues, net$1,524,485  $940,380  $584,105  62 %$3,039,592  $1,797,633  $1,241,959  69 %Total product revenues, net$1,723,305 $1,515,107 $208,198 14 %
** Not meaningful
In the secondfirst quarter and first half of 2020,2021, our net product revenues increased by $584.1$208.2 million and $1.24 billion, respectively, as compared to the secondfirst quarter and first half of 2019.2020. The increase in totalour net product revenues in the secondfirst quarter and first half of 20202021 was primarily due to the launchuptake of TRIKAFTA,KAFTRIO, which was approved in the United StatesEurope in the fourththird quarter of 2019.2020, and the continued performance of TRIKAFTA in the U.S. Decreases in revenues for our products other productsthan TRIKAFTA/KAFTRIO were primarily the result of patients in the United States switching from these medicines to TRIKAFTA, partially offset by label expansions and expanded access to our medicines in ex-U.S markets.TRIKAFTA/KAFTRIO. In the secondfirst quarter of 2021 and first half of 2020, our net product revenues included $314.2$469.9 million

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and $641.7$327.5 million, respectively, from ex-U.S. markets. In the second quarter and first half of 2019, our net product
Other Revenues
Our other revenues included $240.7were $1.0 million and $458.1 million, respectively, from ex-U.S. markets. Net product revenuesrelated to a collaborative milestone that we earned in the first halfquarter of 2020 were also positively impacted by factors that may not be repeated in future periods, including increased patient inventory levels and compliance and persistence rates of patients who recently initiated treatment with TRIKAFTA.
Collaborative and Royalty Revenues
2021. We did not record any collaborative and royaltyother revenues in the secondfirst quarter and first half of 2020. Our collaborative and royalty revenues were $0.9 million and $2.1 million in the second quarter and first half of 2019, respectively. Our collaborativeother revenues have historically fluctuated significantly from one period to another based on our collaborative out-license activities, and may continue to fluctuate in the future. Our

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future royalty revenues will be dependent on if, and when, our collaborators including Janssen and Merck KGaA, Darmstadt, Germany are able to successfully develop drug candidates that we have out-licensed to them.
Operating Costs and Expenses
``Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)`Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands, except percentages)(in thousands, except percentages)
Cost of salesCost of sales$184,520  $135,740  $48,780  36 %$347,017  $230,832  $116,185  50 %Cost of sales$192,329 $162,497 $29,832 18 %
Research and development expensesResearch and development expenses420,928  379,091  41,837  11 %869,456  718,581  150,875  21 %Research and development expenses455,973 448,528 7,445 2 %
Sales, general and administrative expensesSales, general and administrative expenses191,804  156,502  35,302  23 %374,062  303,547  70,515  23 %Sales, general and administrative expenses192,077 182,258 9,819 5 %
Change in fair value of contingent considerationChange in fair value of contingent consideration9,200  —  9,200  **10,800  —  10,800  **Change in fair value of contingent consideration(3,900)1,600 (5,500)**
Total costs and expensesTotal costs and expenses$806,452  $671,333  $135,119  20 %$1,601,335  $1,252,960  $348,375  28 %Total costs and expenses$836,479 $794,883 $41,596 5 %
** Not Meaningful** Not meaningful
Cost of Sales
Our cost of sales primarily consists of third-party royalties payable on our net sales of our products as well as the cost of producing inventories that corresponded to product revenues for the reporting period, plus the third-party royalties payable on our net sales of our products.period. Pursuant to our agreement with the Cystic Fibrosis Foundation, or CFF, our tiered third-party royalties on sales of TRIKAFTA,TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens.sub-teens, with royalties on sales of TRIKAFTA/KAFTRIO slightly lower than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was approximately 12% and 14%11% in each of the secondfirst quarter of 20202021 and 2019, respectively. Our cost of sales as a percentage of our net product revenues was approximately 11% and 13% in first half of 2020, and 2019, respectively.
Research and Development Expenses
Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands, except percentages)(in thousands, except percentages)
Research expensesResearch expenses$134,138  $144,628  $(10,490) (7)%$291,408  $235,091  $56,317  24 %Research expenses$129,748 $157,270 $(27,522)(17)%
Development expensesDevelopment expenses286,790  234,463  52,327  22 %578,048  483,490  94,558  20 %Development expenses326,225 291,258 34,967 12 %
Total research and development expensesTotal research and development expenses$420,928  $379,091  $41,837  11 %$869,456  $718,581  $150,875  21 %Total research and development expenses$455,973 $448,528 $7,445 2 %
Our research and development expenses include internal and external costs incurred for research and development of our drugs and drug candidates and expenses related to certain technology that we acquire or license through business development transactions. 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 drugs or drug candidates, because the employees within our research and development groups typically are deployed across multiple research and development programs. These internal costs are significantly greater than our external costs, such as the costs of services provided to us by clinical research organizations and other outsourced research, which we allocate by individual program. All research and development costs for our drugs and drug candidates are expensed as incurred.

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Since January 2018,2019, we have incurred approximately $4.0 billion in research and development expenses associated with drug discovery and development. The successful development of our drug 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 drug 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 drug candidates to market are not available.
In 20192020 and the first halfquarter of 2020,2021, costs related to our CF programs represented the largest portion of our development costs. Any estimates regarding development and regulatory timelines for our drug candidates are highly subjective and

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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 June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands, except percentages)(in thousands, except percentages)
Research Expenses:Research Expenses:Research Expenses:
Salary and benefitsSalary and benefits$31,099  $22,498  $8,601  38 %$65,368  $46,877  $18,491  39 %Salary and benefits$34,742 $34,269 $473 1 %
Stock-based compensation expenseStock-based compensation expense26,496  17,138  9,358  55 %52,905  34,673  18,232  53 %Stock-based compensation expense21,002 26,409 (5,407)(20)%
Outsourced services and other direct expensesOutsourced services and other direct expenses21,073  27,622  (6,549) (24)%51,926  50,986  940  2 %Outsourced services and other direct expenses40,106 30,853 9,253 30 %
Collaboration and asset acquisition payments27,000  52,200  (25,200) (48)%63,250  52,200  11,050  21 %
Collaborative paymentsCollaborative payments1,650 36,250 (34,600)(95)%
Infrastructure costsInfrastructure costs28,470  25,170  3,300  13 %57,959  50,355  7,604  15 %Infrastructure costs32,248 29,489 2,759 9 %
Total research expensesTotal research expenses$134,138  $144,628  $(10,490) (7)%$291,408  $235,091  $56,317  24 %Total research expenses$129,748 $157,270 $(27,522)(17)%
We expect to continue to invest in our research programs with a focus on identifying drug candidates with the goal of creating transformative medicines for serious diseases. Our research expenses decreased by 7%have historically fluctuated, and are expected to continue to fluctuate, from one period to another due to upfront and milestone payments related to our business development activities that are reflected in the second quarter of 2020 compared topreceding table as collaborative payments. Our research expenses, excluding these collaborative payments, have been increasing over the second quarter of 2019last several years as we have invested in our pipeline and increased by 24% in the first half of 2020 compared to the first half of 2019. The decrease in the second quarter of 2020 compared to the second quarter of 2019 was primarily due to a decrease in collaboration and asset acquisition payments partially offset by increased expenses to supportexpanded our cell and genetic therapy programs. The increase in the first half of 2020 compared to the first half of 2019 was primarily due to increased expenses to support our cell and genetic therapy programs and an increase in collaboration and asset acquisition payments.

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capabilities.
Development Expenses
Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)Three Months Ended March 31,Increase/(Decrease)
20202019$%20202019$%20212020$%
(in thousands, except percentages)(in thousands, except percentages)
Development Expenses:Development Expenses:Development Expenses:
Salary and benefitsSalary and benefits$68,532  $58,195  $10,337  18 %$148,130  $118,702  $29,428  25 %Salary and benefits$84,530 $79,598 $4,932 6 %
Stock-based compensation expenseStock-based compensation expense43,779  38,494  5,285  14 %90,057  80,674  9,383  12 %Stock-based compensation expense51,800 46,278 5,522 12 %
Outsourced services and other direct expensesOutsourced services and other direct expenses124,898  93,701  31,197  33 %241,331  191,469  49,862  26 %Outsourced services and other direct expenses132,812 116,433 16,379 14 %
Collaboration and asset acquisition payments—  190  (190) **—  5,440  (5,440) **
Infrastructure costsInfrastructure costs49,581  43,883  5,698  13 %98,530  87,205  11,325  13 %Infrastructure costs57,083 48,949 8,134 17 %
Total development expensesTotal development expenses$286,790  $234,463  $52,327  22 %$578,048  $483,490  $94,558  20 %Total development expenses$326,225 $291,258 $34,967 12 %
** Not meaningful
Our development expenses increased by 22% in the second quarter of 2020 as compared to the second quarter of 2019 and increased by 20%12% in the first halfquarter of 20202021 as compared to the first halfquarter of 2019,2020, primarily due to increased expenses related to our advancingdiversifying pipeline, including clinical trials, headcount and infrastructure costs. Upon closing of the transaction contemplated by the A&R JDCA, we expect to record our $900.0 million upfront payment to CRISPR as a development expense.
Sales, General and Administrative Expenses
Three Months Ended June 30,Increase/(Decrease)Six Months Ended June 30,Increase/(Decrease)
20202019$%20202019$%
(in thousands, except percentages)
Sales, general and administrative expenses$191,804  $156,502  $35,302  23 %$374,062  $303,547  $70,515  23 %
Three Months Ended March 31,Increase/(Decrease)
20212020$%
(in thousands, except percentages)
Sales, general and administrative expenses$192,077 $182,258 $9,819 5 %
Sales, general and administrative expenses increased by 23% in the second quarter of 2020 as compared to the second quarter of 2019 and increased by 23%5% in the first halfquarter of 20202021 as compared to the first halfquarter of 2019,2020, primarily due to increased global support for our medicines andthe incremental investment to support the launchcommercialization of our triple combination regimen.medicines and increased support for our CF pipeline products and other disease areas.
Contingent Consideration
In the second quarter and first half of 2020, the increase in theThe fair value of contingent consideration potentially payable to Exonics’ former equity holders was $9.2decreased $3.9 million in the first quarter of 2021 and $10.8increased $1.6 million respectively. There were no similar amounts forin the secondfirst quarter and first half of 2019.2020.

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Other Non-Operating Income (Expense), Net
Interest Income
Interest income decreased from $18.1 million and $33.7$12.6 million in the secondfirst quarter and first half of 2019, respectively,2020 to $4.2 million and $16.8$1.5 million in the secondfirst quarter and first half of 2020, respectively,2021 primarily due to a decrease in prevailing market interest rates.rates despite an increase in our cash equivalents and available-for-sale debt securities. Our future interest income will be dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and marketableavailable-for-sale debt securities.
Interest Expense
Interest expense was $13.9 million and $28.0$15.7 million in the secondfirst quarter and first half of 2020, respectively,2021 as compared to $14.8 million and $29.7$14.1 million in the secondfirst quarter and first half of 2019, respectively.2020. The majority of our interest expense in these periods was related to imputed interest expense associated with our leased corporate headquarters in Boston. Our future interest expense will be dependent on whether, and to what extent, we borrow amounts under our credit facility.

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facilities.
Other Income (Expense), Net
OtherWe recorded expenses of $52.7 million and $61.1 million to other income (expense), net was income of $116.4 million and $55.2 million in the secondfirst quarter of 2021 and first half of 2020, respectively, as compared to income of $53.9 million and $96.5 million in the second quarter and first half of 2019, respectively. Our other income (expense), net in these periods was primarily related to changes in the fair value of our strategic investments, as well as realized gains from sales of certain investments. 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 investments.
Income Taxes
We recorded a benefit from income taxes in the second quarter of 2020 of $12.5 million and aOur provision for income taxes was $167.8 million and $54.8 million in the first halfquarter of 2020 of $42.3 million, respectively, as compared to provisions for income taxes of $59.7 million2021 and $111.2 million in the second quarter and first half of 2019,2020, respectively. Our effective tax rate for the first half of 2020 was lower than the U.S. statutory rate primarily due to a discrete tax benefit of $187.0 million associated with the transfer of intellectual property rights to the United Kingdom in the second quarter of 2020, a discrete tax benefit associated with the write-off of a long-term intercompany receivable in20% for the first quarter of 2020 and excess tax benefits related to stock-based compensation. Our effective tax rate for the first half of 20192021 was lower than the U.S. statutory rate primarily due to excess tax benefits related to stock-based compensation. We released our valuation allowance on the majority of our net operating losses and other deferred tax assets in the fourth quarter of 2018. Starting in 2019, we began recording a provision for income taxes on our pre-tax income using anOur effective tax rate approximatingof 8% for the first quarter of 2020 was lower than the U.S. statutory rates. Duerate primarily due to our abilitya discrete benefit related to offset our pre-tax income against previously benefited net operating lossesthe write off of a long-term intercompany receivable and credits, we expect a portion of ourexcess tax provisionbenefits related to represent a non-cash expense until our net operating losses and credits have been fully utilized.stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the components of our financial condition as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
June 30,December 31,Increase/(Decrease)March 31,December 31,Increase/(Decrease)
20202019$%20212020$%
(in thousands)(in thousands)
Cash, cash equivalents and marketable securitiesCash, cash equivalents and marketable securities$5,450,769  $3,808,294  $1,642,475  43 %Cash, cash equivalents and marketable securities$6,923,968 $6,658,897 $265,071 4 %
Working CapitalWorking CapitalWorking Capital
Total current assetsTotal current assets6,694,320  4,822,829  1,871,491  39 %Total current assets8,539,307 8,133,379 405,928 5 %
Total current liabilitiesTotal current liabilities(1,798,640) (1,334,827) 463,813  35 %Total current liabilities(1,944,050)(1,877,533)66,517 4 %
Total working capitalTotal working capital$4,895,680  $3,488,002  $1,407,678  40 %Total working capital$6,595,257 $6,255,846 $339,411 5 %
As of June 30, 2020,March 31, 2021, total working capital was $4.9$6.6 billion, which represented an increase of $1.4 billion$339 million from $3.5$6.3 billion as of December 31, 2019.2020. The increase in total working capital in the first halfquarter of 20202021 was primarily related to $1.9 billion$921.1 million of cash provided by operations partially offset by $300.0$425.0 million of cash used to repurchase our common stock pursuant to theour share repurchase program that we announced in July 2019.and expenditures for property and equipment of $70.9 million.
Sources of Liquidity
As of June 30, 2020,March 31, 2021, we had cash, cash equivalents and marketable securities of $5.5$6.9 billion, which represented an increase of $1.6 billion$265.1 million from $3.8$6.7 billion as of December 31, 2019.2020. We intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity.
We may borrow up to $500.0 milliona total of $2.5 billion pursuant to ourtwo revolving credit facility that we entered into in 2019.facilities. We may repay and reborrow amounts under thethese revolving credit agreementagreements without penalty. Subject to certain conditions, we may request that the

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borrowing capacity under thisfor each of the credit agreementagreements be increased by an additional $500.0 million, up tofor a total of $1.0 billion.$3.5 billion collectively.
Other possible sources of future liquidity include commercial debt, public and private offerings of our equity and debt securities, strategic sales of assets or businesses and financial transactions. Negative covenants in our credit agreement may prohibit or limit our ability to access these sources of liquidity.

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March 31, 2021, we were in compliance with these covenants.
Future Capital Requirements
We have significant future capital requirements, including:
•significant expected operating expenses to conduct research and development activities and to operate our organization; and
•substantial facility and capitalfinance lease obligations, including leases for two buildings in Boston, Massachusetts that continue through 2028.obligations.
In addition:
•We have entered into certain collaboration agreements with third parties that include the funding of certain research, development and commercialization efforts withefforts. Certain of our business development transactions, including collaborations and 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, and wetargets. We may enter into additional business development transactions, including acquisitions, collaborations and equity investments, that require additional capital.
•We have reached an agreement with the French government and will repay a portion of the amounts we have collected under the ORKAMBI early access programs in France to the French government in the second half of 2020 based on the difference between the invoiced amount and the final amount for ORKAMBI distributed through these programs as reflected in the structure of the agreement with the French government.
•To the extent we borrow amounts under the credit agreementagreements we entered into in 2020 and 2019, we would be required to repay any outstanding principal amounts in 2024.2022 or 2024, respectively.
•AsUpon closing of June 30, 2020, $164.0the transaction contemplated by the A&R JDCA, we will pay a $900.0 million remained availableupfront payment to fund repurchases under our share repurchase program.CRISPR.
We expect that cash flows from our products together with our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months and do not expect COVID-19 to have an adverse effect on our liquidity. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by our products, and the potential introduction of one or more of our other drug candidates to the market, the level of our business development activities and the number, breadth, cost and prospects of our research and development programs.
Financing Strategy
We may 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.

CONTRACTUAL COMMITMENTS AND OBLIGATIONS
Our commitments and obligations were reported in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which was filed with the Securities and Exchange Commission, or SEC, on February 13, 2020. There11, 2021. Except for the following, there have been no material changes from the contractual commitments and obligations previously disclosed in that Annual Report on Form 10-K.10-K:
•Upon closing of the transaction contemplated by the A&R JDCA, we will pay a $900.0 million upfront payment to CRISPR, and CRISPR may earn an additional one-time $200.0 million milestone payment upon receipt of the first marketing approval of CTX001 from the FDA or the European Commission.

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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 United States.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

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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 sixthree months ended June 30, 2020,March 31, 2021, 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, 2019,2020, which was filed with the SEC on February 13, 2020.11, 2021.

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

Item 3.    Quantitative and Qualitative Disclosures About Market Risk
As part of our investment portfolio, we own financial instruments that are sensitive to market risks. The investment portfolio is used to preserve our capital until it is required to fund operations, including our research and development activities. None of these market risk-sensitive instruments are held for trading purposes. We do not have derivative financial instruments in our investment portfolio.
Interest Rate Risk
We invest our cash in a variety of financial instruments, principally securities issued by the U.S. government and its agencies, investment-grade corporate bonds and commercial paper, and money market funds. These investments are denominated in U.S. Dollars. All of our interest-bearing securities are subject to interest rate risk and could decline in value if interest rates fluctuate, including potential fluctuations as a result of COVID-19. Substantially all of our investment portfolio consists of marketable securities with active secondary or resale markets to help ensure portfolio liquidity, and we have implemented guidelines limiting the term-to-maturity of our investment instruments. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. If interest rates were to increase or decrease by 1%, the fair value of our investment portfolio would increase or decrease by an immaterial amount.
In 2019, we entered into a credit agreement. Loans under the credit agreement bear interest, at our option, at either a base rate or a Eurocurrency rate, in each case plus an applicable margin. The applicable margin on base rate loans ranges from 0.125% to 0.50% and the applicable margin on Eurocurrency loans ranges from 1.125% to 1.50%, 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). We do not believe that changes in interest rates related to the credit agreement would have a material effect on our financial statements. As of June 30, 2020, we had no principal or interest outstanding. A portion of our “Interest expense” in 2020 will be dependent on whether, and to what extent, we borrow amounts under the existing facility.
Foreign Exchange Market Risk
As a result of our foreign operations, we face exposure to movements in foreign currency exchange rates, primarily the Euro and British Pound against the U.S. Dollar. Fluctuations in the global markets, including as a result of COVID-19, may have a positive or negative effect on our foreign exchange rate exposure. The current exposures arise primarily from cash, accounts receivable, intercompany receivables and payables, payables and accruals and inventories. Both positive and negative effects to our net revenues from international product sales from movements in exchange rates are partially mitigated by the natural, opposite effect that exchange rates have on our international operating costs and expenses.
We have a foreign currency management program with the objective of reducing the effect of exchange rate fluctuations on our operating results and forecasted revenues and expenses denominated in foreign currencies. We currently have cash flow hedges for the Euro, British Pound, Canadian Dollar and Australian Dollar related to a portion of our forecasted product revenues that qualify for hedge accounting treatment under U.S. GAAP. We do not seek hedge accounting treatment for our foreign currency forward contracts related to monetary assets and liabilities that impact our operating results. As of June 30, 2020, we held foreign exchange forward contracts that were designated as cash flow hedges with notional amounts totaling $931.2 million and had a net fair value of $1.8 million recorded on our condensed consolidated balance sheet.

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Although not predictive in nature, we believe a hypothetical 10% threshold reflects a reasonably possible near-term change in exchange rates. Assuming that the June 30, 2020 exchange rates were to change by a hypothetical 10%, the fair value recorded on our condensed consolidated balance sheet related to our foreign exchange forward contracts that were designated as cash flow hedges as of June 30, 2020 would change by approximately $93.1 million. However, since these contracts hedge a specific portion of our forecasted product revenues denominated in certain foreign currencies, any change in the fair value of these contracts is recorded in “Accumulated other comprehensive loss” on our condensed consolidated balance sheet and is reclassified to earnings in the same periods during which the underlying product revenues affect earnings. Therefore, any change in the fair value of these contracts that would result from a hypothetical 10% change in exchange rates would be entirely offset by the change in value associated with the underlying hedged product revenues resulting in no impact on our future anticipated earnings and cash flows with respect to the hedged portion of our forecasted product revenues.
Equity Price Risk
Information required by this sectionitem is incorporated by reference from the discussion in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the “Strategic Investments” section of this Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”year ended December 31, 2020, which was filed with the SEC on February 11, 2021.

Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management (under the supervision and with the participation of our chief executive officer and chief financial officer), after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q, has concluded that, based on such evaluation, as of June 30, 2020March 31, 2021 our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Controls Over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the three months ended June 30, 2020March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information

Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings.

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Item 1A. Risk Factors
Information regarding risk factors appears in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which was filed with the SEC on February 13, 2020.11, 2021. There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K, except as discussed in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which was filed with the SEC on May 1, 2020 and is being updated below.

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We are subject to risks associated with the spread of the novel strain of coronavirus, or COVID-19.
COVID-19 has broadly affected the global economy, resulted in significant travel and work restrictions in many regions and has put a significant strain on healthcare resources.  COVID-19 has had, and we expect it will continue to have, an impact on our operations and an impact on the operations of our collaborators, third-party contractors and other entities, including governments, governmental agencies and payors, with which we interact. To date, the most significant effect on our business operations has been the requirement that a majority of our employees work remotely.  We have re-initiated enrollment and dosing in all of our ongoing clinical trials and initiated new clinical trials despite some temporary pauses to enrollment and dosing caused by COVID-19. In the future, the economic impacts of the COVID-19 outbreak could affect our business directly or indirectly, including potentially affecting the net prices for our products through changes in our payor mix as a result of increased unemployment in the United States or increased pressure on healthcare costs. The effects on our research, development, manufacturing and commercialization activities will be dependent on, among other things, the severity and duration of the COVID-19 outbreak as well as the impact of the outbreak on our third-party manufacturers, suppliers, distributors, subcontractors and customers. While the ultimate impact of COVID-19 on our business is highly uncertain, any negative impacts that materialize could materially adversely affect our operations, financial performance and stock price.  Any negative impacts of COVID-19, alone or in combination with others, could exacerbate risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019. The full extent to which the COVID-19 outbreak will negatively affect our operations, financial performance and stock price will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the outbreak and actions taken by governmental authorities and other third parties in response to the outbreak.10-K.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and, in particular, our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Part I, Item 2, contain or incorporate a number of forward-looking statements. Forward-looking statements within the meaningare not purely historical and may be accompanied by words such as “anticipates,” “may,” “forecasts,” “expects,” “intends,” “plans,” “potentially,” “believes,” “seeks,” “estimates,” and other words and terms of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, includingsimilar meaning. Such statements regarding:may relate to:
•our expectations regarding the amount of, timing of, and trends with respect to our financial performance, including revenues, costs and expenses and other gains and losses, including those related to net product revenues;
•our expectations regarding the effect of COVID-19 on, among other things, our financial performance, liquidity, business and operations, including manufacturing, supply chain, research and development activities and pipeline programs;
•our expectations regarding clinical trials, development timelines, regulatory authority filings, submissions and potential approvals and label expansions for ivacaftor, lumacaftor, tezacaftor, elexacaftor, and any combination regimen;
•our ability to obtain reimbursement for our medicines in the U.S. and ex-U.S. markets and our ability to launch, commercialize and market our medicines or any of our other drug candidates for which we obtain regulatory approval;
•our expectations regarding the timing and structure of clinical trials of our drugs, drug candidates and other pipeline programs and the expected timing of our receipt of data from our ongoing and planned clinical trials;
•the data that will be generated by ongoing and planned clinical trials and the ability to use that data to advance compounds, continue development or support regulatory filings;
•our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our drug candidates and other pipeline programs for further investigation, clinical trials or potential use as a treatment;
•our beliefs regarding the number of people with CF and those potentially eligible for our medicines;
•our expectations regarding the potential benefits and commercial potential of our product candidates, including the potential approach to treating specific diseases;
•our plan to continue investing in our research and development programs, including anticipated timelines for our programs, and our strategy to develop our pipeline programs, alone or with third party-collaborators;
•the potential future benefits of our acquisitions and collaborations;collaborations, including our CTX001 collaboration with CRISPR;

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•the establishment, development and maintenance of collaborative relationships, including potential milestone payments or other obligations;
•potential business development activities, including the identification of potential collaborative partners or acquisition targets;
•the timing of the potential closing of the transaction contemplated by the A&R JDCA, including satisfaction of closing conditions, and the future activities of the parties pursuant to the A&R JDCA;

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•our expectation that we will record the $900.0 million upfront payment to CRISPR as a research and development expense upon the closing of the transaction contemplated by the A&R JDCA;
•potential fluctuations in foreign currency exchange rates;
•our expectations regarding our provision for or benefit from income taxes and the utilization of our deferred tax assets;assets, including the impact of the Coronavirus Aid, Relief and Economic Security Act;
•our ability to use our research programs to identify and develop new drug candidates to address serious diseases and significant unmet medical needs; and
•our liquidity and our expectations regarding the possibility of raising additional capital.
AnyForward-looking statements are subject to certain risks, uncertainties, or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn outother factors that are difficult to be wrong. They can be affected by inaccurate assumptionspredict and could cause actual events or by known or unknown risks and uncertainties. Many factors mentioned in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may varyto differ materially from expected results. We also provide a cautionary discussion ofthose indicated in any such statements.These risks, uncertainties, and uncertainties underother factors include, but are not limited to, those described in our “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which was filed with the SEC on February 13, 202011, 2021, and those described from time to time in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which wasfuture reports filed with the SEC on May 1, 2020. These are factorsSecurities and uncertainties that we think could cause our actual results to differ materially from expected results. Other factors and uncertainties besides those listed there could also adversely affect us.Exchange Commission.
Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “intends,” “expects,” “could,” “may,” “potential,” “will,” “estimate” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated byAny such forward-looking statements manyare made on the basis of which are beyond our control. In addition, the forward-looking statements contained herein represent our estimate onlyviews and assumptions as of the date of thisthe filing and shouldare not be relied uponestimates of future performance. Except as representing our estimate as of any subsequent date. Whilerequired by law, we may elect to update these forward-looking statements at some point in the future, we specifically disclaim anyundertake no obligation to do sopublicly update any forward-looking statements. The reader is cautioned not to reflect actual results, changes in assumptions or changes in other factors affectingplace undue reliance on any such forward-looking statements.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Repurchases of Equity Securities
In July 2019,November 2020, our Board of Directors approved a share repurchase program (the “2019“2020 Share Repurchase Program”), pursuant to which we arewere authorized to repurchase up to $500.0 million of our common stock between August 1, 2019 andby December 31, 2020. During the quarter ended June 30, 2020, we did not repurchase any shares of our common stock.2022. As of June 30, 2020,March 31, 2021, we had purchased a totalrepurchased the entire $500.0 million of 1,617,416 shares at a cost of $336.0 millioncommon stock that was authorized under the 20192020 Share Repurchase Program. AsThe table set forth below shows repurchases of June 30,securities by us during the three months ended March 31, 2021 under our 2020 $164.0 million remained available to fund repurchases under the 2019 Share Repurchase Program.
PeriodTotal Number
of Shares Purchased		Average Price
Paid per Share		Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1)		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1)
January 1, 2021 to January 31, 2021— $— — $424,912,410 
February 1, 2021 to February 28, 20211,988,941 $213.64 1,988,941 $— 
March 1, 2021 to March 31, 2021— $— — $— 
Total1,988,941 $213.64 1,988,941 $— 
(1) Under our 20192020 Share Repurchase Program, we arewere authorized to purchase shares from time to time through open market or privately negotiated transactions. Such purchases may bewere made pursuant to Rule 10b5-1 plans or other means as determined by our management and in accordance with the requirements of the Securities and Exchange Commission.

Item 5.     Other Information
As previously announced, Paul Silva, our Senior Vice President and Chief Accounting Officer, retired from the Company on April 30, 2021.
Effective May 1, 2021, Kristen Ambrose, 45, will become our Chief Accounting Officer. Ms. Ambrose has been our Senior Vice President, Accounting, Tax, Treasury, Strategic Sourcing and Corporate Services since March 2021. From February 2003 until she joined the Company, Ms. Ambrose held roles of increasing responsibility at Boston Scientific Corporation, a medical device company, most recently as Vice President of Finance and Controller of the Global Endoscopy Division from July 2019 to March 2021 and as Vice President of Global Internal Audit from February 2017 to June 2019.

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Table of Contents
Prior to Boston Scientific Corporation, Ms. Ambrose served as an accountant at Ernst & Young LLP. She received her B.S. from the University of Virginia and is a Certified Public Accountant.

Item 6.    Exhibits
Exhibit NumberExhibit Description
3.2
Amended and Restated By-Laws of Vertex Pharmaceuticals Incorporated (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed on May 1, 2020).
10.1
Employment Agreement, dated as of April 1, 2020, between Vertex Pharmaceuticals Incorporated and Dr. Jeffrey M. Leiden (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 1, 2020).*
31.1
31.2
32.1
101.INSXBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation
101.LABXBRL Taxonomy Extension Labels
101.PREXBRL Taxonomy Extension Presentation
101.DEFXBRL Taxonomy Extension Definition
104Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
* Management contract, compensatory plan or agreement.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Vertex Pharmaceuticals Incorporated
July 31, 2020April 30, 2021By:/s/ Charles F. Wagner, Jr.
Charles F. Wagner, Jr.
Executive Vice President, Chief Financial Officer
(principal financial officer and
duly authorized officer)

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